Manufacturers affected by rising property insurance costs

James Kirsh expects the cost of property and casualty insurance for his family-owned Wisconsin foundry, which makes cast iron parts for tractors and other equipment, to at least double when it renews this fall.

He was told it could be tripled.

The problem is that his longtime insurer – Acuity – has told his insurance agent that it no longer wants to cover plants like his that deal with molten metal. So they’ll have to bundle coverage from multiple, higher-cost alternative providers.

“It’s a mess for the whole industry,” said Kirsh, the company’s president.

An Acuity spokesman declined to answer questions about its plans to stop providing insurance to the foundry industry.

The cost of insuring everything from homes to cars in the U.S. has risen in recent years due to factors including rising auto and home repair costs and more storm damage amid climate change. Auto insurance, for example, saw its biggest increases since the 1970s in the past year — and is even cited by economists as a big factor in the inflationary tide that the Federal Reserve has struggled to tame with interest rate hikes since March 2022.

So it’s not a big surprise that factories are getting hit.

Many manufacturers handle hazardous materials and operate heavy machinery that can cause accidents and fires, which has always meant paying high premiums. This is especially true for smaller manufacturers, who are generally seen as more risky by insurers.

Large companies have in-house risk managers who assess potential hazards and larger budgets to spend on safety measures such as sprinkler systems or fireproof rooms that can minimize insurance claims.

Insurance coverage for all types of businesses — not just manufacturing — has increased by about 12 percent since the start of 2022, according to the Bureau of Labor Statistics, nearly three times the increase over comparable time periods during the decade. before the pandemic.

It’s the scope of the recent increases that have shocked foundries and other metalworkers, a $50 billion industry that makes parts for everything from appliances to bulldozers.

“It wasn’t that long ago that health insurance went through the roof,” said Doug Kurkul, CEO of the American Foundry Society. “But now this has been eclipsed by property and casualty insurance.”

“LOOKING CLOSE”

Overall, commercial rates for all types of business insurance rose in the second quarter of 2024, rising by about 10 percent in some regions, said Loretta Worters of the Insurance Information Institute.

Worters said the rate hike is part of the larger increase in inflation roiling the U.S. economy. “If you have a blowout on your property and it has to be rebuilt, the cost of rebuilding is much higher than it was five years ago,” she said.

Severe weather is another factor. “If you’re seeing an increase in hurricanes damaging manufacturing plants — and you’re seeing ongoing losses — then you could go to state regulators and say we need to raise rates on manufacturing,” Worters said.

Kate Hensley, an insurance broker in Dubuque, Iowa, who specializes in working with metal foundry companies, said, “Any company that has a high potential for total loss is closely scrutinized by insurers.”

Hensley said the problem is particularly acute in an industry like foundries, which face obvious but not limited fire risks. “You have other industries — like chemicals and plastics — that have big hazards,” she said.

Hensley said large insurers that have long covered these types of businesses are in some cases pulling out entirely, reducing the number of large insurers and leaving manufacturers with fewer options. “It’s happening more and more,” she said. “They say it doesn’t matter how many safeguards are put in place, how good they are – they say, ‘We’re not going to deal with them.’

Other types of manufacturers keep their insurers – but pay much higher prices. Cleveland-based Gent Machine Co. paid $30,785 to insure its small precision machining operation in 2019. Premiums have risen every year since, including a nearly 28 percent increase between 2022 and this year.

“We went back to our agent and asked them to quote it — and they said every other carrier” was quoting much higher prices, said Rich Gent, the company’s vice president. “The feedback we got was that our current carrier knows we have a good deal – that’s why they’re raising the price, because what are you going to do, not be insured?”

At Beaver Dam, Wis.-based Kirsh Foundry, the question now is how much of the higher insurance bill it can pass on to customers. The company is under pressure to cut prices, not put in more increases, Kirsh said. One option he’s considering is reducing the amount of coverage, since the chances of the entire plant being destroyed are slim.

He said his customers “understand when I say I have to cover material, labor or benefits. But that’s something that’s going to be a tough conversation with our customers.”

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