Robotic manufacturing is nothing new, but it is becoming more and more prevalent. Importantly, the mix of them being controlled by online systems opens up a whole new can of worms for manufacturers and the brokers who advise them.
Industrial robots are nothing new. In fact, they’re older than pocket calculators, video game consoles and Barack Obama.
But increasingly sophisticated robot technology, combined with online systems, are amplifying business interruption risks in the manufacturing world like never before.
“It’s a bit of a brave new world,” says Ari Bitzilis, Senior Risk Engineer at Berkshire Hathaway Specialty Insurance.
“Businesses are looking at efficiencies and cost reduction methods and that leads further down the path of automation.”
There’s also a bit of ‘it won’t happen to me’ attitude. ‘I’m too small, why would they target me?
In fact, so advanced is automation becoming that it has re-emerged as an important part of the training curriculum at Innovation & Business Skills Australia going forward.
“As the skills service organisation for the manufacturing industry in Australia, it’s our job to work with employers to identify the key skills needed by employees. The impact of automation is one of the key areas,” explains CEO Patricia Neden.
Robotics is still evolving
The very first industrial robot worked on an assembly line at a General Motors plant in New Jersey in 1961, says Professor Peter Corke from the Australian Research Council (ARC) Centre of Excellence for Robotic Vision.
Despite what the Jetsons promised, robots have not become commonplace in society outside of manufacturing over the past 56 years. That’s because they’re not yet intelligent enough, they can’t anticipate the imminent future, and they have difficulty comprehending vision, Corke explains.
“They’re not as smart as a three-year-old kid who you can ask to do this task or that,” Corke says.
“We’re building systems that can do just one thing. But they do it well, they do it quickly and they do it reliably.”
Automation – is it reducing risks?
The insurance industry is only just starting to get a feel for the next generation of robotics. But one of the more obvious emerging risks, says Bitzilis, is that by replacing humans with complex software to run machinery you can no longer simply throw manpower at a problem.
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The virtual now controls the physical so you need to bring in highly skilled experts to fix issues.
“How quickly can you get a workaround on things like that? Your downtime could be a day or two. What does that cost for a production line that’s earning you a million dollars a day?” he asks.
The other major risk factor is a little more nefarious.
More and more manufacturing plants are connecting their machinery, equipment and operating software to the online world to allow employees remote access. But that potentially leaves the door open for cyber criminals.
Do what you normally do as a broker: understand your client’s business.
“Essentially you’re opening up your SCADA [supervisory control and data acquisition] systems [to the online world] – which are designed to be open sources, very easily operated, but not necessarily secure (see breakout),” says Bitzilis.
“There’s also a bit of ‘it won’t happen to me’ attitude. ‘I’m too small, why would they target me?’”
But according to the Australian Government, one third of businesses have experienced a cyber-crime, and 60 per cent of those businesses were SMEs. Of those businesses, 40 per cent suffered business disruption, 29 per cent productivity loss, 25 per cent revenue loss, and 4 per cent equipment failure.
Risks of a robotic world
The consequences of hackers gaining control of a business’s manufacturing equipment range from shutting it down and holding it to ransom, to changing products.
“For example, you could program a robotic welder to make less welds,” says Bitzilis.
“If that isn’t picked up then you’ve got a product with an inherent weakness. You then risk customer injury, product recall, reputational damage and so forth.”
And it’s not just your production line that’s at risk of being hacked, says cyber specialist Travis Gauci, Product Manager at Arthur J. Gallagher.
“Your plant may be reliant on a cooling system to keep the machinery safe, for example, but then a hack could occur and the entire plant could burn down because hackers stopped the cooling system working,” says Gauci.
Business interruption (BI)
While automated systems and robotics are increasingly evolving and complex, in many ways they’re no different from any other manufacturing equipment when it comes to BI insurance, says Bill Galligan, Underwriting Manager, Vero.
“From an insurance perspective, one of the key questions is: what will happen to the business if this piece of equipment fails? This question applies to any piece of equipment, whether it’s a motor on a conveyor belt or a sophisticated automated system,” Galligan says.
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When examining the risk of an automated system, Galligan says insurers and brokers need to understand what business continuity plans are in place if that system fails, and whether plans can be improved.
“What impact will a system failure have on production? How long will it take to re-establish or replace the system? Are there contingencies to continue production?”
Another key question a broker must ask clients is: what else can cause equipment to fail?
“As technology becomes more connected to the internet and third-party systems, what factors are they susceptible to? Perhaps power surges, incorrect programming or third-party system outages,” Galligan suggests.
Brokers can provide a helping hand
So how can brokers ride this wave of change and become truly indispensable?
Gauci says expecting brokers to know every cyber security fix or safety mechanism is probably a tad unrealistic.
“But a broker should know the general types of risk to help guide a business through their exposures,” Gauci says.
He adds that figuring out which insurance policy mix will be right for your client comes back to ‘Broking 101’.
“Do what you normally do as a broker: understand your client’s business,” says Gauci.
“Take that extra step to go into the detail and understand the specifics. That’s what differentiates an average broker from a really trusted broker.”