The New Zealand manufacturing sector is experiencing strong growth and is currently a standout on the international stage.
According to Statistics New Zealand, export earnings are approaching $50 billion with manufacturing for the construction and agricultural sectors growing over 9% and 8% respectively in the last year. With innovation and efficiency driving this growth however, manufacturers are confronted with new challenges and evolving risks – risks that need to be continually assessed and minimised.
New and evolving risks
Dinesh Murali, casualty manager and senior underwriter at Delta, explains: “In order to benefit from an efficient global supply chain, our manufacturing sector is increasingly more reliant on outsourcing many of their components and processes from offshore suppliers. However, this also makes them vulnerable to potential quality issues that are outside of their control.
“Additionally, there is a major trend for widescale use of programmable logic controller software and Industry 4.0 technologies in the manufacture of today’s products. By embedding this technology into their equipment and machinery, our manufacturers’ products also become connected to the internet of things, giving rise to risks such as cyber security which were not previously a concern.”
The same issues hold true for food manufacturers, with a 62% increase in recall rates for food products last year. These product recalls cover a range of issues, including accidental contamination from pathogens, undeclared allergens and other foreign matter, malicious product tampering and incorrect labelling.
The increase in recall numbers last year and the recall numbers so far in 2018 suggests this is a trend that looks set to continue.
“Generally this is the biggest risk that our manufacturing companies face today. Events such as product defects or pollution incidents can be prohibitively expensive. Product recalls can have a substantial impact on the bottom line and can seriously damage a company’s reputation. Manufacturers need to make sure they are covered for such an event,” Murali said.
Comprehensive cover
Traditionally, the insurance industry has dealt with these situations with limited extensions to their GL policy and by issuing multiple policies, and this approach has remained static for the last decade.
“It can be a tedious and expensive exercise for typical SME businesses when they need to purchase several insurance products independently,” Murali said. “Multiple insurance covers usually make the cost prohibitive.”
Because of this, Delta have developed what it believes to be a New Zealand-first – liability coverage specific to the needs of manufacturing companies, giving them comprehensive cover for such potential outcomes.
“We are a SME, middle-market country – we don’t have many billion-dollar companies. To suit the needs of these small companies, we’re making it as comprehensive as possible by covering those individual sections under one umbrella. We have put everything under one competitively-priced package at a more affordable premium.”
The manufacturer’s liability package is built on a general liability policy and takes a modular approach, carrying some unique coverage sections that are usually not addressed in other policies.
This cover under one umbrella targets both food and non-food manufacturers and insures a range of manufacturing-specific risks. The manufacturing package includes:
• Standard general liability cover for damages and injury to third party.
• Product defect and recall section, which covers the cost of removing and replacing the defective products.
• Errors and omissions section, which covers financial losses to third parties.
• Gradual pollution
• Consequential Loss section to cover business interruption from a covered liability event.
The food specific package covers all of the above, except the defects and recall section is triggered by product or packaging defects which pose a health risk.
Beyond the direct financial impact, manufacturers can also suffer significant reputational damage if they do not have the resources and expertise to proactively manage the complexity of a product recall. “The policy covers the costs of crisis management incurred to help mitigate negative publicity. We can help to provide manufacturers with all the legal, PR and other expertise they need in a crisis,” said Murali, “and there is also the flexibility to package it with other coverages too, such as Cyber liability.”
Murali said: “While it’s important for manufacturers to achieve innovation and growth for their companies, it’s also important that they have the risk mitigation strategies in place to deal with the one-off nightmare scenario when things go pear-shaped. You can make hundreds of good decisions every day and then come unstuck with one event that can seriously impact the bottom line.
“We would be more than happy to assist any brokers that would like us to work with them and their manufacturing clients to put this risk mitigation strategy in place.”
Catering to niche markets
As the only locally owned and operated specialist liability underwriting agency in New Zealand, Delta’s strategy of tailoring their offer to niche markets has been a successful one for them. They are currently the largest insurance provider to the thriving Kiwi technology sector and have introduced the first local liability products in New Zealand for the environmental and UAV (or drone) industries.
General manager Craig Kirk said: “We don’t see Delta as being all things to all people. We are in continual dialogue with our broker partners and we see a growing business demand for cover of specific industry risks. For example, we are seeing more requests coming through for areas like intellectual property and reputational cover, or even personal cyber cover. We want to make sure that we can accommodate this demand and add value by providing tailored, high quality products for the market.”
This article was supplied by Delta Insurance, a New Zealand-based insurance provider, a Lloyd’s of London Coverholder and are backed by multinational insurer Allied World. It provides a range of specialty commercial insurance products and have an office in Singapore.
