How Automation Will Impact Insurance Costs

April 7, 2022

Plan, consider and prepare for manufacturing automation impacts on insurance costs, with tips from Tanner Smith, Commercial Risk Advisor.

How Automation Will Impact Insurance Costs

Federal funds available to support manufacturing automation

As we talk with manufacturing clients across the country, we hear about the same primary challenges. First and foremost is the labor shortage. Most begin by boosting wages as they struggle to keep up with increased sales. Another option many are turning to is automation. What was once a nice-to-have is becoming a must-have.

But adding automation comes with additional risk considerations. Here are some things to plan, consider and prepare for. The Miller Group can help. Plus, if you qualify, we can help you access federal funds to support your automation efforts.

Changes in insurance premiums

Adding automation typically lowers the number of people on the work floor, which can reduce payroll and the risk of injuries. Although you’ll probably need to add some maintenance and IT staff for the automation equipment, you’re still likely to have fewer workers’ compensation claims. This means a lower workers’ comp experience rating, which can be positive for your company.

Adding automation also means adding equipment, and the investment can be hefty – from several hundred thousand to millions of dollars. This increases the total insured value of your property and means increased premiums. There’s a chance the higher premiums could overtake any savings in workers’ comp. This will vary from company to company based on the work being performed and what industry of manufacturing you are in.

Machinery maintenance adds uncertainty

Some of the machinery used to automate processes comes from overseas – often from Japan, Germany, Italy, etc. This adds risk, as well. Malfunctions, breakdowns and supply chain issues can cause systems to go down for several months in today’s world of global challenges.

To manage this risk:

  • Maintain the equipment as advised
  • Consider having spare parts on hand
  • Keep up with your warranties
  • Make sure your maintenance and IT teams are well trained on the equipment
  • Develop a Plan B for continuing operations should the equipment go down

Cyber risk considerations

Adding automation may increase your cyber security risk, as well. Highly automated manufacturing organizations were the most frequently attacked sectors in 2021. A recent Report From IBM said, “… ransomware actors attempted to ‘fracture’ the backbone of global supply chains, with attacks on manufacturing, which became 2021's most attacked industry (23%), dethroning financial services and insurance after a long reign.”

Further, “An alarming 47% of attacks on manufacturing were caused due to vulnerabilities that victim organizations had not yet or could not patch…”

Well-planned risk mitigation strategies and solid cybersecurity coverage are critical.

Help and funding are available

The federal government has a clear interest in propping up U.S. manufacturing, and it has increased funding to support that interest. Government funding is available for automation studies, new software installations, safety consultations, ergonomic studies, international trade development, Lean Six Sigma work, etc. If you’re interested, I can help you determine whether you’re qualified.

Increased automation is inevitable for most manufacturers, and some increased risk is a natural part of that trend. With careful planning and consultation, you can manage your risk and protect the return on your investment.

About The Author