Aon Study Reveals Three Largest Risks Industrial, Materials Industry Face

Companies in the global industrial and materials industry face three specific global risks: economic turmoil, commodity pricing fluctuations and business interruption, which includes supply chain disruption, according to a new study from Aon.

Natural disasters and other catastrophes—flooding in Thailand and Japan’s earthquake, tsunami and nuclear disaster—have forced automotive, metals, construction/agricultural equipment, building materials, industrial machinery and defense contractors, to change the way they view and prioritize resources for risk response, according to the “2012 Industrial and Materials Industry Report” released by Aon Risk Solutions.

“These events served as a wake-up call for all organizations to more carefully evaluate the interdependencies of their global operations,” said Mike Stankard, managing director of the Automotive and Industrial and Materials Practices for Aon Risk Solutions in a press release. “It is more important than ever for organizations to embrace an enterprise-wide approach to managing risk and optimize that strategy on a global basis.”

According to the report, the range of risk issues faced by the industry is widening for a variety of reasons: Demand forecasting has been difficult due to the glacially paced economic recovery in the United States, the continuing economic crisis in Europe and China’s economic slowdown; commodity price volatility is increasing, which affects cost structures, budgets, inventory and production costs; and the increasing complexity and interdependence of global supply chains, rapid and disruptive technology developments and the outsourcing of component parts and offshore production has exacerbated the problem.

Other findings in the Aon Risk Solutions 2012 Industrial and Materials Industry Report include:

• Risk financing: While insurance for the industrial and materials industry remains competitive in terms of coverage provided and enhancements available, Aon clients are looking for further efficiencies in their approach to risk financing through the use of captive insurance companies.

• Property terms and conditions: Aon expects carriers will be more cautious and conservative with flood and contingent business interruption coverage in 2012.

• Umbrella/excess liability limits: Aon is seeing an average limit of $150 million purchased by clients - evidence of a continued concern around product liability and automobile liability litigation.

• Directors’ and officers’ liability limits: Aon is seeing an average limit of $77 million purchased by publicly traded company clients in the S&P Industrials and Materials sectors.

• Aon Global Risk Management Survey Results: When industrial and materials organizations with operations in more than one country were asked how they purchase/control their insurance programs, 61 percent of respondents indicated their corporate headquarters control procurement of all of their global and local insurance programs.