Manufacturing may be one of Australia’s most diverse industries, but all 86,500 businesses have these six risks in common:

• Business interruption
• Product recall
• Product and public liability
• Machinery breakdown
• Supply chain issues, and
• Marine and transit problems.

This article will look at how you can manage and protect your business against these key risks that can thwart growth and success. But, first, let’s explore this sector’s diversity.

Sector under the spotlight

Australia’s manufacturing sector turned over $3.3B in 2018-19, according to the ABS. The Australian Industry Group, in its Performance of Manufacturing Index, splits manufacturing into these sectors:

• Food & beverages
• Machinery & equipment
• Metals products
• Petroleum, coal, chemicals & rubber products
• Building, wood, furniture & other products, and
• Textiles, clothing, footwear, paper & printing.

International competition, trade wars and economic policies have seen manufacturing dwindle in Australia since the 1960s. The sector has also more recently taken a hit with the coronavirus, the Victorian government’s subsequent trading restrictions and enforcement of hard borders between our states and territories.

Your main risks and how to mitigate them

Business interruption: Apart from the pandemic, other interruptions can result from fire, flooding, loss of electricity or running water, cyber crime, vandalism, or natural disasters.

There’s a range of measures that you may already be doing to reduce the likelihood of long-term interruption to your business. They include installing sprinkler systems on your premises to reduce fire damage, a program of machinery maintenance, keeping a list of ‘plan B’ suppliers for ‘just in case times’, investing in security cameras, as well as regularly monitoring your suppliers’ credit scores and ratings.

As your broker/advisor, we can help you plan before a disaster. Often manufacturing businesses underestimate how long it will take to restore to full operations. That’s because there are multiple steps, and at times, complexities due to long supply chains.

Insurance cover for business interruption protects you against loss of income due to prolonged closure following a disaster and may cover the cost of ongoing expenses. Business interruption coverage is usually sold as part of commercial policy, not as a standalone package.

Product recalls happen when a product is unsafe or could cause injury through use or misuse, according to Fair Trading NSW. A business or supplier can voluntarily initiate a recall, or a government authority can mandate it. Think Takata airbags, foreign objects found in factory-produced food or children’s pyjamas that aren’t as fire-safe as the manufacturer claims. Check the Australian Competition & Consumer Commission (ACCC) site for current recalls; this page explains consumers’ rights about products.

Many manufacturers take a huge hit when they recall products because they haven’t realised the impact on their brand’s reputation. Insurers may even provide partners who specialise in crisis management, which will help to manage the impact of the recall upon your company profits and reputation.

Product liability provides cover where your products cause damage or injury to others.

Few manufacturers can claim to have defect-free products all the time. You can reduce your product liability and product recall risk though, by following the ACCC’s tips:

• Review product designs and production regularly
• Roll out and review your quality assurance processes
• Test your products by batch often using relevant standards
• Run appropriate marketing activities
• Offer clear and detailed user instructions, and
• Where needed, organise a quick voluntary recall of your unsafe or defective products.

The product liability insurance will also pay for your defence such as lawyers, experts and court costs.

Machinery or equipment breakdown is a common issue for manufacturers. You’d be able to tap into this insurance for damage, repairs or replacement gear if repairs take a while. As a yardstick, machine breakdowns are usually between four and 15 times your maintenance costs.

Supply chain disruptions can cause more than headaches with your processes.To identify supply chain risks, refer to checklists provided by your state government, like this one by Queensland Government.

Marine cargo, also known as transit, are risks that can affect your product when it’s moving by sea, road, rail, air or bike as well as in temporary storage. A delay or damaged or missing product costs your reputation. This may affect repeat business, and you could be out of pocket if you don’t have the appropriate insurance.

Transit insurance varies depending on the destination, frequency and duration of coverage. You might need a one-off or ongoing coverage and may wish to insure raw materials you ship as well as the finished products. As your broker/advisor, we can listen to your needs to match you with the most cost-efficient policy.

So, in assessing these six main risks for your insurance business, we’ll also regularly check in with you to see if your policies need ‘tweaking’ to reflect changes in your operations. These endorsements ensure your business has the ongoing protection it needs through all conditions.