The disruption in our country’s supply chain over the last two years has forced manufacturers to take a hard look at their output and efficiency, as well as their business practices. In December 2021, production at U.S. manufacturing facilities accounted for 12% of the economy, driven by a strong demand for goods that are often in short supply. And this sector is only growing---U.S. manufacturing facilities are busier than ever as many companies re-evaluate where and how they operate.

Not only are these manufacturing businesses being required to carry more coverage than ever before, there has been a better understanding of not only the site-related exposures, but also the pollution risks associated with the products being produced. Insurance carriers are responding to this by offering more customized solutions. “We continue to see a robust, competitive market for products pollution coverage on manufacturers. Broad terms and adequate capacity are available,” says Rob Owens, Executive Vice President of the Environmental division at Westchester. “We are also getting more requests for higher limits, which results in larger towers and multiple participating carriers.”

Workforce and demand are not the only consideration; among other efforts, the global movement to operate more sustainably and safely are priorities. We looked at some of the catalysts driving change for manufacturing accounts:

Reassessment of supply chains

Supply chain disruption has forced manufacturers of textiles, chemicals, equipment, and other goods to adapt when planning everything from personnel to production. Many companies are seeking overall improvement in efficiency, technology, and distribution. This includes a focus on where these products are being manufactured; in turn, affecting their coverage needs. “With the global supply chain disruption, companies are considering shifting manufacturing assets from foreign countries back to the states.” Says Cody Barden, Director of Environmental & Energy with Markel. “While only time will tell how drastic of a shift this will be, it could lead to more opportunities for insurers.”

Businesses are also utilizing prediction models to try to account for unpredictable times, such as during COVID surges and natural disasters. In general, manufacturers are reassessing their supply chains and working to better plan for demand, changes in labor numbers, and market conditions.

Sustainability and environmental consciousness

Another area of concern for these businesses is adopting a set of standards that align with environmental, social, and governance (ESG) criteria. This means that many of these businesses are taking a closer look at how their practices are affecting the environment and society on local and global levels. It also means that from an ethical and reputational standpoint, they are working to drive positive change. An important component of this movement is having the right environmental coverage in place to protect the people and locations associated with these businesses. Lana Keppel, Senior Vice President with Berkley Environmental says “When dealing with supply chain challenges, manufacturers will continue to experience increased costs and lack of availability of raw materials making sustainability a key component for the industry to be successful. The concepts of recycling and reuse will become an even bigger priority in 2022.” She adds “Partnering with an insurance company that specializes in the environmental sector can assist manufacturers in aligning those concepts while managing their risks.”

Employee and public health & safety

In addition to recent labor shortages, monitoring and maintaining a safe work environment continues to be a major challenge for the manufacturing industry. In 2021, the unemployment rate was 6.7%, totaling ten million fewer people employed than before the pandemic. And things do not seem to be improving yet in 2022, employers are still finding it increasingly difficult to hire and keep workers. The number of open positions has put people looking for jobs in a position to be more selective; and working for a company that takes worker safety seriously is more than just a benefit, it is a requirement. “Some of the major challenges that the manufacturing industry will face in 2022 are significant labor shortages and supply chain challenges. With respect to labor shortages, it is more critical than ever for manufacturers to prioritize worker health and safety in order to attract and retain the best talent in the industry,” says Keppel.

Trends & challenges for manufacturing accounts

Environmental underwriters are seeing specific challenges related to these trends. The changes in demand and facility location are transforming the way carriers are assessing these risks, creating competition in the marketplace. “Competitive market conditions can sometimes make it difficult to get adequate pricing in the environmental insurance market for the long-term exposure on occurrence-based GL and Products Pollution coverage,” says Owens. “It can also be a challenge to quantify the exposure on an individual risk because final product destination is a key risk factor that is often difficult to determine.”

And the coverage needed to address manufacturing exposures is also evolving; regulations and cleanup issues relating to certain substances used by some of these businesses are also on the minds of environmental underwriters. Barden says “A challenge that is certainly at the forefront of most markets is tougher chemicals including but not limited to glyphosate/PFOAs/PFAs. Insuring these types of risk is challenging given the movement in regulation and the current legal environment.”

As the environmental insurance industry has grown, it has worked to address many of the exposures manufacturers face. Supply chain changes, ESG criteria, and newer health & safety measures are all indicators of a changing industry with new coverage needs. We are seeing a tremendous opportunity for manufacturer and distributor accounts and can help these insureds establish an insurance program tailored to each of their unique needs.

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Contributors and sources:

Rob Owens, Executive Vice President of the Environmental division at Westchester
Cody Barden, Director of Environmental & Energy with Markel
Lana Keppel, Senior Vice President with Berkley Environmental

https://www.advancedtech.com/blog/manufacturing-trends/

https://www.cnbc.com/2021/12/16/us-manufacturing-production-near-three-year-high-in-november.html

https://www.forbes.com/advisor/investing/esg-investing/

https://www.washingtonpost.com/business/2021/12/29/job-market-2021/