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Manufacturing 2023: Rising Insurance Costs, Evolving Risks

By April 18, 2023No Comments

The manufacturing industry is facing rising insurance costs and evolving risks. This 2023 market outlook provides information to help you navigate the current landscape and your next insurance renewal.

Insurance Rates Impacting Manufacturers

MarketScout says U.S. commercial rates were up 5.1% in the fourth quarter of 2022. In the manufacturing industry, rates were up 4.7%.

  • Property lines are seeing the largest rate hikes. Rates were up 9.3% on average, but cat-exposed commercial properties saw increases of 25% to 30%.
  • General liability lines are also seeing above-average hikes. General liability rates were up 6.7%, and umbrella/excess rates were up 7.7%.
  • D&O liability rates were up 6%, whereas professional liability rates were up 5.3%, and employment practices liability rates were up 6.3%.
  • Cyber rates were up 20%. Although this is still high, it is more moderate than the rate hikes seen in previous quarters and may indicate price increases are moderating.

Natural Disaster Risks

Storms, wildfires, and other weather and climate disasters are impacting property rates, especially in regions with these exposures.

The National Oceanic and Atmospheric Administration (NOAA) says 18 major natural disasters with costs of at least $1 billion occurred in the U.S. in 2022, costing a total of $165 billion. Both the average number of billion-dollar events and the total annual costs have increased in recent years. In the 2010s, there was an average of 12.8 billion-dollar events per year with total average annual losses of $93.6 billion. Between 2020 and 2022, the average number of billion-dollar events increased to 20, and the total average annual losses increased to $144.9 billion.

ESG Exposures

The rise of environmental, social, and governance (ESG) investing is putting pressure on the manufacturing industry to make changes. According to Deloitte, 97% of senior executives say external stakeholders influence a company’s ESG reporting and disclosure policy most. Stakeholders expect a company’s actions to align with its ESG priorities and are requiring proof.

The manufacturing industry is already becoming more ESG savvy, but new regulations could make adopting ESG practices more urgent. In March 2022, the SEC proposed rules to enhance and standardize climate-related disclosures. Reuters said these SEC climate disclosure requirements would make ESG data strategies more critical. The new rules would require listed companies to disclose information about their direct and indirect greenhouse gas emissions. Plus, the FTC may implement additional regulations. Its Green Guides help marketers avoid making deceptive environmental claims. The FTC has requested public comment regarding potential updates.

Supply Chain and Inflation

High inflation rates have troubled consumers and businesses alike over the last year or so, but manufacturers, in particular, have been hit by a combination of steep price increases for materials and supply chain issues that make it difficult to obtain the items they need. The chart below shows the Producer Price Index for Manufacturing Industries from 1984 to 2003.

Higher prices are eating into profits.

A Deloitte survey found that shipping delays, part shortages, and transportation delays are having the greatest impact on manufacturing companies.

Most respondents reported that these factors have had a negative impact on profits of up to 13%.

Cyberattacks

The manufacturing industry has been a prime target for hackers looking to disrupt critical operations. According to IBM, hackers targeted manufacturing more than any other industry in both 2021 and 2022. Manufacturing companies are attractive targets because they cannot afford downtime. Cybercriminals leverage this to demand ransomware payments.

This rise in ransomware attacks caused cyber prices to surge, but the situation appears to be improving. The Council of Insurance Agents & Brokers (CIAB) says 63% of respondents reported an increase in cyber claims in the third quarter of 2022, but only 44% reported an increase in the fourth quarter. Meanwhile, price increases have slowed somewhat, dropping from a rate increase of 34.3% in the fourth quarter of 2021 to a rate increase of 15% in the fourth quarter of 2022.

Strategies for Success in the Manufacturing Industry

This is a challenging time, but resources and tools for businesses can help you succeed.

  • Strengthen your supply chains. According to PwC, 86% of executives and leaders agree their company should invest more in technology to identify, track, and measure supply chain risk.
  • Reduce your cyber exposures. CISA offers resources and recommendations to help lower your risk of cyberattacks, including remediating exploited vulnerabilities, training people to recognize and report phishing attempts, and using multifactor authentication.
  • Plan for emergencies. Natural disasters and other emergencies can disrupt operations, but solid planning can mitigate the risks. Ready.gov has resources on risk assessments and emergency plans.
  • Allow ample time for insurance renewals. Rate increases could be significant, and coverage capacity could be limited – particularly for property insurance. Start collaborating with your agent early. If necessary, allow time to shop the market and explore other options, such as captive insurance or excess and surplus markets.

As a manufacturing business owner, you must be prepared to face these challenges and take the necessary steps to protect your company, employees, and assets. Contact our team today to learn more about how we can help you safeguard your manufacturing business and navigate any challenges that come your way.