Why Manufacturers May Need an Extra Layer of Insurance Protection

As a manufacturer, you’re exposed to a variety of risks and liabilities related to your products, supply chain, employee safety environment, commercial autos and more. That’s especially true if you manufacture food or other consumer products, or if you make components and parts for other firms.

While your primary manufacturing business insurance can help cover some of these risks, it isn’t always enough to safeguard against major liability claims or verdicts. Excess liability insurance provides an extra layer of protection in case covered losses exceed the limits of your primary policies.

Does my company need excess liability insurance? 6 questions to consider.

Due to the unique exposures manufacturers face, they tend to buy more excess liability insurance than other industries and choose higher coverage limits as well. This has become essential in today’s era of rising, high-dollar jury awards and class-action lawsuits. If the damages from a large claim exceed the limits of your current policies, excess liability insurance is designed to help cover the difference.

In addition, your excess liability carrier should provide dedicated, specialized claims management and excess liability coverage that includes expenses of a public relations or crisis management firm. These features can play a vital role in sustaining the health and viability of your business.

Whether you’re purchasing excess liability insurance for the first time or looking to increase your coverage, here are six key questions to consider.

1. Are you prepared for the total cost of a products liability claim?

“There’s a very real potential for a large verdict against a manufacturer,” according to Trish Carpenter, AVP, Regional Operating/Underwriting Officer at Travelers. For example, manufacturers of component parts are especially vulnerable to products liability claims. If your component parts go into another firm’s product, you could be included in a bodily injury or property damage claim as a contributing cause of the loss. Conversely, when using another firm’s components in your products, you may have liability exposure if you don’t have a contractual risk transfer agreement in place.

The costs of responding to and defending a products liability claim may exceed your primary insurance coverage limits, which could be financially devastating to your business. Excess liability coverage is designed to help cover the gap.

2. Do your products carry a higher risk of lawsuits?

While most manufacturers face an array of exposures that might lead to expensive litigation, these products may carry higher risk:

It’s important for manufacturers to consider excess liability insurance. If your industry segment is high-risk, ask your insurance agent about a carrier that can issue a policy with higher dollar limits and provides extensive claim management and mitigation services.

3. Can your business handle a public relations crisis?

If your product is alleged to have caused widespread bodily injury or property damage, it may be featured in local or even national media coverage. This could harm your brand and your business. “We’ve seen it over and over again,” said Carpenter, who suggests paying attention to lawsuits in your industry that may influence future litigation.

Crisis management service expenses coverage may be part of your excess liability insurance policy. It pays for certain expenses for public relations or crisis management services that can help mitigate negative publicity from unexpected crisis events.

4. Do you use advanced manufacturing technology in your production process?

Advanced manufacturing technology is evolving to become more complex and interconnected. With this ongoing transformation, new liability risks continue to emerge:

• Workplace Safety – Technology-based risks to employees include working near moving machinery and robotic parts, and programming and data errors causing equipment malfunction or other safety hazards. Ergonomic changes and lack of machine safety and training present additional dangers.
• Manufacturing Defects – New technology and manufacturing methods can inadvertently result in product defects. These might cause bodily injury, property damage or financial and reputational loss resulting in lawsuits and negative media attention.
• Property Damage – Digital devices incorrectly integrated into operations could cause damage to facilities, raw materials or finished goods. For example, malfunctions in machinery control systems, pressurized processes or temperature-controlled environments might lead to overheating, explosion or product spoilage.
• Cybersecurity – A successful cyberattack on internet-connected sensors and devices can sabotage production, corrupt data and destroy equipment. In addition, intellectual property, along with sensitive customer and employee data, may be stolen.

5. Do you distribute your own products?

If your business owns or uses automobiles to distribute your products, excess liability insurance adds crucial protection. An employee-related car accident caused by distracted driving can bring a multimillion-dollar lawsuit. And the more vehicles in your fleet, the greater the risk.

Using a third party to deliver or distribute your products may reduce your risk exposure. However, you may still be exposed – in excess of your current policy limits – if the third party doesn’t carry enough liability insurance. For example, your company could be responsible for an accident if you chose the driver’s routes and determined how the goods were to be delivered by the driver.

6. Has your company acquired another manufacturer or product line?

A merger or acquisition is a good time for a manufacturer to reassess exposures and increase excess liability coverage limits. “Sometimes manufacturers aren’t aware of liabilities they might have taken on when they acquired a new company,” said Carpenter. For example, though your business may not have been involved in manufacturing the original product, it could still face liabilities from the acquired firm’s discontinued products.

How insurance professionals determine how much excess liability coverage you need

As you’re deciding on the amount of coverage to buy, keep in mind that your broker or agent must evaluate your company’s risks and liabilities to determine what is appropriate to cover the risks. According to Carpenter, factors used by insurance professionals to determine how much excess liability coverage you need include:

• Whether the business has experience with prior large losses.
• What is typical for companies of similar size and operation.
• Whether any recent changes in the business affect risk exposure.

Another factor is the size and product reach of your company.

The larger the business, the larger the exposure.

Trish Carpenter, AVP, Regional Operating/Underwriting Officer at Travelers

Beyond having more employees, facilities and product lines, bigger companies frequently have national and global reach, making them subject to a wide variety of laws and regulations.

Whether the business is small, medium or large – and depending on the type of products it manufactures – each has different coverage needs. When selecting an insurance carrier, be sure it has deep experience working with companies of your size and in your industry, as well as the size you expect to grow to in the future.

Choosing an excess liability carrier

In the event of a major claim or class-action litigation, excess liability insurance can help safeguard your company’s financial health. The Travelers Excess Liability team specializes in supporting manufacturers of all sizes and risk levels – even when your primary policy is with another carrier.

From small firms to large corporations, we offer national and global coverage, high-dollar limit capacity and expert services designed to protect your company and brand.

To explore your options further, contact your agent or learn more about our excess liability solutions today.

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