As manufacturing moves away from human labor and further into automation, the risks are changing. Robotics, artificial intelligence, computer-automated processes and online-based order brokers have introduced substantial cyber concerns. Manufacturing worker injuries, though decreasing in frequency, still rank fifth across industry sectors for fatalities and fourth for non-fatal incidence, according to the US Bureau of Labor Statistics.
Adding to manufacturers’ risk profile is the growth in frequency of product liability and product recall claims, disruptions in supply chains, and cargo theft. The good news is there are both risk management and risk transfer options that can protect the ongoing viability of your business. Here are the important elements of both approaches.
Property Insurance for Manufacturers
Although huge liability verdicts make headlines and property insurance seems to just plod along, don’t be deceived. Some segments of the manufacturing industry are seeing property insurance price moderation, while others, especially in hazardous materials, high-heat operations, and energy-intensive or heavy equipment production, face intense scrutiny of loss factors before insurance will be placed. If your plant is in Tornado Alley, a coastal zone or a hurricane-prone region, you may find fewer insurers willing to write property coverage or at a minimum higher premiums or deductibles.
Insurers are deeply concerned about fire risk and suppression capabilities and the total insurable value of structures and equipment. Demonstrating that you have actionable policies for fire control and have trained staff on fire prevention and suppression will help you be more attractive to insurers. Know that insurers are increasingly demanding evidence of property value, maintenance records, and proof of loss control policies before issuing coverage. The age of your building, roof and equipment, as well as your location and industry segment, will factor heavily into your insurability and premium.
After the COVID pandemic, inflation and supply chain issues have significantly increased the cost of labor and materials. An important consideration is having the policy provide replacement cost for damaged or destroyed property versus actual cash value, which subtracts wear and tear from the policy reimbursement proceeds.
As part of your property coverage, you may wish to include equipment breakdown insurance (sometimes called boiler and machinery insurance), which provides income if your operations are shuttered due to a covered loss of manufacturing machinery. The standard equipment breakdown policy covers fire, explosion, electrical arcing, lightning, and mechanical failures not due to wear and tear or delayed maintenance.
Business interruption insurance does many of the same things as equipment breakdown insurance, but it goes beyond machinery failure. For example, if a fire or severe convective storm causes property damage that suspends your operations, a business interruption (aka business income) policy will step in with cash flow while repairs are made. You can enhance this policy with endorsements that protect against some supply chain and utility failures. Other policy additions can help pay for temporary accommodations so you can continue operating while your affected property is repaired or replaced. Talk to your insurance agent about which options are most applicable to your business.
A related business interruption consideration is determining the period of time you need the policy to cover. This is known as the “maximum indemnity period” and governs how long the policy will pay. Discussing your situation with your agent will help you select what the appropriate time frame should be to help you get your business back on solid footing.
Cargo insurance is a type of property insurance that falls outside a commercial property policy, requiring stand-alone protection. It insures your product between pickup at your facility and delivery to the seller. You have many options within the broad category of cargo coverage, and your contracts with your logistics providers will heavily impact your insurance decisions. Your insurance agent can review your shipping contracts to help identify coverage gaps and solutions. Theft, damage and total loss are all perils that can be included.
Mobile equipment is another kind of property that isn’t automatically covered under a business property insurance policy for manufacturers. Things like forklifts, cherry pickers, mobile carts, motorized cranes and equipment that moves on its own across the factory floor are all considered mobile equipment, which must be added to your property policy via an inland marine mobile equipment endorsement.
Cyber Insurance for Manufacturers
Though cyber insurance is typically thought of in terms of a data breach, you may be more concerned with a cyber infection that shuts down or otherwise compromises production. These intrusions are quite common and can include malware that damages internet of things devices on your assembly line, reroutes cargo shipments, disables or manipulates robots, tampers with production schedules, or fraudulently misdirects payments.
These all fall under first-party cyber insurance, which helps you recover from an attack on your systems or networks. If your operation includes heavy use of cloud services or internet-based production processes, first-party cyber protection is even more important.
