The fabric of life

Textile manufacturers face very particular risks and intermediaries underwriting these risks need an extensive insight into the workings of the business to package the right cover for these clients. Newly launched Etana Insurance who specializes in business insurance provides an overview of general covers that are critical for these types of businesses.

According to South Africa.info, South Africa produces in the region of 40 000 tonnes of cotton a year and is the world's largest mohair producer and the fifth largest producer of wool. The local textile and clothing industry has grown in line with global and local demand to offer the full range of services, from natural and synthetic fibre production to non-wovens, spinning, weaving, tufting, knitting, dyeing and finishing.

The growth in this market creates opportunities for brokers, but this industry requires well considered insurance packages that take into account its unique needs.

Fire

This type of business constitutes a very high and serious fire risk. This is due to the fact that the raw materials, as well as the finished product, are highly combustible.
The use and storage of flammable and combustible liquids constitute the primary exposures, in addition to the flammable nature of much of the stock and the combustibility of cotton fibres, along with the presence of plastic and paper packaging materials.

In addition there are numerous ignition sources and congested layout. In most operations there is storage and use of flammable gas like LPG which constitutes its own fire hazards.
The typical layout of textile mills and factories aids rapid fire spread as there is usually hardly any fire separation between the main factory areas. Therefore when a loss occurs, it is usually catastrophic or commonly referred to as a total loss. Past losses have been substantial to the extent that some insurers and re-insurers are weary when it comes to placing cover on these risks.

For basis of cover, the onus is on the client to ensure that there is at the minimum, sufficient fixed and portable fire protection such as sprinklers, hydrants, hose reels and extinguishers throughout, adequate fire separation between the bale storage, production areas and finished goods, routine waste removal, automatic ventilation to control and remove dust fibres and good electrical reticulation.

Business Interruption

Stock and raw materials are prone to damage by fire, water from fire fighting efforts and in particular smoke. The buildings and machinery utilised are typically large and complex and therefore getting back to an operational status after a large loss could be protracted
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It is likely that the insured will opt to rebuild rather than move due to difficulties in obtaining alternative suitable locations. Due to the lengthy period it may take to get back to an operational status, Business Interruption insurance with a sufficient period of indemnity, based on the time period expected to rebuild, obtain all the plant and machinery and or move to alternative premises, must be a priority consideration for the client.

Another consideration for opting for Business Interruption insurance is based on the reduction in turnover and expenditure required in order to prevent loss of market share following a substantial loss at the insured's premises.

A Business Interruption policy can provide the required solutions for the client in this regard.

Money, fidelity guarantee and theft

There is normally negligible risk evident in terms of money, since the insured is unlikely to have more than petty cash available on site. It is customary in many instances nowadays for employees to be paid by electronic means. However, a crossed cheque limit of R100 000 is generally in place.

There may be slight risk from a fidelity point of view in regard to dishonesty by employees displayed by involvement with suppliers and customers although good risk management procedures can be a positive factor against this risk. Fidelity Guarantee cover could be considered.

In terms of theft, the raw materials, and in many instances the finished fabric, should not constitute any undue attractiveness to thieves as these are not viewed as high commodity value items. Generally, it would be an expectation in the current environment, for the insured to have armed response, CCTV security systems, full time guards, burglar bars, security gates, burglar alarms, safes and sufficient perimeter security fencing and lighting.

Motor, Vehicle Liability and Goods in transit

The cover required in terms of Motor and Goods in Transit will be dependant on the activities of the insured. Some insureds may have their own fleet, whilst others may opt to outsource this, whereupon delivery and transportation of raw materials and finished goods respectively are not the responsibility of the insured. If the insured does have its own fleet, sub-standard rural roadways, depending on the location of the insured or the customers, accidents and travelling at night could all influence the necessity of insurance cover for their goods in transit and vehicles.

Group personal accident

Due to the nature of the activities at the insured's premises like knitting, cutting, sewing, singeing, spinning, etc, as well as the risk exposure from large automatic machinery operating, the hazard of injury, severe injury and even death cannot be discounted.

In addition, there is the risk of toxic exposure due to the numerous hazardous chemicals used at textile mills. The personal accident section provides cover in this regard and the insured is required by legislation to affect COIDA cover.

Public Liability policy

Textile manufacturing premises are not particularly vulnerable to claims brought against them by customers who sustain injury whilst on the premises due to the somewhat limited number of visitors to these premises. The Public Liability policy, however, is expected to cover the cost in order to protect the insured against the financial consequences of these types of claims, if they arise.

There is a large risk of environment liability due to the use of hazardous chemicals on site. The insured should ensure that adequate means of controlling pollutants is exercised on the premises. This could be in the form of effluent plants, entering into contracts with companies that deal with solid waste removal, chemical and hazardous waste materials. The long-term solution is to move towards environmentally friendly materials.

There is additionally a slight risk exposure from products liability however a good quality management system will mitigate against this risk.

Electronic Equipment

There will be computer hardware and software utilised in these premises for a number of functions, such as driving automatic machinery, storing of designs, sales, stocks, etc.
Whilst not vast, there certainly will be the use and reliance on electronic equipment. An Electronic Equipment policy affords protection against contingencies in this respect.

Machinery breakdown

The parts for the machinery found in textile mills can usually be easily acquired and fitted, however the entire machines can take a while to replace, especially if they are not locally available. Machinery Breakdown cover is available to ensure that in the event of sudden and unforseen mechanical breakdown of the equipment, that this is replaced or repaired.

The client may have to verify that adequate maintenance and servicing of the machinery is undertaken routinely. In most, if not all, circumstances this cover could be excluded if the machinery if not well maintained.
The consequential loss (loss of profits) following a loss from the breakdown of machinery can also be insured.