Assessing the ‘good’ risks…

In the absence of strict regulatory enforcement, are insurers prepared to take on liability for product manufacturing risks to enable business owners to operate with the protection of a policy?

In some industries, like the financial markets, businesses are subject to a compliance driven environment with regulatory frameworks, however, not all markets are quite as closely watched by regulators.

Questioned management standards

Instead, the burden of risk management is placed squarely on the shoulders of company owners and managers and it is often only when an unfortunate incident takes place that management standards are questioned.

Specific regulations governing materials, designs and standards can be broad and companies are responsible for formulating their approach to managing risks. Businesses have a duty of care.

Positive perception

From an insurer’s perspective, one question that may arise when considering underwriting a risk is: can a company within a lightly regulated industry present itself as a ‘good’ product liability risk?

The simple answer is yes. Here are some thoughts on how this can be assessed:

• Standards adopted within the organisation for the protection of its own employees is a good starting point. Although, arguably a rudimentary opinion, housekeeping standards offer an insight into the general culture and attitude towards safety.
• In a manufacturing environment, the process should be laid out in a sensible way. A confused or disjointed layout can lead to quality oversights.
• It is essential that staff is competent and performance measured. A high staff turnover presents elevated risk; however, good training and skills development plans can alleviate the risk.
• Third party contracts (suppliers, customers, installers, etc) should limit liability and, where possible, hold the company harmless. Supplier audit programmes are a necessity.
• The use of contractors exists in almost every organisation. Adequate vetting and project management arrangements will ensure their safe control.
• Third party certifications and external standards. While certifications such as ISO 9001, 14001, OHSAS 18001 are encouraging to note, ANSI, CE, BRC, FSSC and recognised trade body memberships are also positive features.
• Incident management (including complaints) determines how a company responds to an event. In the early stages following an incident, the information gathered and the steps taken to limit further loss are important.
• Automation in a product manufacturing environment eliminates the ‘human element’. Ideally, operators should be ‘observers’ as they make more mistakes than machines.

The way forward

Together with brokers, insurers should work with businesses to help recognise, address and mitigate potential risks, using their experience to help identify possible exposure areas that may arise from deficiencies in manufacturing processes and controls, as well as provisions made in contracts with supply chains and customers. Far more than just writing policies, insurers should be there to help run safer, more successful operations.