From cover to cover

Picking the right insurance cover is like being at the counter of a designer coffee bar. There are just so many menu options that it's hard not to be bamboozled by the choice. From professional indemnity to pension trustees' liability or product recall, insurance giant Zurich Insurance plc list a plethora of policies typically supplied to manufacturers. And just as some people prefer an espresso to a toffee mocha latte, the right insurance choice is down to personal taste. "The big question is about who should buy what and it really depends on what area of manufacturing you're in," says Steve Green, head of corporate business for Zurich UK General Insurance. But, says Green, there are certain types of cover that should be regarded as universal. "Things like property insurance, protection against loss of profits; employer's and public & products liability are all things I'd expect manufacturers to have." Alongside those fixtures there are other growing risk areas says Green. In September, Zurich launched its Value of Insight proposition - a range of industry specific covers launched through brokers to try and address what the company sees as the manufacturing industry's big challenges. One of the additional covers is product recall protection explains Green. "We've got lots of issues with a growing number of recalls made by trading standards and consumer safety authorities. Companies need to minimise the impact of a recall." Product recall cover includes recall planning, preparation advice and post loss crisis consultancy if an incident were to occur. Product recall cover is most relevant to consumer goods and food & beverage manufacturers because of the heightened risk of recalls, Green adds. However the cover has experienced a broad rise in popularity across the sector, according to Zurich. Green explains: "I would say product recall is the line of business in insurance that's gaining the most in popularity and interest." Brand protection is another boom area. Manufacturers can protect themselves against the fallout from product tampering or contamination. These can fuel damaging publicity that undermines customer confidence and shareholder value. Product recall and brand awareness might be in vogue, but financial lines still dominates many insurance enquiries says Green. The cover protects company directors from being held personally liable for financial difficulties. For example Pension Trustees Liability cover could protect directors from being responsible for a pension fund collapse. Director's responsibilities and have been under the spotlight since Higgs and Turnbull reports set out guidelines around internal financial reporting. Establishing best practice on the way a company is run, known as corporate governance has become a key challenge. Being alert to potential risks and controls is something manufacturers must consider, Green says."It pays to be familiar and remain up to speed with the current legal and regulatory pressures on manufacturers in the UK," he says. Once a manufacturer has bought the insurance that best fits their business you might think they can sleep more easily. But when the machine breaks down or flood waters strike there may yet be a nasty surprise when it comes to making a claim. "Customers need to pay more attention to what they're buying", Green explains. "It's important manufacturers understand that not all policies are the same. Just buying something on price could be a mistake." And mistakes can prove costly, as Green explains, who's seen a number of business count the cost of underinsuring. It's an error that stems from manufacturers failing to regularly review their policies, Green adds. "If you're a manufacturer and your machinery is purchased from Europe you will have bought at a given exchange rate. But come the time of the claim the exchange rate may have changed and your machinery might be worth considerably more." Manufacturers should revise figures on an annual basis with their insurance brokers, Green advises. Regularly revisit your sum insured when renewing your policy, he says. Firms must also be specific about demanding the right level of cover from a policy. "Ensure your broker fully understands the scale of cover that you require," says Green. "Rather than just shop around, think does it meet my needs?" Brokers remain the most popular destination for manufacturers to buy insurance, Green reflects. But he says insurance companies want to work alongside brokers in discussions with manufacturers. He urges firms to talk to their broker about setting up a meeting with their insurer to help get the appropriate cover. "I think it's a mistake when manufacturers decide not to meet with their insurer. We're now a major supplier to the sector so why would you want us to be a stranger? " Yet, even if the triumvirate can produce the perfect insurance package there's still hazards that fall outside of any policy says Green. "Insurance is only part of the equation. We spend a lot of time talking to manufacturers about areas of uninsurable risk that must be paid attention to." Business continuity planning is a vital area that's often neglected Green adds. "What happens if your supplier in China can't supply a key part in your manufacturing process or there's a fire or flood. Some businesses never recover from disaster." There are a plethora of health and safety guidelines to meet, he adds. Get caught out and you could be running the risk of a corporate manslaughter charge. "How are you going to deal with the HSE officer when an issue arises? Talking of legislative requirements do you know that you have to have a fire risk assessment?" Even the biggest company's can fall foul of the regulations. Shell was fined £300,000 in June 2009 for failing to update its fire risk assessment at the Shell centre in London. There are plenty of other pieces of legislation, from employment law to environmental compliance, that keep employers awake at night. Factor in issues such as Contingency Fees where a lawyer can recover a percentage of any damages paid to a claimant from insurers and you have a real risk of litigation and increased damages. Anecdotal evidence suggests current and past employees are already being seen as an investment opportunity with hedge funds offering to pay for their legal expenses in return for a share of any damages paid out. In response, Zurich provides full risk management advice from a panel of experts and Green predicts a busy period ahead for the team. "The government is looking to plug the deficit. They may look to enforce existing legislation to bring in revenue. The pressure on manufacturers may just be about to increase." Survival will be down to effective risk management says Green. And the perfect place to start might be joining your broker on a personal visit to your insurer, he concludes. "My recommendation would be simple- get your broker to set up a meeting with you and your insurer." Top tips on getting on top of your insurance

1. Pay attention to what your buying Not all policies are the same according to Zurich. Buying on price alone could result in cover that's ill suited to your requirements. Manufacturers should agree with their broker on the minimum scale of cover they need and reject policies that fall below the threshold.
2. Avoid underinsuring your assets Make sure any valuations are kept up to date. Rebuilding/replacement costs can fluctuate. Zurich suggests updating figures annually or you could face a payout that falls well below market value.
3. Insurance is only part of the equation Some risks cannot be insured against warns Zurich. The firm offers to work with manufacturers and brokers to identify and mitigate such hazards. Key dangers include poorly worded contracts, employment practices following the Equality Act, the Bribery Act, environmental compliance and corporate governance.
4. Meet your insurer Manufacturers should engage in dialogue with their broker and try and set up a personal meeting to discuss their insurance concerns
5. Remain aware of changing risk profiles Increasing global business activity of UK based organisations has created a heightened requirement for Personal Accident & Business Travel policies in the manufacturing sector. At the board level, executives may be personally responsible for the effect of their decisions and responsibilities, especially in such a litigious society.