From product recalls to machinery breakdown there is a wealth of scenarios in which you might need to call on business insurance as a manufacturer.
In this post, we’ll detail some of the most important forms of business insurance for manufacturers and highlight exactly why each of them is needed.
First and foremost, let’s take a look at the obligatory forms of insurance: employers’ liability and third party motor insurance.
From the second that a business recruits its first member of staff, employers’ liability insurance is a legal requirement. This kind of insurance basically covers any compensation and legal fees in the instance that someone is injured at work.
According to the Association of British Insurers (ABI), the industry has been making a loss on employers’ liability for several years, as they have been paying out more in customer claims and expenses than they received in premiums. This is unsurprising, given that more than two million people in the UK believe that their work has caused them to suffer an illness and an estimated 95 per cent believing that it’s important to claim compensation from work in this instance.
With manual handling high on the list of cited workplace hazards, this is clearly something that manufacturers must pay close attention to.
One form of insurance that you really can’t – and shouldn’t want to – get out of, by law your policy must cover claims of up to at least £5m. However, in practice most policies cover £10m and as a manufacturer whose factory or plant is likely to subject employees to occupational hazards, the amount that you insure yourself for is something your advisor is going to want to pay close attention to.
Third party motor insurance
Unsurprisingly, if your business has any kind of motor vehicle, you are required to have at least third party motor insurance. Although this is listed as obligatory, obviously this is only required if your business runs a motor vehicle.
Third party cover is a very basic package that will pay out on behalf of the business only in the instance that another person (third party) is injured or has their property damaged by you or your employee.
Most businesses instead choose to take out third party, fire and theft or, more desirably, fully comprehensive cover to ensure their policy pays out for all damage, rather than just and inflicted on a third party.
Optional forms of insurance
Although employers’ liability and motor insurance are the only compulsory covers for any business, as a manufacturer, just taking out these covers could leave you dangerously exposed.
There are a number of other forms of cover to choose from that will ensure financial protection in a range of eventualities. More often than not, insurance companies or brokers will offer a package of products that can be tailored to suit their client’s unique needs.
So let’s take a look at these in more detail.
If you have designed or manufactured a product that goes on to harm or injure its end user, you will most likely have legal liability. A product liability crisis can strike at any time and whether or not your company is responsible for the defect, every stage of the supply chain is likely to be affected at least until the case is resolved. Often, if several businesses are involved as producers of a single product, they can be found jointly liable.
Product liability insurance is in place to provide cover in the instance of three main issues:
- Manufacturing or production flaws
- Design defect
- Defective warnings or instructions
Each of these complaints is enough to put a company out of business, with damages generally awarded to cover medical costs, compensation, economic damages and even legal fees in some cases.
Every day in 2006, the UK insurance industry paid out £3.3m in general liability claims. This includes bodily injury, illness or disease to the public, and although members of the public don’t tend to spend a great deal of time on factory premises, this one may become relevant where there’s a chance your activity could cause harm to the local community.
For example, an accident could occur at your business that leads to harmful chemicals being released into the atmosphere or local residents may find your work to be particularly noisy or disruptive to their lives.
Buildings and contents
All business premises in the UK are at risk of theft, fire and flooding, but this applies to some more than others. Where valuable machinery is at risk, or a lot of raw materials and finished product are stored on site, you’ll need to put serious consideration into how much cover you need.
As a general rule for factories:
- Your building should be insured to the full cost of restoration, including site clearing and professional fees
- Stock should be insured at thecostprice
- Machinery and equipment should be insured on either a ‘replacement as new’ or ‘indemnity’ basis.
Again where valuable machinery is at the core of your business, you need to protect it as best you can. Engineering insurance pays for repair or reinstatement of all business-critical machinery, including computers.
By law, however, you must arrange for any mechanical equipment – from the building’s lifts to all IT – to be checked over regularly by an approved electrical contractor under the Health and Safety at Work Act 1974.
Goods in transit insurance
Another big consideration for manufacturers is goods in transit. More often than not, goods that have been dispatched are at increased risk of damage or theft and in the hands of a third party carrier.
Goods in transit insurance pays for goods that are lost, stolen or damaged whilst they are being moved by vehicle or carrier. Be warned that there’s usually a limit applied to how much you can insure goods in transit for, based on a sum per vehicle or per consignment.
Life insurance and private medical insurance
For employees that work on the shop floor with heavy machinery, work life carries a certain element of risk, so life insurance and private medical insurance offer peace of mind should the worst happen. This is additional to your obligatory employers’ liability and allows you to take care of an employee’s dependants in the instance of death, usually either part of a ‘group’ life insurance or linked to a company pension plan.
Private medical insurance allows you to get the care that you need for your employees quickly for minimum disruption to your company. Many company schemes (particularly for manufacturers whose work can affect core competencies like hearing), offer ‘wellness’ services and regular health checks so that any problems are kept to a minimum.
Over to you
Whilst this is by no means an exhaustive list (we haven’t even mentioned trade credit Insurance, key person insurance or employee dishonesty), it should go some way to highlight the importance of business insurance for manufacturers.
For more information about your business’ insurance requirements, don’t hesitate to get in touch.
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