By Brett Hoopingarner, director of underwriting, Sentry Insurance
Rising costs, economic headwinds and a tight labor market will continue to challenge plastics manufacturers in 2024. From resin to injection molding equipment, labor to facilities – inflation is squeezing finances.
It will cost more today to repair or replace equipment or property should a business sustain damage or a breakdown. Costs to find additional talent also continue to rise.
These economic pressures have increased the cost of risk, too, which affects the bottom line. A business may not be adequately insured if it has not seen recent increases in property limits.
As a strategic plan is being built, don’t underestimate the role of insurance. Insurance is the one cost that acts as a safety net for larger, unforeseen expenses that aren’t already included in the budget.
Based on conversations with plastics manufacturers, here are the biggest risks Sentry Insurance is anticipating in 2024, and what manufacturers can do to protect their businesses.
Inflation-driven repair and replacement costs
If manufacturers do one thing, they should reevaluate their insurance policy to confirm any buildings have adequate and up-to-date valuations. Costs to repair or replace equipment also have risen significantly, which could leave the business vulnerable to significant out-of-pocket expenses if insurance hasn’t kept pace.
Commercial machinery repair costs are up 41% since 2019 – affecting every aspect of operations from injection and blow molding to thermoforming equipment.
Meanwhile, it would cost about 40% more to construct a new industrial building today if it was severely damaged. Be careful when considering potential repair costs, though. The market value doesn’t equal replacement costs.
To avoid a costly surprise, talk with an insurer before the policy renews to ensure there are sufficient coverage limits to cover inflationary costs. They can help businesses estimate the value and cost to repair and replace equipment and property.
Invest in equipment
- In addition to insurance, manufacturers also can help protect their bottom line by investing in a consistent preventative maintenance program. Investing in new or well-maintained plastics equipment, if possible, can minimize the risk of downtime and potentially improve performance.
- It’s a strategy that may come with upfront costs, but it likely outweighs the cost of lost production during an unanticipated breakdown – costs that can exceed preventative expenses.
- Manufacturers also can add equipment breakdown coverage to their policy, which often is necessary throughout the plastics industry. Here’s a summary that explains what it covers.
Severe storms and business interruption costs
Similar to the supply chain uncertainty felt throughout the industry in recent years, delays pose a larger, less obvious risk if the business is damaged.
As severe weather events become more frequent and costly, plastics businesses face greater downtime as they rebuild due to a confluence of factors:
- Rising commercial construction costs
- A shortage of repair technicians
- Supply chain delays for materials and equipment
To help recoup lost profit while recovering, manufacturers should account for longer delays – up to 24 months – in their business interruption coverage (including extra expense).
This coverage also can help manufacturers continue paying their employees and overhead costs during reconstruction. Plus, it can cover extra expenses such as leasing a temporary facility while they rebuild.
Shore up the facility against property risks
With severe weather events causing damage to facilities throughout the country, insurers are seeking increased deductibles to keep up with rising costs. While manufacturers can’t move their business out of harm’s way as a storm approaches, they can prepare their buildings against other threats like fire or water damage.
To help reduce risk, strengthen roofs against wind and hail damage, protect vulnerable HVAC equipment, check the plumbing systems and perform regular maintenance on sprinkler systems. If operating in an older building, have a licensed contractor inspect the electrical systems for irregularities or unusual hot spots.
Labor availability and injury costs
It’s equally important to invest in your people. New, less experienced workers often enter the workforce to replace skilled workers who are retiring. It’s important to keep in mind that first-year employees at a new job account for more than 25% of all workplace injuries, according to the Bureau of Labor Statistics.
If an employee is injured, it may be difficult to backfill that role until the employee returns. Right now, there’s a significant 12-month gap between open job listings and unfilled roles in manufacturing. Around 270,000 unfilled positions, to be exact.
A thorough, consistent safety program can help reduce the risk of injury to workers. This means teaching new and existing employees how to safely complete tasks, use equipment and handle materials to account for the skills gaps.
While manufacturers can’t control rising costs like wage inflation and healthcare treatments for injured workers, putting the day-to-day focus on safety can help reduce overall risk.
Be proactive to improve the safety record
Fewer work injuries also can lead to lower insurance costs if it’s reflected in the workers’ compensation experience modification factor. Think of the experience mod factor like a grade for the company’s workplace safety history.
Insurers may have safety consultants who can visit the property to assist with safety inspections, gap assessments and formal safety training programs.
The takeaway: review coverages
As manufacturers focus on the day-to-day needs of running their business, make time to talk with the safety team and insurer. The trends and tips I’ve shared are meant to help get those conversations started. Still, it’s best to talk with the company’s insurer and local experts to determine the best plan for the business.
By taking a few small steps to prioritize safety and update policy, manufacturers can have peace of mind that their business is protected in the year ahead.
Brett Hoopingarner is director of underwriting for Sentry Insurance, a mutual insurer that protects more than 8,000 manufacturing businesses in the US. Learn more at
www.sentry.com.
