Manufacturing Risks Hong Kong-Title

Every product has a different stage, from design to distribution. Each step is as crucial as the other. One of these stages includes manufacturing, for which most companies outsource this important step to other companies. For example, Apple purchases and assembles its parts through Asian manufacturing companies due to the cost and efficiency.

Millions of manufacturing companies focus on creating specific products from clothing, medicine and technology products. You would not be reading this article without the hard work these manufacturing companies put into building products.

Although each manufacturing business has to deal with manufacturing risks – the risks include anything from harming the public, the environment or errors in the products/process. These risks can be costly to the business and destroy its reputation. 

Like every business, they need to be protected from these manufacturing risks, as they can appear from the smallest mistake.  Purchasing a range of insurances can cover a manufacturing business or factory. The article will explain which insurances are crucial to manufacturing companies when faced with manufacturing risks.

What Are Manufacturing Risks?

Numerous risks can suddenly affect a manufacturing business. Each risk can be almost impossible to move past without insurance. These risks can result in property damage, third-party and client lawsuits. 

Some of the risks include :

  • Factory property damage
  • Third-party bodily injury or property damage due to product
  • Employee injuries
  • Manufacturing errors
  • Client lawsuits
  • Environment harm due to the manufacturing process

Combining the following insurances will help any manufacturing company reduce the financial and reputation damage due to manufacturing risks.

The Insurances That Reduce Manufacturing Risks

Product Liability Insurance

Manufacturing companies are responsible for any outcome due to their decision and process. Therefore, if the product causes third-party injuries or damage and is proven to be the manufacturer’s fault, the public will blame them for the manufacturing defect. It’s a manufacturing risk that could affect any manufacturing factory, even with the simplest products like clothes.

Clothes factory - clothing manufacturing - advanced manufacturing

For example, customers and clients can sue a clothing manufacturer if their clothing is proven to have toxic materials and cause illness to consumers. Such cases will first have to prove that the manufacturer is at fault and if the consumer could have avoided the injury. The manufacturer will have to pay for compensation, medical and settlement costs.

To avoid the significant impact of this manufacturing risk, businesses should purchase product liability insurance. Product liability insurance covers legal costs and damages for the business due to the claims. Therefore, any company that manufactures, supplies or sells products should have product liability.

Manufacturing E&O Insurance

A manufacturing company is in charge of turning a design into a physical product using different materials and processes. Manufacturing companies are also responsible for assembling and testing. These tests can include safety, material toxicity and durability tests. In addition, the manufacturer is accountable for creating the product in the best way possible for the client or customer. Therefore one mistake can result in their clients suing them for negligence and financial loss.  These lawsuits can ruin the business’s reputation and future relationships.

Manufacturing products - manufacturing process

A lawsuit based on a manufacturing defect alleges that the original design of the product is entirely safe, but an error during the manufacturing process made the product unsafe. For example, General Motors was sued in 2008 over a chemical used in its cooling system, which caused leaks, engine damage and several accidents. As a result, they were sued for approximately US $20 billion and suffered brand damage. In a case like this, the manufacturer company is held responsible – if it’s the brand itself or an outsourced manufacturer.

For surprising manufacturing risks and errors like this, manufacturers should purchase manufacturer E&O insurance. The insurance is a professional liability insurance that covers manufacturing mistakes or negligent service resulting in a third party’s financial loss. However, E&O insurance may not cover all third-party injuries or property damage due to specific manufacturing defects.

Employee Compensation Insurance

Manufacturing employees are hardworking groups that spend hours ensuring the process goes smoothly and testing final products. Every product has a different manufacturing process; some processes are more dangerous than others. Manufacturer managers must provide the proper safety equipment and educate employees on workplace safety. Although accidents do happen and can result in an awful outcome for the injured employee,

Manufacturing Accidents - Factory employees

An employee’s injuries are one of the worst manufacturing risks as they can affect the employee, business and even the employee’s family. In addition, a manufacturing company must legally pay for the employee’s medical care, compensation and salary costs (while recovering).

Countless accidents can occur in a factory, including permanent or temporary injuries caused by machines or processes. To help their employees in the best way possible, they must purchase high-quality employee compensation insurance. The insurance will cover salaries, medical costs, and permanent disability/death compensation. Employee compensation helps the employer provide the best care for employees when things go wrong.

Environment Insurance

Manufacturing factories are one of the significant contributors to air pollution. Some factories use toxic gases that get released into the air, which increases health and environmental damage. These harmful materials and gases, including carbon dioxide and methane, are burned and pumped into the atmosphere. As a result, there is always a high chance that a third party or government will sue a manufacturing company for harming the environment and the public.

 Factory Pollution Hong Kong - Environmental insurance

These lawsuits can be costly and have an awful impact on the business. The business will be responsible for fighting the case and cleaning up the environmental damage caused. All these costs can add up to millions and may be hard to recover from.

Environmental manufacturing risks are precisely why businesses in the manufacturing industry should purchase environmental insurance. The insurance covers clean-up costs, legal defence and third-party damage costs (including compensation). It’s an insurance that can save businesses millions and, at the same time, help them learn from their mistakes. Every business should care for the environment and do its best to be a green business.

Property All Risk Insurance

One of the essential factors in manufacturing any product is the location and factory. The factory is where all creation happens, with the various machines, materials and tools. However, there are always risks of one of these machines sparking into a fire and destroying the property.

Factory Fire - manufacturing engineering - Manufacturing Machine

For example, in 2019, there was a huge chemical factory explosion in China. The blast at the Qilu Tianhe Huishi Pharmaceutical Co. facility in Shandong province started with sparks from a pipe being welded at the factory. The factory spent a considerable amount to repair and move on. Unfortunately, many businesses may not have the fund to repair and recover, causing a company to shut down.

Property damage manufacturing risks are the reason why business owners purchase property all-risk. Property All-Risk insurance covers the factory’s building, equipment, and other physical assets against unpredicted disasters. Business owners can also purchase business interruption insurance extensions to cover income loss during repairs.

Why Every Manufacturing Company Should Have These Insurances

The combination of these insurances can be the perfect range of cover needed to reduce the impact of most manufacturing risks. In addition, they provide many benefits for manufacturing businesses, factories and everyone involved in the industry.

One of the benefits includes financial protection when things go wrong. At least one of the insurance will cover the costs related to the specific risk. These costs could include legal, medical, compensation or repair costs. The cover of these costs can help the business avoid a sudden shutdown.

Another benefit of being covered is having peace of mind– knowing when things do go wrong, there is a safety net. When facing a lawsuit, employee injury or property damage, the worst thing a business can do is panic and stress.

Therefore every manufacturing company should purchase these insurances to be protected and covered for an unforeseen tomorrow.


To Learn More about the range of manufacturing insurance in Hong Kong and Asia, contact Red Asia Insurance.