The issue is that his longtime insurance company, Acuity, has informed his agent that it no longer wishes to insure factories like his that work with molten metal. As a result, they will have to obtain coverage from several more expensive alternative insurers.
“It’s chaos for the entire sector,” stated Kirsh, the president of the company.
A representative from Acuity chose not to answer inquiries regarding its intentions to discontinue insurance services for the foundry sector.
The expenses associated with insuring various assets, such as houses and vehicles, in the United States have significantly risen in recent years. This increase is attributed to several reasons, including higher expenses for vehicle and home repairs, as well as increased storm damage related to climate change. For example, auto insurance has experienced its largest price hikes since the 1970s over the last year and is noted by economists as a major contributor to the inflationary pressures that the Federal Reserve has been attempting to control through interest rate increases initiated in March 2022.
It’s not surprising that factories are facing challenges.
Numerous manufacturers deal with hazardous substances and utilize large machinery, which can lead to accidents and fires. As a result, they often face high insurance premiums. This is particularly applicable to smaller manufacturers, as insurers typically perceive them as having greater risks.
Large corporations employ internal risk management professionals who evaluate possible threats and have larger financial resources to invest in safety features, such as sprinkler systems or fire-resistant rooms, which can help reduce insurance claims.
The Bureau of Labor Statistics reports that insurance coverage for various business sectors, not just manufacturing, has increased by approximately 12% since early 2022. This rise is nearly three times greater than the increases observed during similar periods in the decade preceding the pandemic.
The extent of the recent price hikes has taken foundries and other metal casters by surprise. This sector, valued at $50 billion, manufactures components for a wide range of products, including household appliances and heavy machinery like bulldozers.
“Not too long ago, health insurance costs skyrocketed,” remarked Doug Kurkul, the CEO of the American Foundry Society. “However, that has now been overshadowed by the rise in property and casualty insurance.”
‘TAKING A DETAILED VIEW’
According to Loretta Worters from the Insurance Information Institute, there was a general increase in commercial insurance rates across various business types during the second quarter of 2024, with some areas experiencing a rise of approximately 10%.
Worters explained that increasing interest rates are a component of the broader inflationary wave affecting the U.S. economy. She noted, “If your property experiences an explosion and needs to be reconstructed, the expense of rebuilding is significantly greater than it was five years ago.”
Extreme weather conditions are another consideration. “If there’s a rise in hurricanes that are damaging factories, and you’re consistently experiencing losses, you could approach the state regulator and request an increase in manufacturing rates,” Worters explained.
Kate Hensley, an insurance broker based in Dubuque, Iowa, focuses on providing services to metalcasting firms. She remarked, “Insurers are closely examining any business that is at a significant risk of experiencing a total loss.”
Hensley noted that the issue is particularly serious in sectors such as foundries, where the fire hazards are clear, but it isn’t confined to just that area. “There are other fields, such as chemicals and plastics, that also present significant dangers,” she stated.
Hensley noted that many major insurance companies that have historically provided coverage for these businesses are, in some instances, completely withdrawing from the market. This decrease in the number of large insurers is resulting in fewer choices for manufacturers. “This is becoming increasingly common,” she remarked. “They claim that regardless of the safety measures implemented or their effectiveness, they simply state, ‘We won’t cover them.’”
Different categories of producers are retaining their insurance providers, albeit at significantly increased costs. For instance, Gent Machine Co. based in Cleveland spent $30,785 to cover its small precision machining business in 2019. Since then, the premiums have risen each year, with a substantial increase of nearly 28% occurring from 2022 to the present year.
“We returned to our agent and requested a quote for this, and they informed us that all the other carriers were offering significantly higher rates,” stated Rich Gent, the vice president of the company. “The response I received indicated that our existing carrier is aware of the favorable deal we have—this is why they are increasing the prices, because what alternative do we have, to go without insurance?”
At Kirsh Foundry, located in Beaver Dam, Wisconsin, the current challenge is determining how much of the increased insurance costs can be transferred to customers. According to Kirsh, the company is feeling the strain to lower prices rather than add further hikes. One possibility he is exploring is to cut back on the level of coverage, as the likelihood of the entire facility being completely destroyed is minimal.
He mentioned that his clients “comprehend when I explain that I need to account for materials, labor, or benefits. However, this is going to be a challenging discussion with our clients.”
