A report on the UK manufacturing industry issued today (26 June) by insurance governance experts Mactavish highlights a dangerous confluence of increasing claim disputes, inadequate risk governance on the part of manufacturers, and the failure of brokers and insurers to provide fit-for-purpose protection to their clients.

On the day when the Law Commission publishes its final consultation paper on the first major shake-up of corporate insurance in a century, the report is the result of in-depth consultations with 140 manufacturing businesses across Britain over the past 12 months with examples of the individual risks and systemic failings which threaten the sector.

The Mactavish report highlights the potentially critical oversights and blind spots that could see individual companies failing because an insurance claim is not paid out or is delayed longer than a company's ability to sustain its business.

Confidence in the sector, and its continued recovery, would be significantly damaged by one or two high-profile failures, the report claims, even as manufacturers demonstrate their ability to adapt in the face of recession.

The report states that: "The current assumption that insurance will simply respond when needed is inconsistent with the legal reality."

Some of the issues raised in the Law Commission paper are already being faced by manufacturers, the report shows, with many prominent firms’ current arrangements not standing up to scrutiny. One example is the shift in business models to include service provision as well as manufacture, thereby exposing companies to risks that are not understood or accounted for.

The Mactavish report analyses and explains the real-life impact of these legal failures on manufacturing, a sector which remains a vital part of Britain’s economy and hopes of returning to growth, and finds that:

• manufacturing & Engineering sector’s impressively innovative response to recession being let down by weak governance around risk and insurance leaving companies needlessly exposed
• lack of proactivity from insurance industry brokers and insurers in keeping pace with change creating gaps in protection and driving an increase in disputed claims
• insurance policies increasingly unreliable in respect of major losses with few aware of the problems or taking steps to address them
• companies not geared up for the major coming legal reform announced today, the first to hit corporate insurance in more than a century

The report warns that “most manufacturing businesses today remain needlessly exposed by addressable weaknesses in the insurance system, but usually do not find out until it is too late. The current economic climate has exacerbated many of the contributory factors.”
It goes on to conclude that “far more questions need to be asked by both insurance buyers in the sector and those responsible for risk at board level”.

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