By: Robert Shaddock, Head of Commercial Insurance at Standard Insurance Limited
Many local manufacturers facing increasingly difficult times are unaware of the impact that the fluctuating value of the rand and other operational factors could be having on the insurance values of their supply, stock and process management activities, a situation that could be rectified by encouraging their insurance brokers and underwriters to ‘walk the floor’ of their businesses.
Insurance underwriters and brokers are concerned about the three key areas of risk facing manufacturers, namely supplier management; stock management and process management.
Supplier management focuses how the manufacturer gets their machinery, spares and other materials to the business. One must consider, the impact of the fluctuating Rand on insurance values, availability of suppliers, delivery timelines, alternative suppliers as well as the suppliers capacity to deliver in required quantities to replenish the depleted stock following an insured loss.
Being able to use these insights to formulate an end-to-end business continuity plan will enable a business to be up and running without any unforeseen or undue delays.
Stock management considers whether there is sufficient supply of buffer stock to ensure that immediate sales demand can be met following an insured loss. Customers also face trying times and will quickly find other manufacturers to supply their requirements. Loss of a key customer could have a devastating effect on the sustainability of the business.
Stock management extends to ensuring that the correct quantity and quality of spare parts for the machinery are also on hand to fix any damaged machinery and thus ensure the continuity of production. The tendency for local manufacturers facing unexpected increases caused by the fluctuating rand, is to buy generic spares.
GENERIC VS ORIGINAL
Our experience shows that in many cases, although initial sticker prices are substantially lower, quality of generic parts can be inferior. This means that replacement cycles are shortened and costs are higher due to the potential of increased downtime being caused by faulty parts.
By “walking the floor” one can get a first-hand view of the processes, bottlenecks and other key risk areas at the premises. More accurate recommendations can then also be made regarding the installation of alarms, fire-fighting and other equipment.
All will have a bearing on premiums to be paid and excess payment levels. More importantly, the possibility of claims being rejected because precautions are not considered appropriate will be vastly reduced.
Ultimately, the interests of the three parties involved in the insurance transaction can best be served through an on-site inspection of manufacturing premises. A broker and underwriter ‘walking the floor’ with a business owner or manager will promote understanding of the environment and enable all parties to discuss requirements and make a more accurate assessment of the business and potential risks.
The onsite visit, although appearing to be a minor part of the insurance cycle, could identify potential exposures relating to the management of suppliers, stocks and processes at the business.
Steps to address these can then be discussed and comprehensive insurance programme can be drawn up. The stronger the mutual understanding between the insured manufacturer, the broker and underwriter, the better the business relationship, and ultimately the lower the cost of risk.