It’s fair to say that like most sectors, UK manufacturing has faced a number of challenges over the last few years from Brexit, to Covid-19. As manufacturers look to bounce back by adopting new technologies and new ways of working, having a full appreciation of the evolving risk landscape is essential. These new risks may force a rethink in respect of insurance and risk management solutions to help determine if they are fit for purpose for the new operating environment.
Manufacturing’s evolving risk landscape
A challenging insurance market
Insurance renewals are taking longer, and a challenging insurance market that was already hardening before the COVID-19 crisis, is impacting premiums and the wider availability of insurance. This is hindering the ability for businesses to continue with the same levels of coverage they’ve had in the last 20 years. In addition, the introduction of COVID-19 policy exclusions, and enhancements to pre-existing pandemic-related exclusions, is requiring businesses to re-examine their insurance policy terms and conditions.
Cyber security
Cyber security is a huge concern in the sector1. Manufacturing topped the list of the most attacked sectors, accounting for almost one third of all cyber-attacks directed at UK organisations2. According to Make UK, 27% of manufacturers who suffered a cyber-attack experienced financial or business losses as a result3.
The growing threat of an attack by cyber criminals on automated plants have contributed to the withdrawal of some insurers from the market. Those insurers that remain are demanding more information from manufacturers. This includes the management of systems, compliance with GDPR, safeguarding procedures and investment in IT resource and security. This helps insurers consider whether they’re able to continue providing the required risk transfer capacity within the form of a cyber-insurance policy.
New working models, trends and technologies
As manufacturers prepare to embrace new trends like the sharing and recycling or reuse economy, or alter their working models with the introduction of new production technologies and sales channels, they will need to understand how all this impacts and influences their risk environment. This will include reviewing contractual customer liabilities, and any new legislative and regulatory requirements relating to the markets they plan to enter.
Workplace changes
Manufacturers will need to protect an extended workforce that now includes remote service workers, and will become increasingly dependent on extended e-supply chains that incorporate the entire end-to-end service offering (installation, servicing, maintenance, ongoing remote management and monitoring).
Servitisation
The focus on servitisation is growing and it is important to understand the risks that this brings. The move to servitisation and service provision brings with it additional contractual requirements, and the enhanced potential for product recalls and related claims down the line.
Consideration should also be given to the contractual positions associated with new technology partnerships, such as cloud or software as a service (SaaS) providers, to map out any new liabilities. Similarly, evaluating risks relating to the introduction of automation and machine learning – and the implication of these for workforce dynamics – will also be vital.
How can manufacturers demonstrate a good risk profile?
Manufacturing risk management programmes
A robust manufacturing risk management programme will:
- Provide insights into indemnity and liability issues and their controls, positioning risks in a way that enables insurers to offer lower premiums that will help cash flow. This should include structured programmes designed to address geo-political risks, cyber and supply chain threats, property and regulatory, plus environmental risks.
- Minimise the risk of injury or incidents that cause harm to staff, customers and the local community together with reporting that demonstrates required adherence to statutory responsibilities. And provide illustrations of how investment has improved processes and reduced risk.
- Enable decision makers to identify gaps in leadership, training or certifications that could hamper future innovation plans or new business models/market moves.
- Encourage the review of health and employee benefit packages to bolster talent acquisition and retention programmes, providing competitive remuneration packages.
- Support the updating of workforce skills, talent development and recruitment strategies (schools/college liaison) and the creation of an engaging local employer brand.
Keeping your records up to date
This includes:
- Information such as the provision of a suitable risk register.
- Evidence of an appropriate risk identification and management process.
- Evaluations of potential supply chain risk and customer weightings.
- Appropriate claims reporting.
- Detailed exposure analysis broken down by locations and dependencies.
- Contractual liabilities and mitigation.
- Capital expenditure in premises protections including fire protections, management of plant and modern construction materials.
Having a deep understanding of how to manage and mitigate risk is important in helping demonstrate a good risk profile. If you have any questions regarding any of themes in this article, get in touch with your broker or Marsh Commercial advisor.
Sources
1 https://www2.deloitte.com/us/en/pages/manufacturing/articles/cyber-risk-in-advanced-manufacturing.html
2 https://www.manufacturingglobal.com/technology/cybersecurity-uk-manufacturers-most-attacked-industry-ntt
3 https://www.makeuk.org/-/media/cyber-security-and-manufacturing-a-briefing-for-manufacturers.pdf, 2019