You may also wish to get the additional protection of third-party cyber liability insurance, which steps in if you fail to stop a cyber intrusion and it causes financial damage to customers, suppliers or other business partners. Some third-party cyber coverage is often included in your general liability policy, but it typically isn’t very much in the way of dollars. Talk to your insurance agent about the possibility of adding baseline coverage to a stand-alone cyber policy.
Liability Insurance for Manufacturers
There are numerous types of liability insurance that manufacturers need to consider. All typically help with costs related to legal defense and settlements or judgments, but each is tailored to a specific aspect of company risk, such as visitor or customer injury, harm to the environment, or problems with treatment of employees.
General liability insurance is the primary coverage all businesses acquire. It covers injuries that happen to visitors on your premises and may offer some advertising liability protection.
Product liability insurance is a very important coverage for all manufacturers. If one of your products is alleged to have harmed someone, you may have to pay for medical treatment, injury recovery or lost wages. Product liability insurance will help cover those costs, as well as legal defense and monetary settlements or judgments, and may help pay for forensic investigations and expert witnesses.
Product recall insurance isn’t strictly a liability policy, but it does step in when your company is liable for the cost of notifying customers and distributors of a problem, removing the item from shelves, paying for refunds, and returning and destroying the product.
Employment practices liability insurance is chosen by manufacturers that want financial protection from workplace disputes. Claims can include accusations of discrimination, harassment, wrongful hiring or firing, and hostile work environments.
Environmental liability/pollution liability insurance may be a necessity for some manufacturing segments but should be considered by all. It covers fuel and chemical spills or accidental release of pollutants, though slow, undetected leaks that persist over time due to lack of maintenance or monitoring may be excluded. It can also help pay for legal defense if that becomes necessary.
Employee benefits liability insurance and ERISA bonds are two types of protection manufacturers that offer employee health and retirement plans should carry. An employee benefits liability policy for manufacturers insures the company against claims that errors were made in the management of a benefit plan and caused financial loss to plan members. For example, a benefit manager at your company might erroneously fail to add an employee’s new spouse to a health plan, thereby nullifying that spouse’s coverage and causing the employee to be exposed to medical bills that should have been paid by the plan. An ERISA bond insures against fraud or dishonesty in the execution of benefits plans that are covered under the Employee Retirement Income Security Act, such as a 401(k) plan. ERISA bonds are federally mandated, up to prescribed limits.
Excess liability and commercial umbrella insurance are policies that extend your underlying liability coverage. Excess liability insurance for manufacturers increases the dollar limits of one primary liability policy at a time — for example, environmental liability — while commercial umbrella insurance can extend the limits of multiple liability policies at once. If you want excess liability insurance for more than one primary policy, you can secure multiple excess policies. Each will typically follow the contractual terms of the individual policy that is being enhanced while adding to the dollar limit of coverage.
Workers Compensation Insurance for Manufacturers
Though the manufacturing industry has reduced its incidence of worker injury across the broad spectrum of companies, the sector remains in the top five for fatal and non-fatal employee injuries. A combination of excellence in employee protections and workers compensation insurance can best protect your company from workers comp claims.
Coverage pays for medical care, rehab, return-to-work programs, and some lost wages, and the policy protects your manufacturing company against liability lawsuits unless gross negligence or intentional malfeasance is involved. For manufacturers with a good claims history, insurance premiums are moderating or even falling in some cases, so talk to your insurance agent about presenting a good picture of your company and ensuring your experience modification factor is calculated correctly. Requirements differ by state, but your insurance agent can help you comply with both state and federal worker protection rules. An important consideration in selecting the insurance company is what type of loss prevention resources it will provide that are specific to your business. Workers compensation premiums are driven by your mod rates, which are set by industry standard codes and your actual claims experience.
Commercial Auto Insurance for Manufacturers
If your manufacturing company owns or operates vehicles, whether cars or trucks, you need commercial auto insurance. You also need non-owned commercial auto coverage if your employees use their personal vehicles for business purposes other than commuting to work.
Your Go-to Resource for Manufacturing Insurance
An independent insurance agent familiar with factory operations can assist you to find coverage that helps you comply with state law and protects your financial resources. Find a manufacturing insurance agent near you.