Risk Management Strategy, Industry Today

April 15, 2019

The digital transformation in manufacturing has led to better process automation and customized production. At the same time, vulnerability to product failures, intellectual property theft, business interruption and property losses have increased as a result of the heavy reliance on high-tech equipment and production systems.

To protect business assets and income streams, experienced brokers and risk managers are working with manufacturers on cost-effective risk financing solutions that match their risk appetite, profile and operations.

In this interview, Renee Dube, vice president, national property and casualty practice at USI Insurance Services, discusses different property risk management and loss mitigation strategies for the manufacturing sector.

Q: How has manufacturers’ approach to property risk management evolved recently?

A: The large property losses in recent years have increased the need for broad asset protection solutions. Within the industrial segment, there is a strong demand for analytics that provide a more quantifiable view of risk. Without clarity on exposures, companies cannot develop an effective risk transfer strategy or make important decisions on where to invest future risk management efforts. Companies are asking more questions, such as, how will our coverage respond if we lose a key supplier; how do we establish appropriate limits and what effect will that have on retentions; and how can we structure time element specific coverages?

Q: What specific solutions are available to mitigate business interruption risks?

A: Our process involves helping clients assess and quantify the financial values, operational components at stake, as well as the length of time it would take for a business to get back to business following a significant property or equipment breakdown loss. Companies often struggle to obtain this kind of detailed analysis, utilizing methods that do not match with standard financial language or failing to properly measure the unique time element risks that exists within each company, resulting in insufficient business income coverage limits. What happens to your company if a key piece of machinery is damaged? In many cases, it can lead to significant production downtime, damaged stock, loss of income and cancellation of orders. From a coverage standpoint, manufacturers can secure their supply chains, equipment and manufacturing facilities from disruption and loss. At USI, we complete a comprehensive business income risk valuation and limits analysis and design a program that provides our clients with broad coverage and operating cash flow to maintain business operations and prevent financial loss.

Q: Can the solutions provide real financial savings or improve the bottom line?

A: The extent of financial impact is dependent on many factors, including the company’s risk profile, appetite and program structure. However, using the services of an experienced broker is critical to achieving these financial savings. As an example, we recently evaluated the business income risk for a poultry manufacturer that had recently undergone significant growth and determined that their traditional approach to business income valuation did not address actual risk exposure. Changes were made to the limit and duration based on a review of conditions, operations, key suppliers and expenses. As a result of the recommended changes, the company doubled its business income limit from $15 million to $30 million, all of which was paid a few months later when a fire destroyed their largest processing plant.

Q: What other important advice would you give to manufacturers concerning property risks and the hardening market?

A: Companies should be proactive and disciplined in their risk control and risk management strategies, allowing them to differentiate their risk from their peers with underwriters. Businesses should also plan to start the 2019 renewal process as early as possible to develop a narrative around the quality of specific exposures. Consult with a broker early to perform actuarial analysis and to pre-underwrite risks using available modeling platforms. This will help eliminate any element of surprise during renewals. Also, the process will improve the insureds understanding of the coverage needed and strengthen its ability to negotiate better pricing.

Renee Dube USI Insurance, Industry TodayRenee Dube is a vice president for USI Insurance Services’ national property & casualty practice based in Valhalla, New York. She can be reached at renee.dube@usi.com.

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