How Manufacturing Insurance Can Reduce 3 Critical Factory Risks

Managing a factory requires lots of different tasks.

You will have to maintain the product quality. You need to schedule your employees round the clock. Also, you have to deliver the product on time.

It is not easy. Everybody knows that.


These are not the only things that you need to know as a business owner of a factory. You also have to manage the risk.

I guess that risk management is not your focus. But you cannot deny that it is important. In some cases, it is critical to your survival.

In this article, we will share 3 most common risks that you should take note of. We will also show you how you can manage these risks with manufacturing insurance.

1. Ceasing of Factory Operations

One of the biggest risk factors is that you cannot continue your manufacturing operations. This can be due to fire or any other events that disrupt your manufacturing process.

Imagine this scenario:

A fire broke out in your factory. This fire destroyed your factory structure, raw materials, and machines.

When this happen, you might suffer three losses:

  1. Costs to rebuild your factory and its contents;
  2. Revenue loss due to inability to deliver the products; and
  3. Potential lawsuits if you are under contractual obligations to deliver.

Any of these will be enough to cripple your business.

Even if you have the ability to recoup these losses, it will cause a serious dent in your cash flows.

I am sure you do not want these to happen.

What Can You Do to Prevent Factory Disruption?

The best way to manage risk is to prevent them from happening in the first place.

But let me get this straight:

100% prevention is not always possible. Even if it is possible, it is going to be too expensive or not practical.

But there is something you can do. If you can reduce the risk by 80%, you only have remaining 20% to worry about.

This is a great improvement.

So how can you reduce the risk of factory disruption?

Start off by identifying risks that can disrupt your factory. There are some risks that are external, e.g. supply chain disruptions. Other risks can be internal.

Make use of your experience to help you in identifying these risks. If you need our help in identifying the risk, feel free to contact us.

For every identified risk, find out what you can do to reduce them.

Ignore the cost for now.

For example, to reduce a risk of fire, you can install an automatic sprinkler system. You may also want to train your employees to react to these situations.

Make sure that these solutions are suitable for your factory operations.

Is Prevention Enough?

Unfortunately no.

Prevention is never enough if the risk is catastrophic.

This is where insurance comes in. You should use insurance to transfer risks which are low in probability, but high in the impact.

You will need a property insurance to cover the risks of your premise. A property insurance includes the building structure and its contents.

2. Products Defects

The output of your factory is your products. If everything goes well, your product should meet your specifications.

But, product defects can still occur.

Sometimes, it can be a fault of the manufacturing process. Other times, it may be due to poor product design.

Whatever the case, product defects can pose a serious damage to your factory.

First, product defects destroy your credibility as a factory. This is a bigger problem if you are an OEM manufacturer.

Second, certain product defects can result in legal liability.

Imagine that your products cause injury or property damage?

It can be due to sharp edges that are not part of the product design. Or it can be due to a exploding handphone, like Samsung Galaxy Note 7.

The victim will have a case against you, the product manufacturer.

What You Can Do to Prevent Product Defects?

Like factory disruptions, there is no way to prevent product defects. But, you can reduce this risk.

First, you need to have quality controls.

Does your quality controls team that test your products on a random basis? The test also has to be extreme so that you will know the limits of your products.

While quality controls are important, it is not a great long-term solution.

A long-term solution is to have a culture that embraces quality.

For example, Toyota empowers their staffs to stop the assembly line when necessary.

At that time, stopping the assembly line is a taboo for automobile plants in the United States. The cost of stopping the assembly line is about $15,000 per minute.

What follows is an automobile company famous for quality.

What Else Can You Do to Manage Risk of Product Defects?

In the world of business, uncertainty is the only thing you can be certain.

To account for events beyond your control, you will need something more. You may want to consider product liability insurance.

Product liability insurance protects you from legal costs relating to injuries caused by products.

You should use the insurance as a last resort.

3. Injured Employees

Work-related injuries are a huge problem for factories.

It means that you do not have good safety procedures. Or your employees do not have enough training.

Both reasons are bad.

Work injuries will demoralise the rest of your staffs. The amount of work they have to do remains the same. But there is one less person doing it.

Not to mention that you will have to foot your employees’ medical costs under the Work Injury Compensation Act (WICA).

If the injuries are serious, the costs can be substantial.

How to Reduce Work-Related Injuries?

Avoiding injuries should be one of your top priorities.

In fact, Alcoa has shown that workplace safety will result in other intangible benefits. One of them is better product quality.

Reducing work-related injuries is like improving product quality. The best way is to start with the culture.

Make workplace safety the top priority.

Steps to achieve this includes:

  1. Make sure that your staff is well-trained before handling complex or dangerous machines.
  2. Dedicate rest time for your employees. A tired employee tends to make more mistakes.
  3. Do not allow sick employees to work. They may spread the sickness to others.
  4. Make workplace safety the key performance indicator of the factory manager and supervisor.

Using Work Injury Compensation (WIC) Insurance to Cover the Cost

One way to manage the risk of employees’ work-related injuries is buying a WIC insurance.

Under WICA, if you have employees doing manual work, you do not have a choice. WIC insurance is compulsory.

A WIC insurance helps you comply with WICA. You also do not have to bear the costs.


Risk management is an often overlooked issue in businesses. But this does not mean that it is not important.

With the correct risk management strategy, you can concentrate on growth.

Over the past 30 years, we have advised numerous clients on their risk management policy. We have also helped them negotiate terms with the insurance company.

Do you want to kickstart your risk management process? Or do you need a professional to review your current strategy? Feel free to contact us. We love to speak to you!