How to manage risks in the manufacturing industry

August 22, 2022

The UK seems to be in the midst of a fairly turbulent economic period. The country’s manufacturing industry continues to brave the successive waves of challenges facing it but there remain – as ever – various types of risks that manufacturers face.

Let’s take a closer look at some of those risks and the extent to which the appropriate type of insurance can help to ameliorate the loss or damage to your manufacturing business:

Property damage

• without intact premises from which to operate, you will be hard pressed to maintain your business operations;

• insurance to safeguard the physical and structural integrity of your business premises, therefore, is likely to prove more or less essential;

Supply chain disruption

• the result of a census published by the Office for National Statistics (ONS) on the 4^th of April 2022 gave some indication of the seriousness of the supply chain problems affecting many UK businesses;

• when your suppliers are unable to deliver parts, materials, and supplies on time, of course, your production schedules suffer, and profits are lost – there are insurance packages that compensate you for maintaining essential operating services pending the restoration of normal supplies;

Product Recalls

• from time to time, however careful and quality-controlled your manufacturing processes, product recalls may become necessary – they are both time-consuming and expensive;

• the Chartered Trading Standards Institute publishes updated lists of products recalled in the UK – and the latest of these, dated the 9^th of August 2022 gives an idea of the nature and extent of recalls that need to be made;

• the cost to the business of product recalls is typically met by specialist general liability insurance indemnities;

Product liability

• similarly, manufacturing businesses can face significant financial losses through claims alleging product liability – manufacturing defects, design flaws, and deficiencies in the warning and advice accompanying your products might have resulted in a customer suffering physical injury or financial loss;

• you will be glad of sufficient liability indemnity insurance to cover any such claims;

Goods in Transit and import issues     

• your manufactured goods are at probably their most vulnerable while they are in transit – especially when your end customer is overseas;

• Goods in Transit insurance may help to safeguard you against losses arising during transit operations – especially at a time when importing goods into the UK and exporting others to overseas markets is especially fraught (as described by the UK Trade Policy Observatory in a paper dated October 2021);

Cyber risks

• the internet has revolutionized the way all companies do business – but it has also exposed practically every manufacturer to a host of cyber risks;

• in addition to the appropriate insurance cover, you might also want to study the guidance issued by the National Cyber Security Centre (NCSC) on cyber security for small businesses;

Employee injuries – and global exposures

• you will be thoroughly aware of your legal obligation to arrange a minimum of £5 million of employers’ liability insurance to safeguard your business and protect employees who may have been injured or contracted longer-term medical conditions at work;

• what might have been less clear, however, is your potential liability for accidents happening to your employees when they are working for you in different jurisdictions – with different laws and rules – overseas;

• you might want additional insurance, therefore, to cover such global exposures;

Equipment Failures

• you’re a manufacturer – your machinery, plant, and equipment are essential to your business;

• insurance cover can be designed to provide protection against the failure of that essential machinery and the losses incurred by your business;

Large losses

• in the worst-case scenarios, certain personal injury and product liability claims can leave your business with extraordinary and potentially catastrophic losses;

• insurance against such large losses can help to raise the limits of liability to which your business may be exposed.

In these straitened economic times, the careful and effective management of your manufacturing risks looms even more important than ever.