Diverging Outlook on Manufacturing Insurance

The manufacturing industry continues to face a complex insurance landscape in 2024, with some areas showing signs of stability while others remain more challenging.   

This contradiction may surprise because, at its base, manufacturing has a solid foundation. The reason? The industry’s inherent predictability aligns with the elements that insurers value: Manufacturing operations typically have a fixed location and are largely self-sufficient, which inherently appeals to insurance providers.   

However, there have been many fluctuations within this environment that have made manufacturing more complicated in a post-pandemic world. For instance, some insurance lines, such as Property Insurance, still see ebbs and flows due to extreme weather conditions and increased construction costs.   

Despite those vacillations, though, we are starting to see signs of leveling off within Property Insurance. Meanwhile, Auto Insurance and lines of coverage for other forms of transportation continue to increase as costs rise in myriad areas, while Cyber Insurance has leveled off after years of remarkably costly rates.  

Property Insurance: Signs of stabilization  

After years of significant rate increases, Property Insurance for manufacturers has finally started to gain some stability. Progress, however, is relative — for instance, we can tell clients that the anticipated increase of 30% will now be roughly 5%. This is a positive development, of course, but costs can literally change overnight in the event of a major catastrophe.  

That’s why manufacturers should still be prepared for potential Property Insurance increases, especially in areas prone to severe weather events. Notably, this description no longer applies to just Florida and California, which had previously been the foremost sites of dramatic climate crises. Now, we’re seeing such instances in Texas and other Gulf states, as well as in the middle of the country.  By mid-June of this year, the United States had already seen 11 climate disaster events, with losses exceeding $1 billion each. Of those 11 events, nine occurred in the central United States.  

Also, it’s simply a fact of life that costs have risen in a post-pandemic world. Rebuilding a property that was worth $1 million can now cost up to $2 million because of higher construction and labor costs.   

Transportation coverage: Ongoing challenges  

Replacing Property Insurance as one of the most pressing issues for manufacturers in 2024 is the cost of Auto and other lines of coverage related to transportation, such as Inland Marine Insurance for property transported by truck, rail or in storage during or at the completion of transit. Typically, we are not seeing anything less than a 10%  — or maybe even 15% increase — for Auto and Inland Marine Insurance.  

Factors contributing to this trend include a confluence of higher vehicle costs, rising repair expenses and increased accident rates. While the pandemic may be behind us, it exposed the fragility of our global supply chain — prices rose, and they simply never went back down.  

And you’re not alone if you believe that drivers have gotten more aggressive over the past few years: Nearly half of those surveyed in one study believed other drivers had become more aggressive during the pandemic. This perception of increased aggression in others led some to become more aggressive themselves. In other words: Be careful out there.  

Workers’ Compensation: A bright spot (for now?)  

While other areas of insurance face challenges, Workers’ Compensation Insurance remains a relatively positive aspect for manufacturers. Insurance companies seem to want to write Workers’ Compensation, which can help offset rising costs in other areas.   

However, this situation could change given current labor market trends. If a company has to go outside its typical circle of employees because there just aren’t enough workers, that could tilt the market back. One study found that U.S. manufacturing could need nearly 4 million new employees, which could affect this particular line of insurance. 

Indeed, 1 in 4 construction workers are older than 55, according to a study from the Bureau of Labor Statistics and Associated Builders and Contractors. That same report found that the construction workforce could require more than half a million new workers to keep up with demand.  

In the section of our 2024 Property and Casualty Market Outlook devoted to the manufacturing industry, Alera Group reports that “The lack of workers and people with needed experience increases the risk of accidents and injuries.” More than halfway through the year, that forecast has proved accurate. 

Cyber Insurance: Improved outlook 

For some positive news, we can look to the trend within Cyber Insurance, which for years was one of the harder areas to cover. Here’s why: Companies had largely taken cybersecurity for granted, so they let their technology become outdated. This, in turn, made them easy targets for global hacking groups. In order to gain Cyber Coverage and protect themselves, organizations had to implement various remediation measures and improve their security. Meanwhile, insurance costs skyrocketed by up to 300%, at times. 

But now, both clients and insurance providers have gotten more active in this area. Companies have upgraded their systems, enhancing their security and introducing complex multifactor authentication. In the meantime, insurance providers now routinely test companies’ security to make sure it’s up to par.  

This proactive approach, combined with stricter requirements for policyholders, has led to a more stable Cyber Insurance market. Now, costs have really leveled off and, in some instances, have actually come back down.  

The cycle, however, will keep evolving as new technologies perpetually increase the threat of cyber risk. As factories embrace cutting-edge innovations such as IoT devices and smart systems, they unwittingly open new doors for digital intruders. One wrong click, and a manufacturer could see its prized formulas stolen, assembly lines ground to a halt or a hard-earned reputation tarnished.  

Looking ahead  

As manufacturers navigate the insurance landscape for the remainder of 2024 and in preparation for 2025, they should be prepared for ongoing challenges in Property and Auto Insurance while taking advantage of more favorable conditions in Workers’ Compensation and Cyber. Whatever the line of insurance, it’s critical to work closely with insurance professionals to ensure adequate coverage and implement risk mitigation strategies.  

“Property improvements can help clients reduce premiums,” the Alera Group Market Outlook notes. “Implementing improvements such as upgraded sprinkler and dust control systems, and reduction of flammable storage heights can help clients qualify for premium reductions.”  

Similarly, staying up to date on cybersecurity trends and working proactively with insurance partners can help manufacturers better position themselves to manage risks and protect their businesses in the year ahead. 

CONTACT A MANUFACTURING INSURANCE SPECIALIST

About the author

Chris Breck, CIC, CRM
Senior Vice President
Alera Group 

Chris Breck manages the day-to-day insurance and business needs of many of Alera Group’s longtime clients. His primary responsibilities include the design, marketing and implementation of commercial property and casualty insurance programs. Chris specializes in delivering alternative risk solutions, including Captive Insurance programs. He maintains a broad industry focus, with clients in industries including manufacturing, service, retail, healthcare and nonprofit. He has been a licensed insurance producer since 1992, a Certified Insurance Counselor (CIC) since 1996 and a Certified Risk Manager (CRM) since 2010.

Contact information:

• chris.breck@aleragroup.com
• Connect with Chris on LinkedIn