Insurance threat to process sector
London – Misplaced assumptions about the protection offered by insurance policies pose an increasing risk to UK manufacturing companies, a new report from insurance governance firm Mactavish has warned.
The report, which is based on consultations with 140 UK manufacturing businesses over the past 12 months, highlights risks to individual companies, as well as systemic failings, which threaten the sector.
According to Mactavish, potentially critical oversights and blind spots could see individual companies failing because an insurance claim is not paid out or is delayed longer than a company’s ability to sustain its business.
“The current assumption that insurance will simply respond when needed is inconsistent with the legal reality,” said the report, adding that many companies’ arrangements do not stand up to scrutiny.
One example, it said, is the shift in business models to include service provision as well as manufacture, thereby exposing companies to risks that are not understood or accounted for.
“The manufacturing & Engineering sector’s impressively innovative response to recession being let down by weak governance around risk and insurance leaving companies needlessly exposed,” said Mactavish.
Meanwhile, a failure of insurance industry brokers and insurers to keep up with the pace with change is creating gaps in protection and driving an increase in disputed claims, the report continues.
“Insurance policies are increasingly unreliable in respect of major losses with few aware of the problems or taking steps to address them,” it states.
Manufacturers, believes Mactavish, are “needlessly exposed by addressable weaknesses in the insurance system, but usually do not find out until it is too late. The current economic climate has exacerbated many of the contributory factors.
It goes on to conclude that “far more questions need to be asked by both insurance buyers in the sector and those responsible for risk at board level.”
“The whole mechanism of corporate governance today neglects to recognise insurance failure as a large and increasing threat, with manufacturers facing especially dire concern as a result of its high rate of adaptation to current economic reality,” said Bruce Hepburn, CEO of Mactavish.
“The reliability of insurance policies in responding to major events is in sharp decline. But the law alone will not solve the problem - companies need to do a lot more to play their part and the thrust of reform is that company practices need a total rethink.”