6 Environmental Risks for Technology Manufacturers
The Risk List is presented by:
The Risk List is presented by:
Frequency and Severity.
These two words are often used to quantify risk and under normal circumstances, they are inversely proportional. Losses that happen frequently tend to be less expensive while the billion dollar losses tend to be rare.
However, over the last several years, the loss trends for natural catastrophes have been going in a new direction, with billion-dollar events on the rise.
Recent U.S. weather data from the NOAA’S National Centers for Environmental Information paints the picture:
These trends are driven in part by storms affecting broader geographic regions outside of their normal zones. Hail, for example, caused significant damage as far south as San Antonio.
“Most people know that natural disasters are increasing in magnitude and cost, but many clients are not aware of how those trends are changing at their specific locations,” said Aja Atwood, Global NAT CAT Practice Leader, National Insurance Property, Liberty Mutual Insurance.
Businesses in areas with historically low exposure especially need to reevaluate their natural hazard risk. When it comes to natural catastrophes, preparation and prevention are just as vital as insurance.
With hail, wind storms and hurricanes broadening their geographic footprints, no business should assume that they are safe from any particular type of severe weather.
Companies can conduct routine checks of their properties and identify areas for improvement. Roof age and material are key factors impacting the level of damage done by a storm. Even a few years of exposure to the elements can weaken a roof’s integrity. Risk managers should establish timelines for roof repair or replacement.
Business interruption exposure is also an important consideration.
“Even if the reported physical damage values are low, you can still have a significant business interruption claim,” said Rob Morelli, Head of Engineering Technical Unit, National Insurance Property, Liberty Mutual.
“For example, a location has one primary electrical feed and the transformer for that feed is in a flood zone. It may be one small transformer that only costs $15,000, but has about $100 million tied to it in revenue,” he said.
Once the weaknesses are identified, it’s time to develop a mitigation strategy.
For businesses with large schedules of property, prioritizing repairs and creating a long-term maintenance schedule are key. That can mean replacing roofs or installing hail guards and rooftop equipment protections.
Keeping buildings in top shape can help minimize damage when severe weather hits, but it’s also critical to have emergency response and business continuity plans in place to reduce downtime. “A fast response not only mitigates business interruption losses, it also establishes a process to account for workers’ safety and helps a company report claims more quickly after a loss,” says Atwood.
Business continuity plans can include having replacement parts on hand for critical pieces of equipment, identifying sister facilities that can pick up some slack when operations are halted, and creating a communication plan to keep customers and employees informed.
Preparing buildings and equipment to withstand natural catastrophes is one thing. Preparing people is another.
Risk managers should consult with senior managers and employees to understand how weather could impact different operations. The people closest to the work – and most knowledgeable about its vulnerabilities – need to be involved in emergency preparation and response plans. Designate key personnel who have the authority to make decisions in the event of an emergency, like sending out alerts or shutting down a facility.
“Open communication should also extend to other facilities who may have additional insights or preparation recommendations for types of weather they experience more frequently,” Morelli said.
Existing CAT models provide a high level overview of exposure based on zip code, but risk managers with several locations need granularity. More advanced predictive models can map exposure on a micro level by factoring in unique property characteristics like roof age and material, type of construction, the overall condition of a building, number of stories, and any protections already installed.
Liberty Mutual is developing these types of predictive models to provide a clearer view of natural catastrophe exposure and to help guide mitigation plans.
While some data comes from client input, site visits conducted by a team of experienced risk engineers provide more detail.
“For customers with multiple properties, we schedule visits based on several factors, such as a location’s total insurable value, the level of NAT CAT exposure, time between visits, etc. Looking at these details enables us to provide guidance to customers as to where they should focus immediate efforts.” Morelli said.
“Only by walking on the roof can I know that it’s a single-ply roof cover that’s lost its adhesion, or that there aren’t enough fasteners. Or that they have unprotected skylights in a hail zone,” Atwood added. “My recommendations would be catered towards that location’s specific exposures, and what the budget allows for one month from now and one year from now.” A risk managers can then manage site-specific exposures and prioritize recommendations across the business’s entire portfolio of properties.
Imminent warning systems also help clients stay aware of potential threats in the area. Liberty Mutual monitors the National Weather Services and other local weather resources, tracking conditions like freezing temperatures, high winds and hail.
“If we see patterns that are cause for concern, we can send out an email blast to everyone in the affected area.” Atwood said. The communication provides guidance on storm preparation and what to do in the event of a claim.
These loss control services are what truly add value to an insurance solution.
“If you rely on insurance coverage too much, you forget there are things you can do proactively to protect your business and your livelihood,” Morelli said.
To learn more, visit libertymutualgroup.com/business.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.
When the Stanford Shopping Center in Palo Alto hired mobile collaborative robots to bolster security patrols, the goal was to improve costs and safety.
