2020/11/12
Curtis Killen

What does Manufacturer Insurance Cover?

There once was a man that came from poverty.

He worked hard and beat the odds, securing a steady job and actively saving much of his income.

His friends and family urged him to secure his savings in a bank or investment fund, but this man didn’t believe in financial institutions.

So each month, when he received his pay, he took each and every dollar he had earned… and he stacked his cash in piles on his front porch, in plain sight.

This man is off his rocker, no?

The analogy seems ridiculous, but that’s about the level of carelessness you’d be demonstrating by running a manufacturing company without an insurance policy.

You’re leaving yourself exposed to the likely event something will go wrong and it’ll cost you not just your money, but your business.

The message here is clear: to save you from a potentially company-killing incident, you need manufacturer insurance.

Shop around, get some insurance quotes, ask some questions. But don’t operate a company in this high-risk of an industry without a safety net. 

Now, let’s find out why this coverage is so important and what your insurance can do for you.

What Insurance Do Manufacturers Need?

When shopping for insurance, business owners in your industry should make sure any policy they secure includes at least the following four types of insurance coverage: 

These are the most common insurance claims a manufacturer like you might have to submit. Now let’s take a closer look at each one of them.

CGL Insurance

Simply put, if you’re a manufacturer, you need commercial general liability insurance.

This is what protects you in the event your company is found responsible for causing bodily harm or property damage to someone or something outside your company.

And as part of that crucial coverage, there’s one subsection that’s vitally important for a company in your industry to have: It’s called products-completed operations insurance (also referred to as product liability insurance). 

As a manufacturer, you are by definition constantly making stuff that finds its way out into the world, into stores, and into people’s homes, cars, or offices.

Unlike, say, a fitness instructor that provides real-time service during which injuries may happen on the spot, as a manufacturer your job is done by the time your products are shipped out into the world and any potential incidents occur.

Mistakes happen in every business — but smart businesses make sure those mistakes don’t sink them. 

Let’s say your company manufactures garage door openers.

You know, those convenient devices that allow us to open our garage doors with the click of a button so we can seamlessly come and go.

Now imagine the worst: A garage door opener you made malfunctions while in use, and the heavy door falls onto a kid, breaking their back or even paralyzing them.

It’s a nightmare scenario.

This accident was caused by your product, but it occurred after completion.

So while you might think you’re out of the woods once the product leaves your warehouse, the child’s family might decide to pursue legal action against the manufacturer.

And while it could have been your fault or not, once the family decides to take legal action, you have to be prepared to defend yourself in court.

Expensive lawyer fees, and even a hefty payout should you be found guilty, can drown a business — the financial loss can simply be too much to overcome.

Equipment breakdown Insurance

Equipment breakdown insurance protects you against mechanical breakdown, machine failure, electrical arcing and boiler explosion.

Manufacturers make stuff.

But these days, it’s common that the “stuff” is actually made by machines.

Many manufacturers employ computer numerical control (CNC) machines to perform pre-coded programmed instruction without the need for manual operation.

Manufacturers rely on CNC machines to do some highly custom work.

These machines are costly — some will run you upwards of half a million dollars.

If a manufacturer’s CNC machine breaks down, they can’t do their job.

And the machine’s parts aren’t exactly off-the-shelf products you could run over to Home Depot to pick up.

Ordering and receiving custom parts could take weeks or months.

Being left incapable of doing your job for weeks on end due to an equipment breakdown is clearly not ideal.

With this policy, you can recoup some of those financial losses.

Tip: You should always carry backup pieces so you can quickly replace a damaged part and avoid an extended workflow stoppage.

Business interruption insurance

This policy covers you for loss of profits, fixed cost, and administrative payroll after a covered loss.

Let’s say your factory has a fire that causes it to shut down for two weeks. As a manufacturer, it’s not like your employees can all just work from home; they need to be on-site. Now, all your jobs are delayed, and that costs you money.

Business interruption insurance replaces the lost revenue you should be earning.

