62% of mid-sized manufacturers have unmet needs for their risks – QBE
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Overall, “The key risks [highlighted in the survey] were the pandemic risk, digital risk, financial risk, liability risk, and reputational risk,” said John Beckman, QBE North America’s chief underwriting officer, highlighting the pandemic threat specifically. “From manufacturers’ standpoint, how they keep their business open and how they keep delivering their products to their clients was top of mind, [as] was employee and consumer safety, but also the impact on the supply chains – were the partners who provide the parts and materials they need for their products going to be able to meet their commitments?”
Notably, at the time of the survey, which was conducted in mid-2020, the pandemic was still relatively new and extremely concerning, continued Beckman. Now, as vaccinations are rolling out, manufacturers’ pandemic-related concerns may have eased somewhat, though there is still significant uncertainty around economic recovery, and the effectiveness and speed of vaccination programs.
Concerns around COVID-19 vaccines are particularly relevant when it comes to manufacturers’ employees, since factory workers are not likely to fall into the categories of people who get priority in the vaccination process. In turn, concern about employee safety, which was the top risk that survey respondents revealed they were worried about with regards to the pandemic, will likely remain elevated in this sector throughout 2021, noted Beckman.
When it came to manufacturers’ digital risk concerns, 71% of respondents selected cyberattacks and breaches as concerning to their business. The recent discovery of the SolarWinds breach is just the latest example of the danger, commented Beckman.
“As manufacturers further digitize their operations and expand the use of internet connected sensors and controls, the number of potential attack points will continue to increase, potentially making them more vulnerable to ransomware and other attacks,” he added. “Meanwhile, the weakest point continues to be the human element, with phishing and spearfishing attacks growing ever more sophisticated, and increased remote working introducing new points of vulnerability, making employee education critical.”
The report also pointed to the macro and microeconomic risk concerns of manufacturers, which, considering the effects of the pandemic on economies around the world, included fears of recession/economic downturn, tariffs/trade restrictions, fluctuating interest rates, commodity price increases, and exchange rate/foreign currency volatility.
“At the time of our mid-year survey, the unprecedented combination of a decline in production and rise of unemployment had many manufacturers concerned about the risk of recession,” said Beckman. “Given the strong economic recovery in the third and fourth quarters of 2020, the fear of recession has likely abated. The Fed’s intention to keep interest rates low may have also eased fears about fluctuating interest rates.”
He added that it’s more challenging to speculate about the future of tariffs and trade restrictions or commodity prices because the change in the US federal administration, and the impact of this on trade and regulations, could be more significant in 2021 than the pandemic.
Outside of the coronavirus, factors like social inflation and its impact on liability risk have been worrying manufacturers, as reflected in the QBE report. Product liability was the top concern raised by manufacturers in the survey, with worker health and safety, as well as aviation, professional/management and auto liability close behind.
“Social inflation – the general trend towards a more hostile view towards businesses and increasingly aggressive activity by the plaintiffs’ bar – has contributed to increased liability risk for decades, and it has really accelerated in the last five years,” said Beckman. “For manufacturers, this trend affects their greatest concern for liability – product liability.”
In fact, product liability was also the top factor in manufacturers’ reputational risk concerns, with 62% citing poor product quality as a risk.
“The business of manufacturers is to make and sell physical products, so it makes sense that product liability and quality rose to the top for them. Other types of companies in our survey, such as financial institutions, did not rank product factors so highly,” noted Beckman. “When we work with manufacturers, one of the key areas we can help them with is on product safety. Our trained loss control consultants can offer risk assessment and control services to help companies minimize the risk of product liability and errors and omissions liability.”
QBE is active in addressing the risk needs of manufacturers in other ways as well, such as on the digital risk side, where the relative newness of cyber coverage as a form of insurance and the rapidly evolving nature of the cyber threat could be contributing to their digital asset protection needs being unmet. QBE offers a base level of cyber coverage in its property form for manufacturers, and then additional coverage in standalone forms that work best as part of a broader program of protection.
“Importantly, it is key to not only offer coverage but also provide access to pre- and post-breach services, and other value-added services that can help mitigate the risk,” Beckman told Insurance Business.
Manufacturers who purchase employment practices liability insurance from QBE also get complimentary access to professional services that can advise on specific employee issues, as well as help build employment policies, guidebooks, and employee training to navigate the complex and rapidly changing regulatory environment for employment practices.
Other services for manufacturers offered by QBE involve business continuity. The past year has revealed how critical it is to prepare for the unexpected, and, in this environment, “It’s critical for manufacturers to have a strong business continuity plan,” explained Beckman. “Our loss control experts can assist companies in developing a plan to promote worker and customer safety during a disaster while maintaining business continuity.”
As manufacturers face an evolving risk landscape in 2021, their best bet is to go with an insurance partner that can provide them with tailored and well-rounded products and services, backed by deep industry expertise.
“A focus on price may drive many manufacturers to generalist insurers that may not have the underwriting expertise to really tailor insurance programs to their specific needs,” said Beckman. “By contrast, we focus on a specific set of industries, manufacturing being one of them, to bring specialized expertise in how we craft coverages and deliver claims and value-added services.”