Once the autonomous robotic guards took up their beats — bedecked with alarms, motion sensors, live video streaming and forensics capabilities — no one imagined what would happen next.
For some reason, a cobots’ sensors didn’t pick up the movement of a toddler on the sidewalk who was trying to play with the 5-foot-tall, egg-shaped figure.
The 300-pound robot was programmed to stop for shoppers, but it knocked down the child and then ran over his feet while his parents helplessly watched.
Engaged to help, this cobot instead did harm, yet the use of cobots is growing rapidly.
Cobots are the fastest growing segment of the robotics industry, which is projected to hit $135.4 billion in 2019, according to tech research firm IDC.
“Robots are embedding themselves more and more into our lives every day,” said Morgan Kyte, a senior vice president at Marsh.
“Collaborative robots have taken the robotics industry by storm over the past several years,” said Bob Doyle, director of communications at the Robotic Industries Association (RIA).
When traditional robots joined the U.S. workforce in the 1960s, they were often assigned one specific task and put to work safely away from humans in a fenced area.
Today, they are rapidly being deployed in the automotive, plastics, electronics assembly, machine tooling and health care industries due to their ability to function in tandem with human co-workers.
More than 24,000 robots valued at $1.3 billion were ordered from North American companies last year, according to the RIA.
Cobots are cheaper, more versatile and lighter, and often have a faster return on investment compared to traditional robots. Some cobots even employ artificial intelligence (AI) so they can adapt to their environment, learn new tasks and improve on their skills.
Their software is simple to program, so companies don’t need a computer programmer, called a robotic integrator, to come on site to tweak duties. Most employees can learn how to program them.
While the introduction of cobots into the workplace can bring great productivity gains, it also introduces risk mitigation challenges.
“Where does the problem lie when accidents happen and which insurance covers it?” asked attorney Garry Mathiason, co-chair of the robotics, AI and automation industry group at the law firm Littler Mendelson PC in San Francisco.
“Cobots are still machines and things can go awry in many ways,” Marsh’s Kyte said.
“The robot can fail. A subcomponent can fail. It can draw the wrong conclusions.”
If something goes amiss, exposure may fall to many different parties: the manufacturer of the cobot, the software developer and/or the purchaser of the cobot, to name a few.
Is it a product defect? Was it an issue in the base code or in the design? Was something done in the cobot’s training? Was it user error?
“Cobots are still machines and things can go awry in many ways.” — Morgan Kyte, senior vice president, Marsh
Is it a workers’ compensation case or a liability issue?
“If you get injured in the workplace, there’s no debate as to liability,” Mathiason said.
But if the employee attributes the injury to a poorly designed or programmed machine and sues the manufacturer of the equipment, that’s not limited by workers’ comp, he added.
In the case of a worker killed by a cobot in Grand Rapids, Mich., in 2015, the worker’s spouse filed suit against five of the companies responsible for manufacturing the machine.
“It’s going to be unique each time,” Kyte said.
“The issue that keeps me awake at night is that people are so impressed with what a cobot can do, and so they ask it to do a task that it wasn’t meant to perform,” Mathiason said.
Privacy is another consideration.
If the cobot records what is happening around it, takes pictures of its environment and the people in it, an employee or customer might claim a privacy violation.
A public sign disclosing the cobot’s ability to record video or take pictures may be a simple solution. And yet, it is often overlooked, Mathiason said.
There are going to be growing pains as the industry blossoms in advance of any legal and regulatory systems, Mathiason said.
He suggests companies take several mitigation steps before introducing cobots to the workplace.
First, conduct a safety audit that specifically covers robotics. Make sure to properly investigate the use of the technology and consider all options. Run a pilot program to test it out.
Most importantly, he said, assign someone in the organization to get up to speed on the technology and then continuously follow it for updates and new uses.
The Robotics Industry Association has been working with the government to set up safety standards. One employee can join a cobot member association to receive the latest information on regulations.
“I think there’s a lot of confusion about this technology and people see so many things that could go wrong,” Mathiason said.
“But if you handle it properly with the safety audit, the robotics audit, and pay attention to what the standards are, it’s going to be the opposite; there will be fewer problems.
“And you might even see in your experience rating that you are going to [get] a better price to the policy,” he added.
Without forethought, coverage may slip through the cracks. General liability, E&O, business interruption, personal injury, cyber and privacy claims can all be involved.
AIG’s Lexington Insurance introduced an insurance product in 2015 to address the gray areas cobots and robots create. The coverage brings together general and products liability, robotics errors and omissions, and risk management services, all three of which are tailored for the robotics industry. Minimum premium is $25,000.
Insurers are using lessons learned from the creation of cyber liability policies and are applying it to robotics coverage, Kyte said.
“The robotics industry has been very safe for the last 30 years,” RIA’s Doyle said. “It really does have a good track record and we want that to continue.” &