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Discussing business or commercial insurance can feel overwhelming. Every industry comes with its own risks, so there’s no one-size-fits-all plan. If you work in the manufacturing industry, you may wonder what types of insurance you require to mitigate the risks you face. Maybe you’re asking questions like “what is product liability insurance?” or “what types of insurance are legally required?” or “how do I get a product liability insurance certificate?”
You need clear and actionable answers. Let’s explore the reasons to insure your manufacturing business and what types of insurance policies you need to address common risks in your industry.
Why Insure Your Manufacturing Business?
Any type of insurance will cost you financially, so it makes sense to weigh out the benefits and the cost to make sure it’s a smart decision for your business. Here are four reasons why manufacturers should insure their businesses:
- Legal Requirements: Certain insurance policies aren’t optional. To comply with federal and state legal requirements, you need certain policies, such as workers’ compensation and commercial auto insurance.
- Reseller Requirements: Resellers also sometimes require their manufacturers to carry insurance policies. For example, Amazon makes some sellers carry a general liability insurance policy.
- Financial Security: One of the biggest benefits of insurance is that it keeps your manufacturing business financially secure. Without insurance, a single injury, lawsuit or any other adverse event could wipe out your business financially or set you back significantly.
- Peace of Mind: When you know you have a safety net to keep your business secure in the face of risks, you can enjoy peace of mind instead of worrying about the future of your manufacturing business.
One of these reasons could be enough to justify getting insurance for your manufacturing business, but when you consider all the reasons, it becomes clear insurance is an investment worth your money.
Manufacturing comes with risks that threaten the success of your business if you don’t properly manage them. When determining what types and levels of manufacturing insurance coverage you need, you must remain aware of these risks and any others you know that could cause a financial burden to your business. A textile mill and an automotive manufacturer may seem to have little in common, yet nearly all manufacturing businesses share a few common risks.
1. Manufacturing Equipment Breakdown
Manufacturing facilities rely on technologically advanced and complex machines. If a single component in one of these machines malfunctions, then the entire machine could go down. You not only have to worry about the cost to service the machine but the likely greater cost of unplanned downtime. For most manufacturing businesses, the loss of an essential piece of equipment will have a domino effect that halts or at least slows down production.
2. Manufacturing Workplace Injuries
In 2017, OSHA recorded 115,550 injuries in the manufacturing industry that were serious enough to put workers out of commission for a time. The most common types of injuries in manufacturing are sprains, strains and tears. Lifting objects and operating machinery can cause these types of minor injuries. Workers can also experience more severe injuries, which could leave them with significant medical costs your business is responsible for.
3. Consumer Lawsuits Against Manufacturers
No matter what types of products you manufacturer, there’s always a chance that the end-users of could be hurt by the product. Manufacturers include information like warning labels to help ensure consumers use products properly, but there are still plenty of instances where a consumer gets hurt and decides to sue the manufacturer. Even if your business isn’t at fault, a single lawsuit could cost you hundreds of thousands of dollars, if not more.
4. Manufacturing Vehicle Accidents
Any business that has its employees drive company-owned vehicles must be aware these employees could get into an accident while driving. This is a genuine risk for companies, just as it is for individuals and families. A traffic accident could result in serious expenses, including damage to the vehicle and injury to the person or people involved.
5. Property Damage to Manufacturing Plants
Natural disasters and severe weather events can lead to damage to your facility and property loss that can cost you significantly. A break-in could also result in devastating property losses. When a disaster like this occurs, it could bring your operations to a sudden stop. It could also cost you astronomically to repair the damages, replace your lost property or rebuild completely, if necessary.
6. Pollution Damage to Manufacturing Plants
Manufacturers who work with hazardous materials also face the risk of chemical spills or any type of issue where a pollutant isn’t properly contained. In the event of a spill, you’ll be faced with clean-up costs and property damage. Workers exposed to hazardous materials may need medical tests and treatment your company would be responsible for. Pollution damage can also lead to costly legal complications.
Insurance Policies for Manufacturers
Now that we’ve covered the reasons your business needs insurance, including the risks it is meant to mitigate, let’s discuss some of the most relevant policies your business may need.
1. Workers’ Compensation Insurance
One policy every business needs is workers’ compensation insurance, often shortened to “workers’ comp.” This policy will cover the costs associated with an employee experiencing a work-related injury or sickness. Your insurance company helps cover the employee’s medical costs and the cost to give them paid leave while they recover. Workers’ Comp will also help with legal fees if an employee’s family sues your business.
This type of insurance is required by law, though the exact requirements differ from state to state. In Pennsylvania, even if you only have one employee, you must have workers’ compensation insurance. If you don’t have it, you could be charged with a hefty fine of either $2,500 for a misdemeanor or $15,000 for a felony. You could also be sent to jail and serve time in relation to the total number of days you were without workers’ comp coverage.
2. General Liability Insurance
General liability insurance protects businesses from a wide range of liability risks. These risks include property damage or injuries your company may be responsible for. For example, if someone sues you for false advertising, your general liability insurance policy would help cover the legal fees. Premiums for this type of insurance, which typically includes products liability, are based on sales and typically range from $1,000 to $100,000+ depending on the product manufactured and the volume sold. This is a bargain considering your business could easily spend over a million dollars on legal fees if you had to fight a lawsuit that was brought against you.
