The manufacturing industry’s new workforce risks
Both insurers and brokers working with manufacturers must stay ahead of the industry’s shifting risk landscape.
As the manufacturing industry evolves, so do its risks. This is particularly true for small- to medium-size (SME) manufacturers facing challenges on many fronts, from business interruption (BI) to data breaches.
Brokers and insurers working with clients in the manufacturing sector should be aware of the growing industry concern around workplace disruption, which includes the competitive labor market, increasing opioid abuse among employees and a growing skills gap.
Shifting risks
For the insurance industry, manufacturing is a very desirable sector, as noted by competitive rates and profitability. However, as manufacturers evolve to smart factories, connected machines, robotics and so on, traditional risks and exposures are shifting, particularly in workers’ compensation.
With new technologies, workers are moving from operating in hazardous conditions or conducting repetitive motion tasks to more clerical types of roles. However, there is still the potential for increased severity of injuries given the larger, more complex, highly functioning, automated equipment being used in smart environments.
While there may be a reduction in the frequency of traditional claims, such as repetitive motion or lifting injuries, the claim severity is driving the cost of individual claims, which is on the rise with more skilled and higher wage earners. This is further compounded by the exponentially increasing cost of health care for injured workers earning higher wages. Understanding the transition to this new world is key to identifying other potential risks. For example, are employers providing adequate training to move into new roles, or is there fear that total plant shut downs may lead to a rise in claims?
Workforce management
Attracting and retaining talent is a challenge for many industries, but even more so for SME manufacturers. A strong labor market with low unemployment rates, socioeconomic factors such as the increasing availability of opioid drugs, and the lack of skilled production workers pose threats to day-to-day operations. Brokers and insurers need to be aware of these issues and have proactive plans in place to help their clients mitigate the negative impacts to their employees and operations.
The impact of opioids
Globally, the opioid crisis is on the rise. An estimated 27 million people suffered from opioid disorders in 2016. The cost of the opioid crisis in the United States is estimated to have exceeded $1 trillion from 2001 to 2017 and is projected to cost an additional $500 billion by 2020, according to an analysis from Altarum, a non-profit health research and consulting institute. Opioids include the illegal drug heroin as well as legal prescription medications for pain relief.
Opioid addiction is a tragedy for individuals and their families, but it is also having a profound impact on businesses. For individuals, it means lost wages, decreased self-esteem and possibly death due to overdose. For businesses, it means lost productivity and increased health care costs, as well as impact on worker safety, compensation claims and return-to-work programs.
Skills gap widens
While many strengths and capabilities propel American manufacturing, the growing skills gap threatens its competitiveness. With nearly 3.5 million jobs at stake over the next decade, this gap is no longer simply a short-term issue of filling current hard-to-fill open positions but is rather a major industry crisis if the demand is not met.
A new type of worker is required because the necessary skill-set is changing. Manufacturers not only need to account for volumes of open positions, but they need to hire qualified employees who can contribute effectively in a highly-sophisticated and technical manufacturing environment. Manufacturers need skilled staff that can master advanced technologies, operate in highly collaborative team environments, use critical thinking and problem-solving skills, adapt to ever-changing environments, and embrace an attitude of continuous learning.
Training the next generation
In the U.S., fewer than 5% of young people train as apprentices. The overwhelming majority of those that do are in the construction trades. In Germany, this number is closer to 60% in fields as diverse as advanced manufacturing, IT, banking, and the hospitality industry. And in Europe, what’s often called “dual training” is a highly respected career path in which trainees split their days between classroom instruction at a vocational school and on-the-job training at a company. Trainees are paid for their time, including time spent in class. The arrangement lasts for two-to-four years, depending on the industry sector.
The Industry Consortium for Advanced Technical Training (ICATT), a Chicago- based apprenticeship group, is replicating the German model in the U.S. Manufacturing businesses can address their shortage of skilled workers by partnering with ICATT to institute apprenticeship programs using rigorous certification standards. Apprentices rotate between the shop floor and classrooms at local colleges and the employer pays both tuition and wages. Apprentices who successfully finish the three-year program graduate debt-free with an associate’s degree and a guaranteed job with the company for two years.
The bottom line is that both insurers and brokers working with manufacturers must stay ahead of the industry’s shifting risk landscape. New technologies are ushering in new challenges, particularly in the SME space. Whether it is the ability to resume operations after a natural catastrophe, cyber event, or changing dynamics of the workplace, preparing your clients to mitigate these risks will advance their opportunity for success.
Rajiv Iyer (Rajiv.iyer@agcs.allianz.com) is global head, MidCorp Package & Casualty, at Allianz Global Corporate & Specialty. These opinions are the author’s own.
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