Mitigating Manufacturing Risks in a COVID World
The COVID-19 pandemic has irreversibly changed numerous industries, manufacturing included. Not only did manufacturers across the nation reel from the sudden economic downturn, but they also faced an overnight decline in demand and widespread supply chain disruption. According to findings from Fictiv’s 2020 State of Manufacturing:
• 89% of manufacturers report a direct business impact due to COVID-19
• Only 17% rated their supply chain resilience and adaptability as exceptional
• 44% reported lower sales
• 41% said the cost of materials and components has increased, production lead times have lengthened, and product launches have been delayed or canceled
Simultaneously, the insurance market has tightened — premiums have increased for 11 consecutive quarters. Moving forward amid ongoing pandemic uncertainty, manufacturers of all sizes and industries need to embrace flexibility to protect their bottom lines and adapt to the shifting insurance market. Here are three insurance areas to examine, emerging risks and future-focused considerations as the world of manufacturing rapidly changes.
Challenges facing manufacturers in the realm of property insurance include increased deductibles on property coverage, lowered catastrophic limits and lender agreements with minimum requirements. Moreover, supply chain interruptions could warrant insurance coverage adjustments.
How Can Manufacturers Respond?
• Review Deductible Buy Down Options – A deductible buy down is an endorsement or separate policy reducing the deductible that the payer is responsible for in the event of a claim. Also investigate difference in condition (DIC) options, which impact flood and earthquake coverage.
• Analyze Data – Looking at loss history, benchmarking, performance, claims and more can inform decision making.
• Explore Alternative Risk Programs – These programs could include captives, larger deductibles or shared and layered programs to distribute risk among multiple carriers.
• Consider a Stock Throughput Policy – This type of policy provides cover for all movable goods that are subject of the insured’s trade, including raw materials and semi-finished products.
Manufacturers are grappling with decreased capacity in the umbrella market and inconsistent exclusions and/or forms throughout layered programs. Moreover, there’s a heightened risk for workers’ compensation part B (employers’ liability) claims due to COVID-19.
How Can Manufacturers Respond?
• Be Aware of Possible Changes – Manufacturers may need to carry larger limits than in the past.
• Keep an Open Mind – Shared and layered programs via non-admitted markets may be a smart and affordable option for manufacturers.
• Revisit Contracts – Comb through contracts with diligence to find any exclusions.
General Liability/Product/Excess Insurance
Manufacturers struggling with falling revenues, payrolls and fleets still face higher minimum thresholds for premium audits on certain policies. Additionally, some policies contain punitive exclusions.
How Can Manufacturers Respond?
• Push for a Lower Threshold – If this isn’t available, manufacturers can request a lower audit rate or tiered rate approach based on various revenue (exposure) amounts.
• Carefully Review Policies – Double and triple check to ensure pertinent operations are not excluded.
• Connect with Underwriters – Communicating exactly what is needed can help prevent unexpected gaps in coverage.
Not only do manufacturers face a hardening insurance market with rising premiums and decreasing capacity, there are several specific emerging risks that shouldn’t be ignored.
Despite legislation varying from state to state, some states are considering a “presumption of compensability” for certain workers, especially those deemed essential. Medical supplies and food and beverage manufacturers are often considered essential. Even so, manufacturers should expect increasing rates.
To mitigate risk, manufacturers could:
• Implement a return-to-workplace policy
• Adapt to social distancing along assembly lines. This may include protocols for PPE use or adjusting work patterns and shifts.
• Follow CDC/OSHA guidelines and be prepared to change policies based on evolving advice from governments and health officials.
Employment Practices Liability
Different policies and requirements in response to COVID-19 could disproportionately impact different groups. Therefore, some manufacturers may see employment discrimination claims based on race, national origin or disability. Although claims under OSHA, the NLRA and other workplace statutes are excluded under EPL policy, a claim for retaliation would be covered. Manufacturers can contact a human resources consulting team to review policies and ensure the equitable treatment of employees.
The impacts of the coronavirus made many manufacturers more aware of potential risks to their business. In addition to revisiting insurance policies, manufacturing companies may also choose to diversify their pool of suppliers to strengthen the supply chain, invest in domestic rather than foreign resources or begin automating some processes. Resilience is key — and manufacturers should prepare to navigate the “new normal” of supply chain interruptions.
Manufacturers might also consider doing a regular risk assessment to identify and mitigate potential gaps in coverage, whether COVID-19 related or not. These assessments can help prevent future crises from decimating business and impacting employee wellbeing. Additionally, they can help protect your company from a claim risk.
Manufacturers shouldn’t wait to take action to protect their business during unpredictable times. Do as much research as possible, keep an open line of communication with insurance consultants and underwriters and prepare financial data ahead of more rigorous renewal and underwriting processes.
Furthermore, Fictiv’s findings from their 2020 State of Manufacturing revealed 88% of survey respondents believed manufacturing companies who survive COVID-19 are the ones who saw opportunity — not only challenges. In addition, many companies have realized the importance of keeping production within the United States, rather than overseas, to protect supply chains. According to a Thomas Industrial Survey in April, 64% of manufacturers planned to bring production and sourcing back to North America. Manufacturers may benefit from this shifting attitude.
Our experienced team understands the unique risks manufacturers face and can help you overcome insurance risk-related challenges and discover opportunities, whether during the pandemic or long after a vaccine is distributed.