You Know Spoilage Is Going to Cost You, but Do You Know How Much?

Spoilage is one of the most costly and frustrating risks manufacturers face. Manufacturers understand the cost of spoilage, whether it be the destruction of a batch of product or the disruption of customer commitments. 

In fact, if you’re reading this, you probably have an understanding of the value of preventing spoilage – or may be looking for a solution to a problem you have today. What you may not be considering is the cost of insurance that will reside with your business long after the event itself, leaving behind a significant insurance expense.

Not Even Sure of Your Product’s Shelf Life?

Insurance Expenses Associated with Spoilage Can Be Substantial

Insurance companies are all about assessing risk and planning around them. When an event triggers an insurance payout, insurers must reassess the risk and increase insurance premiums. In the case of spoilage, here are examples of the impact to insurance expenses:

1. A Single, Moderate Spoilage Event (e.g. $100k to $500k loss): Could result in premium increases of 10-20% and a deductible increase of 1.5x-2x. While coverage will typically be maintained, even a small even can put a company on the insurers watch list.
2. Large Spoilage Event (e.g. $500k to $5M loss): Could result in premium increases of 20-40% and a deductible increase of 2x-5x. While coverage will typically be maintained, there could be new requirement of proof of improved controls.
3. Repeated Spoilage Event (2+ claims in 2-3 years): Could result in premium increases of 40-100% (or more!) and a either very high deductible or reduced coverage. Worse, an insurance carrier may even refuse renewal.

Insurance Asks the Same Questions You Should

Fundamentally, insurers – like you – want to avoid spoilage events. After an event, they will start to ask question about whether or not your process was statistically controlled, what you were monitoring or whether or not there were any warning signs. Furthermore, they’ll try to assess the likelihood of an event happening again, given the process in place.

Don’t Be Reactive, Be Proactive

The funny thing about insurance premiums is that once they increase, they rarely go down. A company may be able to survive one spoilage event, but its insurance premiums won’t. The most resilient organizations pair insurance coverage with Minitab Solutions to reduce both the frequency and severity of spoilage events or eliminate them altogether.

Ready to ASSESS YOUR RISK OF SPOILAGE? 

Learn how Minitab Statistical Software and Scytec DataXchange work together to drive data-based manufacturing decisions.