9 Critical Risks Facing the Manufacturing Industry

As demand amps up, manufacturing companies have their hands full integrating new technologies and finding the next generation of talent.
By: | June 15, 2018 • 5 min read

The pace of global trade will continue to generate manufacturing orders, and demand for manufactured goods is rising. Industrial output in 2018 is projected to increase by 3.8 percent globally.


By 2020, manufacturing’s share of GDP will exceed 20 percent in the top 60 largest global economies. Yet political shifts, rapidly evolving technology and the decline of new talent entering the industry present challenges.

1) Tariff Wars

Manufacturers with a heavy reliance on foreign steel and aluminum will face significant cost increases, which would likely cut into profits and potentially even spur layoffs. U.S. steel prices are already almost 50 percent higher than those in Europe or China, and aluminum prices are seen as volatile.

Retaliatory tariffs from the EU, Canada and Mexico will also be a blow to many manufacturers exporting goods.

The EU’s recently announced plan would also impose duties between 10 and 50 percent on $4.2 billion worth of U.S. goods, including orange juice, bourbon, jeans, motorcycles and certain steel products. Canada placed tariffs on $12.9 billion worth of U.S. goods while Mexico placed tariffs on a variety of U.S. products.

Ultimately, these tariffs collectively are likely to slow job creation and could negatively offset the gains achieved through tax and regulatory reform.

2) Shrinking Talent Pool

The manufacturing industry has an image problem. A 2017 perception study published by Deloitte and the Manufacturing Institute noted that less than three in 10 Americans surveyed would encourage their children to pursue a manufacturing career. A majority made negative assumptions about the stability, growth opportunities and salaries in the industry.

At the same time, experienced workers are reaching retirement age in droves, and the skill sets needed by manufacturers are shifting due to evolving technologies. An earlier study by Deloitte and the Institute concluded that of the 3.5 million manufacturing jobs needed through 2025, two million of them would go unfilled due to the skills gap.

Manufacturers must engage the future workforce at the high school and college level, emphasizing technological advances, meaningful work and a positive work environment.

3) The Pace of Change

Industry 4.0, or the Industrial Internet of Things, refers to the gradual absorption of traditional manufacturing into the technological and connected world. The overall end goal is increased automation, improved communication and monitoring, along with self-diagnosis and new levels of analysis between machines and systems.

But the challenges of achieving this manufacturing nirvana are not small. Entirely new frameworks of cyber security need to be developed in order to protect people, physical assets, as well as customer and intellectual property data. A smart factory, fully integrated and connected with sister factories all over the world, makes for an all-too appealing attack target.

Maintenance of these modern systems presents additional risk exposure. Current maintenance personnel don’t always receive adequate training and many are at least partly self-taught. The most knowledgeable and experienced among them are at or near retirement age.

Smart factories without adequately trained maintenance staff run the risk of extended downtimes and lost profits.

4) Growing Acceptance of Marijuana

At the time of this writing, the White House signaled its potential support for amending the federal Controlled Substances Act to exempt state-legal marijuana activity.

That would be a game-changer for employers, because the substance’s federal legal status has been the linchpin of most employment practices legal battles involving state-legal marijuana use.

Manufacturing employers have significant reason to be concerned, as most rely on zero-tolerance policies to protect workers in safety-sensitive manufacturing environments.

Current THC testing methods don’t measure impairment levels, and most supervisors don’t have adequate training on how to identify a worker who’s under the influence of cannabis.

5) Safety

High turnover and tight staffing create an environment with a reduced emphasis on safety culture. Experienced workers are stretched thin and have little time to train and mentor new hires. Inexperienced workers in a manufacturing environment are at high-risk for injuries, especially within their first six months of employment.

Increased overtime and 24/7 operations also lead to fatigue, sharply increasing the risk of serious injuries or fatalities.

6) Robot Proliferation

More than 3 million industrial robots will be in use in factories around the world by 2020, according to the International Federation of Robotics. Robots have the potential to offset the talent gap and increase productivity, but risks abound.

Liability issues surrounding product defects, personal injury or property damage are murky at best, and manufacturers could be forced to defend themselves against claims actually caused by hardware or software defects.

7) Cyber Vulnerability

In a 2016 survey, 31 percent of manufacturing respondents admitted they had never performed a cyber risk assessment of their industrial control systems.

But cyber security has never been a more vital part of manufacturing operations. Cyber security firm Malwarebytes tracked a 90 percent increase in the number of detected ransomware attacks in 2017, noting that the 2017 monthly rate of ransom-related attacks increased up to 10 times the rate observed the prior year.

Security vulnerabilities increase the risk of hackers tampering with systems or even shutting down an entire production line until their demands for payment are met.

8) Supply Chain

In the era of lean manufacturing, projects are typically time, cost and quality sensitive, leaving little room for delays. Manufacturers that can’t deliver on their promises because of a supply chain stall risk losing out on millions of dollars in potential revenue and profit.


Anything from grounded flights to cargo theft to quality control issues can impact the flow of goods from a supplier. Not having a reliable back-up supplier may cause operations to grind to a halt, leading to losses and damaging a company’s reputation.

Even if vendors have been steady and reliable for years, steady increases in the volume and severity of natural catastrophes ups the chances that a key supplier could be impacted by a disaster.

9) Third-Party Vendors

Shortcomings on the part of third-party vendors can expose manufacturers to a variety of risks. Cyber security weaknesses are of particular concern for any vendor with access to employee or customer information.

In addition, manufacturers can be held accountable for certain types of compliance lapses by third parties. A thorough risk assessment of key vendors is a necessity. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance


Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”


“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.


“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?


“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.