In March this year Mactavish published a report outlining how companies are exposing themselves to significant and unnecessary losses due to serious flaws in the way insurance policies are arranged.
We have now moved on to a new phase of research into the UK manufacturing sector and want to share some exploratory themes coming out of the latest interviews.
First, the facts about the British manufacturing base. While the sector has been in relative decline since 1970 – it accounts for twelve percent of National Output, half its share forty years ago – as of 2010 the UK was still the world’s sixth largest manufacturer by output.
Rebalancing the British economy has become an explicit policy priority of the Government. High-Tech manufacturing, in particular, has been buoyed by a lower pound and is in surprisingly rude health according to a research paper published this month by GE.
From a risk perspective the sector has seen its fair share of operational and strategic upheaval following the financial crisis: from rationalisation measures to increase efficiency in supply chains to accelerated product development and diversification into new territories, products and services.
These changes must be fully investigated by insurance buyers and insurers if risk disclosure is to keep pace with quicksilver and widespread operational upheaval.
Deepwateer Horizon and Toyota’s woes in having to recall eight models to fix a problem with a broken pedal have shown that changes made to business practices five or even ten years ago can impact risk profiles in unanticipated ways after a significant timelag.
New Mactavish research shows that the pace of operational change and dislocation in the manufacturing space is startling. While we are still investigating precisely how the following three example issues will impact risks, impact risks they certainly will.
First, we are studying in great depth the blurring distinction between manufacturers and service providers. Increasingly, Mactavish is coming across manufactuers that bundle services into their customer offerings and often take on uncertain professional indemnity exposures.
Second, there is the ongoing issue of ‘liability creep’ in the sector, with manufactuers – as commercial pressures bite – taking on more contractual liabilities than perhaps their product liability insurers realise.
Finally, supply chain disruptions are becoming more common, more complex, and much more widely reported. This is especially true in heavy industries and manufacturing where supply chains are increasingly global and interconnected. The possibility of protracted business interruption disputes, and deeply uncertain financial protection, is clear.
While we continue to investigate these and other issues in UK manufacturing, it is abundantly clear that high risk industries must do far more to investigate and clarify their risks if insurance is to be relied upon in the event of a catastrophic loss event.
Written by Bruce Hepburn, CEO of Mactavish
