Property risk challenges in the automotive industry

The automotive industry is constantly evolving. Global sales of electric vehicles (EVs) surpassed 10 million for the first time in 2022, whilst sustainable design and manufacturing of vehicles continue to change the industry. New technologies are continually improving car design and performance as well as enhancing customer experience.

But with new trends and new equipment comes new risk. Today, the industry is facing increased property risk challenges, which in turn has a knock-on effect on insurance claims. Businesses in this sector need robust commercial property and business interruption insurance.

Today’s cars are 50% plastic by volume and less than 10% plastic by weight. To put that into context, in 2021 the typical vehicle contained 411 pounds of plastic material, which is 16% higher compared to 2012. 

The volume of plastic used in modern cars means an increased amount of flammable plastic being stored at car manufacturing plants. Coupled with this, lithium-ion batteries used in EVs are highly energy-dense and contain electrolytes that are highly flammable. They therefore present fire-fighting challenges in production and warehousing.

Flammable and combustible substances simply can’t be ignored. Alongside flammable plastic and lithium-ion batteries, liquids and vapours are present in the paint shop, lubrication oils in the stamping workshop and hot molten slags in the welding workshop. Tyres and finished vehicles will also be stored at manufacturing plants.

Fire is a real risk, and fire protection systems must be configured in new ways to account for these changes in manufacturing materials. If they are not, systems can be completely overwhelmed.

The volume of plastic used in modern cars means an increased amount of flammable plastic being stored at car manufacturing plants. Coupled with this, lithium-ion batteries used in EVs are highly energy-dense and contain electrolytes that are highly flammable. They therefore present fire-fighting challenges in production and warehousing.

Flammable and combustible substances simply can’t be ignored. Alongside flammable plastic and lithium-ion batteries, liquids and vapours are present in the paint shop, lubrication oils in the stamping workshop and hot molten slags in the welding workshop. Tyres and finished vehicles will also be stored at manufacturing plants.

Fire is a real risk, and fire protection systems must be configured in new ways to account for these changes in manufacturing materials. If they are not, systems can be completely overwhelmed.

Elon Musk said in 2011 that: “With our giant casting machines, we are literally trying to make full-size cars in the same way that toy cars are made”.

Over a decade later and one-piece die casting technology has become almost ubiquitous, enabling manufacturers to simplify production, decrease cost and create more sustainable vehicles. Yet, this new technology brings new risks. Machinery like this is custom-made, usually from a single supplier and is very difficult to replace in the event of a mechanical breakdown or a fire for example. Not to mention time-consuming.

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A conservative estimate is that it would take 18 months to replace the machine itself, with another three months for installation and testing. According to Swiss Re Corporate Solutions estimates, even just a minute lost in the production process is estimated to cost manufacturers USD22,000. And with the significant size and cost of the machine itself, it’s unlikely that a manufacturer would be able to invest in a spare. Placing such focus and trust in one machine is a clear risk.

Automated Racking Systems (ARS) are being increasingly deployed in auto manufacturing. These are being used for their storage capacity and enhanced efficiencies on the floor. But they aren’t without their risks, specifically the structural pressure they place on warehouses as well as the severe damage that can be caused if any of the structure collapses.

Natural disasters continue to disrupt supply chains. The severe flooding in Thailand in 2011, resulted in parts shortages around the world, with the Honda manufacturing plant out of action for six months, as one example.

It isn’t just the natural world that is putting pressure on supply chains. New technology and globalisation of supply chains have increased both their complexity and fragility. A fire in a semi-conductor plant in Japan in 2021 had a significant impact on global supply lines. There was a four-month waiting period until the plant could resume its previous levels of production, which in turn resulted in a loss of around 4 million vehicles with a value of more than $100 billion.

To avoid these kinds of losses it is vital that supply chain resilience is taken seriously, and risks regularly reviewed and accounted for in policies.

For automotive manufacturers, it is essential to work with specialist corporate insurance providers that offer protection in times of adversity and beyond.

If there is an issue with a machinery, a full investigation needs to take place to bring an appropriate insurance claim and assess the exact extent of damage caused. For technology systems like ARS there will be suppliers, sub-contractors, designers, maintenance contractors and many other stakeholders. Automotive manufacturers need to collaborate with a trusted insurer to perform a root cause analysis to determine whether is there any subrogation against a negligent party.

A specialist insurer with a key understanding of the market is also essential when considering the current increase in claim quantum. Today, inflation is key and also a common issue in claims. The war in Ukraine has also had a significant impact on the claim quantum in terms of getting key equipment and components from certain parts of the world.

With advances in technology comes enhanced manufacturing efficiency and sustainable solutions for consumers, but today’s automotive landscape isn’t without its risks and pitfalls for manufacturers. The right commercial insurance from a specialist provider helps form the foundation for a successful operation.

This article leverages insights from the 'Automotive Industry: A property risk insurance perspective' webinar.