Risk and Insurance: Electrical Engineering and Manufacturing

This article first appeared on The Australian Mining Review in November 2020. Read the full story here.

Those offering electrical engineering and manufacturing services in the mining industry face complex, hazardous, and extremely costly risk exposures. Businesses are often designing, engineering, manufacturing and even delivering a whole range of electrical products to mining clients. This can include multi-million-dollar switchrooms to power massive mine sites, or transportable kiosk substations suited to the harsh and remote environments of the mining, oil and gas, and heavy industry sectors.All stages of the supply chain, from design to manufacturing to transport to final installation to ongoing operation, present a myriad of risks requiring a customized insurance solution.Connect Business Insurance (CBI) specialises in providing tailored insurance cover and risk management solutions to the mining industry, including manufacturers working in the electrical engineering space. Generally, fire, public liability and products liability will always rate highly from a risk hazard rating perspective.But each business offers specific activities and specialist services with a risk profile that presents unique challenges.CBI understands there is never an onesize-fits-all approach, but these are some of the key risks covered by its comprehensive insurance policies:

• Goods in Transit including Marine Transit Insurance: Electrical products being delivered to mine sites are often arriving from overseas or interstate and worth millions of dollars. This insurance is designed to protect businesses transporting goods by sea, air, rail, or road due to loss, damage, or non-delivery of goods. This coverage includes damage to property caused by fire, theft, sinking, capsizing, and grounding.
• Professional Indemnity Insurance: If a business provides design services in addition to manufacturing, then it is deemed to be providing a professional service or advice. This insurance protects professionals who provide advice or specialist services if they are found to be negligent or in breach of their professional duty. If a third party like a client or customer claims a business’s services or advice has caused damages, injury, or loss, it can involve hefty legal bills. This insurance can cover breach of duty, damages due to dishonest and negligent actions of employees, intellectual property, defamation, and contractual liability, including claims from professionals who have failed to follow and meet contractual agreements.
• Workers Compensation Insurance: One of the most common exposures for clients in the electrical engineering field relate to workers compensation and employer liability. Common tasks that put these workers at risk of electrocution and other dangers include the manufacturing of electrical products, electrical installation, and repairs, testing and inspection of equipment, and maintenance activities. The plethora of risks stem from exposure to damaged tools and equipment, inadequate wiring and overloaded circuits, exposed electrical parts, improper grounding, and damaged insulation.
• Public Liability: Electrical engineering and manufacturing by its nature will pose a litany of risks and business owners have a duty of care to take reasonable steps to ensure the safety of third parties during the course of business activities. This insurance provides cover in the event a client, supplier, subcontractor, or member of the public are injured or suffer property damage as a result of negligent business activities.
• Business Interruption: CBI can provide cover to protect a company in the event of an unforeseen issue that makes running a business impossible such as extreme weather events, fire, theft, vandalism, and damage to plant and machinery. Particular attention needs to be paid to the time it would take to resume normal business output following a major loss, which can run in to millions of dollars form just a few hours of downtime at a mine site.

Machinery Breakdown

Machinery breakdown on a mine site can present huge financial risks from consequential losses due to downtime.The high costs of repairs and project delays should be adequately insured against. This is a critical cover for businesses where the breakdown of machinery or electrical products has a direct impact on productivity. According to Connect Business Insurance director Paul Cohalan, manufacturers of electrical goods face a myriad of risk exposures throughout every step of the process, including the commissioning, design, manufacture, delivery, installation, and ongoing maintenance.“Whether it’s a switch-room or switchboards, there is also the operational side if something fails,” Mr Cohalan said.“The consequential loss of a shut-down at a fixed plant at a mine site can be enormous. “Businesses need to understand their contractual obligations from when they originally tender, when there will be an initial contract and scope of works.“If they involve their insurance broker early on, we can review and look at potential exposures that are unique to them.“Then we can tailor an insurance and risk management solution that is right for them.“They have to look at this from the getgo before they even get the job because if they have an outage on a mine site, the consequential loss could the $100mil+ and the average company can’t take that on.

“Engaging your insurance broker and risk advisor from the tender process right through to the end, is crucial.” CBI is the trusted provider of insurance for electrical engineering and manufacturing businesses operating in the mining industry, including Surge Engineering.Q: Can you summarise the service that Surge Engineering provides to the mining industry?A: We design, engineer, and manufacture a complete range of electrical products, ranging from low voltage switchboards, kiosk substations, skid-mounted power solutions, switch rooms, low and medium voltage switchboards, control, instrumentation, and telemetry panels. We can provide a total turnkey package including upgrades to installations, commissioning and maintenance works on site.Q: Why is it so important for electrical engineers to have insurance?A: The risk factors at times can be high with the scope of works from the client on occasions, being slim and not well defined.Sometimes it can start off with a simple square on a piece of paper saying: ‘I’d like to build this’, so you have to cover your risks. At the end of the day, the risks invariably fall back on to us.

Q: Can you talk about the high risks associated with manufacturing and delivering products to mining clients?A: We in general, face a lot of risks and challenges. At times with respect to client specifications, we have the requirement to procure large scale equipment from overseas.We have the risk of these suppliers suffering from a range of issues, such as raw materials shortages, shipping delays, and such like. We also face the implications of possible shipping delays, especially now with COVID-19 upon us. In these instances, with the high cost of airfreighting goods, this option is price prohibitive.So, in the event that our suppliers do fall behind with our deliverables, we have to then manage the effects at our end, as our client’s deliverables remain unchanged. If we fall short of their requirements, then we will be liable for liquidated damages.

Q: What types of insurance cover does Connect Business Insurance provide to Surge Engineering?A: They provide marine transit insurance, third party public liability, workers compensation insurance, professional indemnity, and business interruption insurance.Q: What are the three most important types of insurance in the electrical engineering and manufacturing field?A: Professional indemnity is very important because you are looking at items such as intellectual property, confidentiality, claims mitigation, contractual liability, and defamation; all these items are big ticket items.Marine transit insurance: When we are transporting goods worth multi million dollars to site, if something were to happen, when a product like this is damaged, there are usually no pieces to pick up. You basically have to start again and the lead time on some of our products is six months to procure or re-fabricate. Most of our client’s requirements demand a custombuilt solution.Business insurance: The value of our work in progress (WIP) could range from a quarter of a million dollars up to $3.5m.In this regard, we are facing risks such as fire and theft, when we are building products in our outdoor construction areas, the risk of theft is high, even though we have very secure premises with 24/7 monitored cameras, barbed wire fences, electric gates, and periodic security patrols.When we are manufacturing our switch rooms, for example, we have tens of thousands of dollars’ worth of cable being installed at any one time, with which, may have needed to be custom manufactured from the likes of Germany. So, it is very important for us to be insured against this risk.