Property

You make stuff — but what about your stuff?

Property insurance covers your building, your equipment, and your stock.

That’s everything physical to do with your business.

Here’s what your manufacturing company needs in summary:

Key Manufacturing Insurance Coverages to Consider

These insurance coverages are less common to the manufacturing industry, but still useful.

Errors & Omissions

To explain errors & omissions insurance, we’ll turn it over to Steve Jacobs, Insurance Advisor with Lawley Insurance, who puts it better than we could: 

Manufacturers E&O is professional liability insurance that covers a manufacturing mistake or negligent service that results in a third party financial loss without bodily injury or property damage.”

Manufacturers E&O insurance covers damages that result from faulty products, material defect, and failure to deliver on a promise.

This insurance will cover the customer’s financial loss and legal costs.

Also important to note: E&O is typically a claims-made policy, meaning the subpar work and the resulting claim must occur during the policy period.

Cyber

Cyber attacks are happening more and more in the manufacturing industry.

For that, we can point to the increasing use of sophisticated and programmable machinery. 

If a CNC machine gets encrypted (someone puts an infected USB key into it) it affects the entire programming of the machine.

Cyber insurance will also cover your engineering or architectural drawings stored on a cloud or computer server if they were to be attacked or encrypted.

This is work that would cost a lot of money to lose.

The Importance of Manufacturing Insurance

How important is manufacturer insurance?

We won’t mince words here. If you are a manufacturer and you don’t carry insurance… plain and simple: WE THINK YOU’RE NUTS!

Running a manufacturing business without insurance is far too risky for so many reasons.

First, just think of the impact one single incident could have on your business.

Take the garage door example used earlier.

Even in a case where the issue that took place wasn’t your fault, the proceeding legal costs could put you right out of business.

Now, think about your own business journey.

Whether you’ve inherited a family business or built it yourself from the ground up, the countless hours, blood, sweat, and tears you’ve put into your company run high — and the emotional attachment you have to it is impossible to quantify. 

Finally, consider how easy it is for an individual or a family to go after you, a big manufacturer.

They don’t see the people behind the company name or the years dedicated to building the successful business — they see a scapegoat for their problem. (Not to mention the dollar signs.)

Especially if you sell to the U.S., it’s easy to get sued.

So why would you take your life’s work and hang it out to dry?

Invest in yourself and your business by protecting your company with the right manufacturing insurance coverage.

Otherwise, one issue could put you right out of business and ruin everything you’ve built.

Protect Your Manufacturing Company with the Right Business Insurance Policy

How do you know which policy or which insurance company is the right one?

If you don’t know that much about the insurance industry, it can all seem like white noise.

Here’s a secret: As a manufacturer, you need to work with an insurance broker, not a direct insurance company.

Direct insurance companies know insurance.

But brokers know insurance for your industry.

They’re knowledgeable in lots of different domains and know which providers can offer the best product for you and your business.

The more complex the products you manufacture and the higher your insurance risk, the more crucial it is that you work with a broker.

A direct insurer won’t be able to help you because they’ll lack the product knowledge needed for the type of risk management or liability exposure your industry and company presents. 

Commercial insurance brokers are equipped to handle this.

They can speak your language.

And since a broker like KBD assigns one insurance expert to your file for the lifetime of your relationship — rather than direct insurers, with whom you never know who you’ll get when you call — they grow with you, learning the trade along the way and becoming more knowledgeable about your business than you’d imagine your insurance broker would be.

Wrap-up

Don’t stack your cash on your front porch!

Your business is one of the most important things you have.

Make sure you properly protect it with the right manufacturer insurance coverage.

Don’t think of it as an expense — think of it as an investment.

You might not like the idea of paying for insurance that might never be used, but trust us:

Losing your business would be a lot more painful than writing a little cheque each month.

Insurance is an investment in your business and in yourself.

When you look at it that way, it’s a no-brainer.

Contact us today to inquire about insuring your manufacturing company.

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