Keep in mind that, even though a general business liability insurance policy is meant to cover the most common risks, it may not include every liability your business faces, so you may need to supplement with other policies.
3. Product Liability Insurance
One facet of general liability insurance that is especially relevant to manufacturing businesses is product liability insurance. This policy covers costs that could arise if a product you manufacture causes problems for a consumer. It could be that your product malfunctions and damages the customer’s property. Or a faulty product could hurt someone physically. Whatever the case, a consumer could bring an expensive lawsuit against your business. Note that product liability insurance is not intended to cover suits over a defective design if the product doesn’t do any damage.
Even products that may not seem inherently hazardous have the potential to hurt someone, so you should be prepared for the worst-case scenario. Especially if you manufacture products that present some risk to consumers, this type of insurance coverage is essential. However, if your product is particularly hazardous, then you may have trouble getting coverage from some insurance companies. You may also want to consider product-related policies such as product warranty insurance or product recall insurance. Be sure to get a product liability insurance certificate to prove your purchase.
4. Commercial Auto Insurance
In addition to workers’ compensation insurance, another legally required insurance policy is auto insurance. States across the U.S., including Pennsylvania, mandate some level of auto insurance coverage. In Pennsylvania, the required coverage includes a minimum amount of medical benefits, bodily injury liability and property damage liability. If you don’t have the required amounts of auto insurance coverage, you’ll face penalties.
If your business has any vehicles your employees drive for work-related purposes, then you must have a commercial auto insurance policy. Traffic accidents are all too common, so any time your employees operate a work vehicle, they could be in an accident. Auto insurance will help cover the costs of damage done to other vehicles and drivers, and if you have more comprehensive coverage, it will also cover the cost of your vehicle repairs and your employee’s medical bills.
5. Commercial Property Insurance
Commercial property insurance protects your business from financial ruin when you experience a covered peril, such as a fire, tornado or theft. Whether you’re dealing with losses from a natural event or from a break-in, you’ll have to replace the lost or stolen equipment and inventory. In the case of severe weather events or fires, you’ll also be faced with building repairs. Or, in the worst cases, you’ll need to rebuild your whole manufacturing facility from the ground up.
As with your homeowners insurance, commercial property insurance pays to repair or rebuild your facility and replace lost property from a covered event. Unlike homeowners insurance, commercial property insurance also helps to compensate for the lost revenue your business would experience from having to shut down for a time. If only certain pieces of equipment are out of commission, your insurance policy may even cover the cost to rent replacement equipment to keep operations up and running.
6. Pollution Liability Insurance
There are plenty of other types of commercial insurance policies we could discuss, but one more policy any manufacturing business should consider is pollution liability insurance. If your business accidentally spills or leaks hazardous materials, you can’t simply mop it up and be on your way. Hazardous materials can be expensive to clean and dispose of properly. You also have to pay for medical services for employees exposed to the hazardous substance. Finally, you may have to shoulder legal costs if the spill was the result of some type of negligence.
A standard commercial property insurance policy does not include pollution issues, so the only way to be covered in the event of a chemical spill or any pollution problem is to have a policy specifically for this. If your business relies on hazardous materials to manufacture products, then you should be prepared with this coverage.
Three Ways to Choose the Best Insurance for Your Business
With so many types of business insurance policies available, it’s easy to become overwhelmed and unsure of which policies your manufacturing business needs. When you’re not sure where to start, consider these three strategies for helping you find the best insurance coverage for your business.
1. Determine the Biggest Risks for Your Business
Whenever making decisions about insurance, you want to determine what sorts of risks you need to guard against. Ask yourself what risks are most common to your business. Go through the list of risks above and determine your company’s vulnerabilities.
In addition to assessing which risks are most common, you want to think which risks would have the most detrimental effect on your business. In other words, what sorts of perils could you not afford to handle on your own without insurance? Could you afford the legal fees associated with a lawsuit over one of your products, for example?
2. Work With an Agency
While you may have the best understanding of what sorts of risks your business faces, a professional in the insurance industry will know more about different types of coverage available and what policies would offer you the most comprehensive coverage to address your needs.
We recommend working with an independent insurance agency vs. working with an insurance company directly. An agency has the freedom to compare policies from multiple providers and find the best options for you rather than only offering policies from a single company.
3. Bundle Your Policies
If you want to save money on your insurance, a great way to do this is to bundle policies. Ask your insurance agent to help you put together a commercial business insurance plan that covers all of your needs.
Though this coverage will involve multiple policies, bundling them keeps things simpler and can cut down on your bill. Just make sure you understand exactly what coverage you have.
Mitigate Risk With Manufacturing Insurance
Manufacturers deal with daily risks that threaten to throw off their business plans if they’re not prepared for them. Getting the proper insurance coverage will give you peace of mind, knowing even the most daunting risks won’t keep you from doing what you do best.
As an independent agency, we can help you customize a plan that perfectly meets your needs and your budget. Our agents are dedicated to providing you with the best coverage possible so you can watch your business grow and thrive without getting weighed down by costs from lawsuits, theft, accidents or disasters.
Let us show you the upside of insurance through our technical knowledge and proactive approach to solving your problems. To learn more about how you can get the right coverage for your manufacturing business in Pennsylvania, contact Gunn-Mowery today.