Battered by the effects of COVID-19, hampered by disruptions in the global supply chain, struggling with an ongoing labor shortage, manufacturers deserve some good news. Here it is: If there’s one economic sector that’s faring relatively well in the Property and Casualty (P&C) Insurance marketplace right now, it’s manufacturing.
Cause for cartwheels? Probably not, especially with one line of coverage — Cyber — growing increasingly problematic and Umbrella/Excess Insurance tough to come by. But at a time when most industries are still contending with a years-long hard market for P&C coverage, being able to protect your business under comparatively favorable conditions for purchasing insurance is no small matter.
For a recap of recent bad news for the industry, you can read the April 19 Microsoft News article “The State of US Manufacturing in 2022 – And What It Means for Your Wallet.” For an update on insurance marketplace conditions facing manufacturers – including the largely good news the Microsoft News piece overlooks – stay right here.
Market Outlook Entering 2022
In December 2021, Alera Group published the Property and Casualty 2022 Market Outlook. Here’s what we had to say in the whitepaper’s section on the manufacturing industry:
“The overall market outlook is brightening for manufacturing clients who have good claims experience and sound risk-control programs. The two exceptions are Cyber Liability Insurance and Umbrella/Excess Liability Insurance, which continue to be expensive and difficult to obtain.”
We cited these factors as influencing the market:
- “Competition is returning to the marketplace. Insurance companies want to write manufacturing and are more willing to work with clients to get business done.
- “Risk quality continues to be a primary consideration. While insurers are eager to increase market share in manufacturing, they reserve their capacity for what they view as “high-quality” clients. Inspections to assess risk quality prior to offering a proposal are the norm.
- “Expect reductions in available coverage. Buyers should anticipate lower available limits of liability, restricted coverage terms, increased deductibles, and the addition of coinsurance.
- “Timing is critical. If you plan on testing the market, start early. Work closely with your broker and begin at least 90 days in advance of your renewal. Given the range of insurers interested in manufacturing and the amount of information they require to consider a risk, sufficient time is needed to thoroughly explore your options.
- “Increasing dependence on technology is driving cyber exposure and claims. Modernized manufacturing practices using connected technology are improving efficiency, but they’re also increasing vulnerability to cyberattack. While cyberattack is an issue for almost every industry, loss data shows that manufacturing is a frequent target.
- “Appropriate cyber coverage can be challenging to obtain. While the marketplace does have capacity, insurers are very selective in the accounts they will write, given the high risk of cyberattacks. Therefore, your organization’s ability to implement solid security measures and recover quickly in the event of an attack will be key considerations. Protections such as multifactor identification are typically the bare minimum for obtaining a quote.
- “The labor shortage is one of the most significant risks facing manufacturers. While not a directly insurable risk, the lack of skilled labor potentially impacts insurance. As manufacturers push to do more with less, training and safety are likely to suffer.
- “Captives are becoming a more viable alternative. The reduction in available limits and the high price of purchasing certain coverages is leading more mid-size clients to assess the cost-effectiveness and long-term value of alternative risk-transfer mechanisms.”
The lines of coverage we saw as having the most favorable conditions for the insurance buyer were Commercial Auto (albeit with ongoing rate hikes), Liability (both General and Product) and Property (with rates still rising but starting to flatten). We predicted continued stability for Workers’ Compensation rates, availability, capacity and underwriting scrutiny.
Since the Market Outlook’s publication, conditions have hardened a bit for Commercial Auto Insurance, primarily due to nuclear verdicts in liability lawsuits, rising repair costs, and a labor shortage causing driving fleets to be both less experienced and frequently overworked. The already unfavorable market for Cyber coverage has only gotten worse, largely owing to the threat of heightened attacks from Russia in response to U.S. sanctions following Russia’s invasion of Ukraine.
In general, three factors may drive a manufacturing business into greater or lesser favorability in the marketplace: location, the product the manufacturer produces and, as stated in the Market Outlook, whether the manufacturer has “good claims experience and sound risk-control programs.”
Conditions for Property Insurance and Umbrella/Excess vary significantly depending on whether a business operates in a coastal region or other area susceptible to catastrophic events, such as those prone to wildfires.
Conditions for Liability Insurance depend on what the business manufactures and how that product is used. A company that manufactures sophisticated medical devices that go into human bodies, for example, is going to face more restrictive underwriting and more expensive rates than one that manufactures mundane household products, such as paper towels.
Conditions for Cyber Insurance range from difficult to prohibitive wherever your business is located. If you don’t already have extensive security protocols in place, including multi-factor authentication, you may find Cyber Insurance unaffordable — if you can even find a company willing to insure you. Some businesses may be best off self-insuring for cyber liability, with reserves set aside for ransom or other costs resulting from an attack.
What You Can Do
While many factors affecting insurance market conditions are beyond your control, there are steps you can take to mitigate them. Here are a few:
- Shore up risk management policies and procedures, and demonstrate loss control. Be among those organizations underwriters look favorably upon for good claims experience.
- Talk with your agent or broker about alternative risk solutions, including captives. As noted in the Market Outlook, captive programs have gained increased attention as alternatives to the reduced limits and rising costs of traditional insurance carriers. One Alera Group client, a company that provides lifting equipment to contractors around the country, recently joined a heterogeneous captive with members of various industries and now estimates its annual savings on insurance costs to be more than $300,000. Not every organization is well-suited for a captive program, but yours may be.
- Stay up to date. Market conditions, government regulations and insurance products evolve. A practice your organization has exercised for years may not be optimal for business today. To keep our clients informed, Alera Group provides educational material and events such as our May 12 webinar, Navigating Additional Insured Endorsements.
To register for the webinar, click on the link below.
About the Author
Chris Breck, CIC, CRM
Senior Vice President, Property & Casualty
GCG, An Alera Group Company
Chris Breck manages the day-to-day insurance and business needs of many of GCG’s longtime clients. His primary responsibilities include the design, marketing and implementation of commercial Property and Casualty Insurance programs. Chris specializes in delivering alternative risk solutions, including Captive Insurance programs. He maintains a broad industry focus, with clients in industries including manufacturing, service, retail, healthcare and nonprofit. He has been a licensed insurance producer since 1992, a Certified Insurance Counselor (CIC) since 1996 and a Certified Risk Manager (CRM) since 2010.