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2019 Magnet Survey Overview

June 5, 2019
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The 2019 Ohio Manufacturing Survey, had more than 375 surveys completed. There were 44 questions specifically designed for manufactures of all types to identify trends in the industry, shed light into manufacturing’s current state, as well as a glimpse into what the future may hold.

48% of the surveys were filled out by C-Level Executives with 78% of those who answered have been in business for more than 15 years. Around 55% of the respondents were between 6MIL and 99MIL in annual Revenues, 28% under 5MIL, 13% over 100MIL and the remaining 4% under 6 MIL in annual revenues.

The outline following drills into some of the main insights created by the survey as well as our commentary on how these trends have translated into changes in the world of risk and insurance.

32% Workforce shortage
49% Succession planning
55% Cost of raw materials
60% Healthcare
62% Cyber

Growth

39% Indicated revenues were up 10% or more, which was an increase of 6%.
83% said they are innovating through new products and 30% said growth strategy is tied to customized/specialized manufacturing.
57% said they export internationally beyond Canada and Mexico.

With the prospect of growth comes a myriad of new risk that can put new profits at jeopardy.

  • The environment has become more competitive where manufactures are pushing the expectations of their products higher as well as offering consulting services in conjunction with the manufacturing of products. When expectations are not met, in the customer’s eyes, we have seen an increased threat of lawsuits where a customer alleges financial damages of revenue loss as a result of the product not performing as expected. These scenarios are excluded in most commercial general liability polices.
  • Taking advantage of new market growth through globalization by opening new offices in other countries or beginning to sell overseas brings changes in insurance needs as well as new exposures. New risk such as employees travel, foreign laws & regulations and shipment of products overseas all present new risk.
  • Modification of Risk Management Strategies and Insurance Coverage during times of growth quickly become deficient. Limits of coverage, gaps in coverage and risk retention strategies are critical to have reviewed during periods of growth. Business continuity plans and disaster recovery programs may prove now inadequate and need to be modified. New larger customers may push higher standards as it pertains to areas such as safety, insurance requirements, disaster recovery and quality control.

Cyber & Technology

Adoption of technology brings with it increased exposure of cyber attacks. Cost of losses can easily hit the 7 figure amount.

  • As machines are becoming more tethered to the internet, a sophisticated cyber attack can lead to an operational shut down costing a manufacturer loss profit and potential loss of customer contracts. We frequently find cyber insurance policies that have not evolved to cover this scenario.
  • While purchasing cyber insurance has become more frequent in manufacturing, we have seen many organizations that have not proactively prepared for how they will respond to a cyber incident. This lack of preparedness can lead to increased claim cost, damage to their brand, as well as longer downtime in the event of a cyber incident.
  • “Bricking” is a situation where malware infects the software to the point of rendering the hardware useless. The cost to re-install software can be more expensive than the worth of the computer. There is no coverage for this unless otherwise endorsed on a cyber policy.

62% said it is a growing concern this number has doubled since 2017.
-Cited that over 27% said that the cost of health care is hampering their growth.
-Of those who answered only 50% believe employees appreciate and understand the benefits package offered.

 

Healthcare Costs

Healthcare is the 2-3 largest expense to any employer and can be used as a tool to attract and retain employees during increasingly competitive job market.

  • Consumer driven health plans such as HSA’s are continually growing in popularity as responsibility is placed on the employee to identify cost effective health care services. Education on how to navigate benefits and the healthcare system is critical for employees.
  • Risk avoidance strategies such as spousal policies which direct working spouses to obtain health care coverage from their employer are becoming standard practice. Medicare educational opportunities for the pre-retire population can identify individuals who are better served on Medicare plus supplement coverage, thus reducing cost for the employer and employee while providing better coverage. Wellness programs have also gained traction in the manufacturing space within the last several year.
  • Rising prescription drug costs have encouraged the seeking of alternative options such as going outside the carriers prescription plan to procure lower cost networks.

60% said it is a growing concern this number has doubled since 2017.
-Cited that over 27% said that the cost of health care is hampering their growth.
-Of those who answered only 50% believe employees appreciate and understand the benefits package offered.

 

Political Uncertainty

-Over 50% stated it is a growing concern.
35% said tariffs negatively affected the business (specifically under section 232/increase in price of steel and aluminum)

Proposition 65 stated as a new top concern. “Bounty Hunter” attorneys can randomly sue on behalf of the state and fines can range as much as 2500 a day.

Political and regulatory issues have been identified as real impacts that threaten profitability for manufactures.

  • The sourcing of raw material must be evaluated and secured in wake of unfavorable government regulations and trade skirmishes.
  • With a further impending increase of imported materials, uncertainty of bottom and topline implications make way for creative resourcing.
  • Most insurance policies exclude or at best are silent on Proposition 65. Mitigation by proactively identifying products that could be sold in California and fall under this policy has proven to be the most effective way to address this risk.

 

Workforce Shortage & Growth

Top 3 Challenges faced when hiring new employees
(50% indicated it was ‘somewhat difficult’ to hire quality candidates)

  1. Work ethic (55%)
  2. Lack of skills (68%)
  3. Lack of applicants (55%)

-Only 17% answered that they have a formal training and apprenticeship program.
-Nearly 50% will grow their workforce in the next 12 months. With a growing workforce comes additional risk related to employment practices.

The impact of growth as well as a shortage of qualified workers jointly compresses the strain for manufacturers to achieve the best outcome possible for every new hire.

  • There is a renewed focus on opportunity to grow talent pools through early education involvement and training. It is becoming vital for manufactures to invest into proper job training.
  • Manufactures with ballooning workforces may lack some of the protocol necessary to protect them from employment practices liability lawsuits.
  • Loose employment protocols can often lead to claims of discrimination, wrongful termination as well a newer and growing threat we have seen: wage and hour claims. Most employment practices policies will not respond to claims unless a sublimit is requested specifically which could leave many employers exposed to self insuring these risks.

At Oswald we have designed a process to simplify and add clarity to managing emerging risk in manufacturing. We have a team consisting of insurance specialist and professionals directly from manufacturing industry that give our clients the resources to manage the changing landscape of risk in manufacturing. Learn more about Oswald’s Manufacturing Practice.

The end outcome being piece of mind and control of risk so our clients can focus on capitalizing on opportunity.


To learn more about the survey findings, insights and the latest ways we can help you manage risk, contact:
Josh Fragoso, CIC, REBC
Vice President
Director of Sales
216.649.7382

Note: This communication is for informational purposes only. Although every reasonable effort is made to present current and accurate information, Oswald makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. View our communications policy.

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