As a manufacturing business owner, you know the risks inherent in your industry. All businesses face risks, but each industry comes with its own unique challenges, and manufacturing is no exception.
That’s why it’s essential to invest in strong business insurance that will cover your specific risks and liabilities. The right insurance coverage can make the difference between a company staying open and shutting its doors for good during hard times.
Here is what every small manufacturing business should know before getting insurance.
Understand the Risks You Face
Manufacturing risks are generally related to factors such as working conditions, product development, and supply chains, but they can also extend to facilities and equipment efficiency.
Liability Risks
Liability risks are among the most severe potential disasters for manufacturers and small business owners. For businesses across the board, liability comes into play if someone is injured on your property. But manufacturers could also face liability lawsuits if someone suffers harm caused by a product they have manufactured.
These can be extremely damaging for the image of small businesses and can result in expensive fines. Having a product liability policy that can cover this risk can be essential to recovering from the impact of such an event.
Costs of a Recall
Recalling a product from the market because it is faulty or dangerous is another risk for manufacturing businesses that often comes through no fault of their own. If you have invested a large amount of resources in a specific product’s production chain, taking it off the market leaves you with sunk costs and no way of recovering them.
A food recall costs an average of $10 million in direct costs, and product recalls can cost billions. Even when scaled down for smaller companies, the cost of a product recall is devastating and can bankrupt companies with a smaller pool of resources to draw from.
Costs of Downtime
In some cases, downtime refers to the time in which a business is not online or productive. However, in the manufacturing industry’s specific case, downtime refers to the time in which the machinery and facilities have to be shut down. This could occur due to equipment malfunctions, natural disasters, a limited workforce (as has been the case for many during COVID-19, as workers get sick or are quarantined after exposure), etc. Downtime in your facility can significantly delay your production and ability to get orders out on time.
Larger companies might be better equipped to absorb the financial blow of disasters or disruptions. However, smaller businesses, which make up 98% of the US manufacturing industry’s total workforce, are likely working on a tighter budget and capital with less leeway to correct mistakes. So a disaster of large proportions can easily cause long-term debt or bankruptcy.
That’s why individually tailored manufacturing insurance can play an essential role in repairing such damage to small manufacturing businesses.
Understand the Coverage Available for Manufacturers
No business in the manufacturing industry should operate without a reliable insurance plan. The sector is reported to have experienced negative growth of -4.7% in the past years due to weakened demand and now interrupted production caused by COVID-19, so manufacturing businesses need to protect themselves better than ever before in order to remain competitive.
General Liability Insurance
Commercial general liability insurance is an essential policy for any business, independent of industry. This policy will protect your business against lawsuits for having caused physical damage or bodily injury to a client, consumer, staff, or contractor. It can be purchased by itself or as part of a larger package, such as a Business Owner’s Policy (BOP).
Product Liability Insurance
Product liability insurance protects your business against damages caused by a product you have put on the market. If your product has caused harm to a consumer, you could be required to pay for the damages. This policy covers such costs for you.
Equipment Breakdown Coverage
Equipment or facility breakdown can happen as a consequence of a disaster or malfunction. When this happens, the business can experience physical damages to both inventory and staff. Equipment breakdown coverage protects against the costs of those damages and replacing equipment.
Business Income Interruption Insurance
Your business’s production can be interrupted by supply chain disruptions, damages to your equipment or premises, and more. During that downtime, you’re losing potential revenue and likely still incurring costs to pay workers and repairs. A business income interruption policy covers those gaps when your business is interrupted. This policy guaranteed that you can still receive a steady income even if your business cannot operate.
Product Recall Insurance
Even if you think your products are foolproof, there is always the risk of problems further up the supply chain, malfunctioning equipment, or a host of other issues that could cause a recall. Product recall insurance protects you against the significant financial damages of a recall.
Understanding these risks and insurance policies available for manufacturers is just the beginning. Speaking to an expert insurance agent can be an excellent way to get a clearer idea of the plan you will need. For small manufacturing business insurance, talk with an agent from Bethany Insurance today.
