Get control of your manufacturing insurance rates
Posted in: Commercial Insurance
Many of my manufacturing clients are interested in learning more about how their annual insurance premiums are determined and why their rates can vary significantly from year-to-year.
A number of factors impact your manufacturing insurance rate. The two most significant factors considered by the insurance carrier’s underwriter include your historical loss experience and the inherent exposures associated with the nature of your daily operation.
Although it is hard to change the past or drastically overhaul your business, the good news is that there are a number of best practices you can implement today to mitigate your future exposures and minimize your losses. Below, I provide some practical steps you can implement to help manage the costs of your manufacturing insurance policies.
Property Insurance
Minimize some of your most prevalent risks, such as fire and theft that are covered by your property policy:
- Check your electrical and sprinkler systems periodically to protect against power surges and fire. Your exposure to a fire incident is especially high, if you are operating large amounts of new high-tech equipment in an older building with an electric system that is not up to code and could overheat and short circuit. Make sure fire prevention devices are located near the areas that would require the most immediate attention, clearly marked and not obstructed.
- If working with flammable materials, keep your equipment that produces heat or sparks in a separate area. Train your team what to do in the event of a fire.
- Install a security system to help protect against burglary and break-ins. This positively impacts your insurance rate in two ways: 1) carriers typically provide a discount for purchasing a security system that will help offset the system’s cost, and 2) it will also improve your overall risk profile, which can further lower your rate.
Equipment / Inland Marine Insurance
Equipment breakdown or loss is inevitable in any manufacturing operation, which can increase your manufacturing insurance rate. To keep costs at bay:
- Provide a list of all equipment used in your operation to your insurance carrier. It is especially important they are aware of unique machines or equipment so you can secure sufficiently tailored coverage. Such equipment is considered high risk because in the event of a breakdown, fixing or replacing it, or finding a third party operation to complete your product could be expensive.
General Liability Insurance
Insurance carriers typically apply discretionary credits to the cost of your General Liability insurance when you implement three of the most critical procedures:
- Implement a written quality control process for all products manufactured at your facility, which should include assigning batch numbers to your goods. This can help track and promptly recall faulty products to reduce the number of injuries, complaints and potential lawsuits.
- Review your product recall policies periodically. It is important to keep all terms and conditions up to date to properly handle a recall and protect your business from consumer claims.
- Verify Certificates of Insurance from all vendors and suppliers to make sure they have proper coverage and sufficient limits for product liability. If these parties are not adequately insured and they supply you with a faulty product, you could be held responsible for their mistakes.
Workers’ Compensation
Manufacturing is one of the industries most prone to accidents and injuries on the job. Implementing a comprehensive and formal safety program can help keep your employees safe and your insurance costs low. Consider the following when designing your program:
- Have your employees wear personal protective equipment (PPE) such as steel toe boots, hard hats, safety glasses and other protective garments.
- Enforce proper lifting techniques and provide formal training.
- Have designated areas for eye wash stations and first aid.
- Create a formal Return to Work and Light Duty program to get employees back on the job quickly and smoothly. This is a win-win solution that allows employees to work while still recovering, retain their income and help boost productivity.
- Conduct periodic and pre-employment background checks and drug testing.
- Make sure you enforce sound lockout/tag out policies and procedures to safeguard workers from injuries when fixing or maintaining any equipment.
Auto
Your commercial auto policy rate can be affected by your employees’ personal and business driving records.
- Review motor vehicle records (MVR) at least once a year to ensure your employees driving any company vehicle or their personal auto for business purposes maintain a clean record.
- Implement a formal Vehicle Safety Manual specifying driving best practices including a hands free device protocol, using business vehicles for personal purposes and proper reporting of claims.
Cyber Insurance
With the emergence and adoption of Operational Technology as well as industry 4.0 on the horizon, manufacturers not only have to protect their Information Technology environment (email, office computers, ERP/CRM, payroll, invoices, etc.), they now have an entirely new and growing exposure on the operational side that is susceptible to attacks, breaches and human error. Here are few key coverages to look for when selecting cyber insurance for your business:
- Data Privacy & Network Security Liability will respond to both a privacy breach and failure to prevent the spread of a cyber-attack.
- Cyber Incident Response Expenses covers legal, PR, forensic and notification expenses that you can access voluntarily if you suspect your data or systems are compromised.
- With the increasing complexity of the regulatory and compliance landscape having Regulatory Proceedings coverage in a cyber insurance policy is a best practice.
- Network Restoration & Incident Containment coverage is usually buried in the language of a policy. Be sure to check with your broker to make sure that these types of expenses are covered in addition to traditional data restoration expenses.
- Business Interruption & Contingent Business Interruption is a must have for any manufacture. If the technology or the IT vendors you rely on are impacted by a cyber incident, this coverage kicks in to cover lost income and extra expenses to help you get back up and running.
- Every policy handles Cybercrime coverage differently but at a minimum you want to make sure the cyber insurance policy covers social engineering theft and ransomware payments.
In my experience companies that have implemented these practices have typically saved up to tens of thousands of dollars compared to those that didn’t. While this list is a good starting point for your organization, there is a lot more you can do. For a comprehensive list and further recommendations to lower your overall exposures and manufacturing insurance costs, please contact me at pdenobrega@psafinancial.com.
