Manufacturing businesses have many moving parts, and each requires insurance coverage. Although they all need Worker’s Compensation and general liability, building insurance for manufacturers should not be overlooked!
In Case of Fire…
It may not be a fire, so we’re talking about when the building is damaged to the extent that it is no longer usable. There’s a good chance there are a few people involved, such as the landlord, management company, and the manufacturer (or tenant).
As the manufacturer, the first step is to have a conversation with your building insurance agent to establish a few key items:
• Who is responsible for the Building? The manufacturer or the landlord?
• What is the building Valuation?
• Who’s responsible for the insurance?
• Will the coverage include the contents?
• What is my risk of Loss of Business Income?
• Who gets paid and how much?
• Is it worth rebuilding here?
Manufacturers can have specific building requirements. Interior space is often customized to accommodate different machines, cranes, heating and air conditioning systems as well as required safety systems: sprinklers, dust collection systems and paint booths. This should be taken into consideration when determining a building value. Often the landlord may only be responsible for the building itself, and not the Building Improvements and Betterments necessary to the operations of the manufacturer tenant.
What You Build in that Building
Manufacturers have a unique element of the contents coverage; what the product is worth. The valuation of what’s in the building can vary because there are raw materials as well as completed products and inventory in your building insurance. There is also inventory that has already been sold. In some industries there are big fluctuations in these values during the course of the year, depending upon Peak Seasons. Each of these has very different values.
Profits are at stake. Manufacturers valuation of a finished product is higher than the cost of manufacturing it. This is especially important if items are built to order, which means, that the final product is already sold
Manufacturers need to consider how they can continue to operate while the building is being repaired. In some cases, products can be manufactured at a different location that you’ll have to lease, and you’ll also have to rent new equipment. In this case, you would need coverage for these Extra Expenses needs to be included in the insurance policy.
You would also need coverage for Loss of Business Income for the loss or reduction in income due to the claim. Things to consider would be how long it would take to be up to full operation in the repaired old location, or in an entirely new one. How much income would you estimate that you would lose during this time?
When the Lights Go Out
Thousands of East Coast businesses lived through one of the biggest storms in history: Superstorm Sandy. In some cases, there was good news – no damage to the building. But there was also bad news – the power is out and you cannot operate.
Loss of income due to a utility failure is something to address as well. In some cases when Sandy caused overhead power lines to go down there was no coverage for businesses who could not conduct business.
This was especially crippling for manufacturers as timelines were substantially altered, and some manufacturers found themselves with canceled orders as a result.
Now there is a greater focus on off-premises power failure and how to insure against business loss when this happens.