By Randy Sadler, CIC Services
A lower insurance premium can improve a manufacturer’s expense line while increasing the risk the company must absorb itself. Deductibles, exclusions, insufficient limits and uncovered disruptions can shift costs back onto operating cash. The clearest view comes from evaluating premiums, retained losses, coverage and capital together.
The National Association of Manufacturers’ second-quarter 2026 outlook survey found that 71.8% of respondents identified trade uncertainty as a top business challenge. Rising health care costs also prompted 76.8% of respondents to make business changes, including switching insurance providers or reducing benefits or pay.
A lower premium can come with higher deductibles, reduced limits, new exclusions or narrower policy language, reducing one visible expense while increasing another obligation.
A more complete calculation includes premiums, deductibles, self-insured retentions, uninsured losses, claims administration and risk-control expenses. Manufacturers should also account for production downtime, emergency sourcing, expedited freight, contractual penalties and liquidity required to absorb an uncovered loss.
“Manufacturers protect margin more effectively when they measure insurance by the financial exposure it removes, rather than by premium alone.”
— Randy Sadler, CIC Services
Manufacturing losses rarely remain confined to a single event. A cyberattack against a critical component supplier could delay materials, halt production and prevent the manufacturer from meeting customer commitments. The financial effects might include lost revenue, idle labor, emergency purchases, increased freight costs and contractual penalties.
Industry Today has examined how operational disruptions can move across suppliers, systems and business functions, amplifying a single event, in its article on why modern operations still struggle during disruption.
Insurance may cover only part of that chain. Recovery can depend on whether the affected supplier is covered, whether the event satisfies the policy trigger, whether a waiting period applies and whether a sublimit restricts payment.
The Allianz Risk Barometer 2026 ranks cyber incidents as the top global business risk and business interruption, including supply chain disruption, as the third-highest concern. Only 3% of respondents characterized their supply chains as “very resilient.”
Leadership teams can test plausible scenarios by identifying what activates coverage, which costs qualify, when coverage begins and how limits affect recovery. The remainder is risk the manufacturer must finance itself.
Premium comparisons reveal little when programs offer different limits, retentions and terms. Equivalent protection offers a more useful comparison.
One Southeastern manufacturer with approximately $750 million in annual revenue paid $1.4 million for $5 million in general liability limits. Purchasing two additional $5 million layers through the conventional market would have increased the total premium to approximately $3.05 million for $15 million in protection.
The manufacturer restructured the program using a $1 million self-insured retention, commercial reinsurance, risk pooling and a captive insurance company. The resulting program provided $15 million in limits for approximately $900,000. The manufacturer tripled its limits while reducing annual premium by approximately 35%. Compared with the proposed conventional program offering the same limit, the annual cost difference was approximately $2.15 million.
After quantifying its exposures, a manufacturer can determine which risks to transfer and which to retain. Severe, unpredictable losses may belong in the commercial market when adequate protection is available at a reasonable price. More predictable losses may support higher retentions when the company has sufficient loss data, liquidity and controls.
Financing mechanisms may include funded reserves, higher-retention programs, structured reinsurance, risk pools or a captive insurance company. The Insurance Information Institute describes risk financing as balancing an organization’s willingness and ability to assume risk with its strategic goals while maintaining adequate liquidity.
For a qualifying manufacturer, a captive can provide greater control over selected coverage, access to reinsurance and a structured way to finance retained risks. The appropriate structure depends on exposures, loss history, financial capacity and long-term strategy.
Bring Risk Financing Into Capital Allocation
Manufacturers routinely model input costs, evaluate supplier concentration and demand measurable returns from equipment investments. Insurance and retained risk warrant similar discipline because both compete with automation, expansion and other productive uses of capital.
Industry Today’s 2026 State of Manufacturing & Supply Chain Report found manufacturers making structural changes to sourcing and supplier networks in response to tariff and material volatility. Risk financing belongs in that conversation because an uncovered disruption can consume cash just as quickly as rising production costs.
Before renewal, leadership teams should identify their largest unfunded exposures, calculate the full cost of protection and decide how each will be funded.
It includes premiums, deductibles, retained losses, claims expenses, risk-control costs and operational consequences such as downtime.
Yes. Savings can come with higher deductibles, reduced limits, exclusions or narrower coverage, so retained exposure should be evaluated alongside premium.
Manufacturers may consider alternatives when they retain significant risk, face restrictive commercial coverage or can finance selected exposures more efficiently.
Captive insurance can be a strong fit for manufacturers with sufficient risk, financial capacity and a need for greater control over certain exposures. Companies with identifiable retained risks or coverage needs the commercial market does not address efficiently may benefit from evaluating a captive as part of a broader risk-financing strategy.
Manufacturing margins can erode through retained and uncovered risk just as readily as through rising operating costs. Evaluating the total cost of risk, testing coverage against realistic loss scenarios and comparing financing options on equivalent terms gives manufacturers a stronger basis for protecting margin and capital.
About the Author:
Randy Sadler started his career in risk management as an officer in the U.S. Army, where he was responsible for the training and safety of hundreds of soldiers and over 150 wheeled and tracked vehicles. He graduated from the U.S. Military Academy at West Point with a Bachelor of Science degree in International and Strategic History with a focus on U.S. – Chinese Relations in the 20th century. He has been a Principal with CIC Services, LLC for 8 years and consults directly with business owners, CEOs, and CFOs in the formation of captive insurance programs for their respective businesses. CIC Services, LLC manages over 200 captives.
Read more from the author:
Why Insurance No Longer Matches the Risk on Your Clients’ Balance Sheets | CPA Practice Advisor, March 16, 2026.
Hard-to-Insure Risks Pressure Cash Flow | Inbound Logistics, August 2026.
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