We are in the midst of the Fourth Industrial Revolution.

Where the first introduced water and steam to get manufacturing moving, the second used electric power to enable mass production. The third brought electronics and IT into the picture to facilitate automation and now the fourth is seeing more emerging technologies take us to the next level. Artificial Intelligence (AI) and robotics are moving manufacturing into a whole new era.

It’s a fascinating time but the changes are wide-reaching and developing at an incredible pace, so manufacturers need to be aware of wider management and insurance requirements this could bring, as well as the operational impact.

HR risks

The first risk involves the impact on your personnel. Manufacturing has been increasingly mechanised for many years but at the same time, as an industry, it is steeped in tradition. The rise of AI does deliver increased efficiency, but there are cultural shifts. Where once there might be 10 managers and hundreds of staff on the floor, a business could soon be looking at more middle managers and a totally different warehouse. All these changes bring with them new challenges and potential risk exposures which need to be reviewed carefully to fully understand the potential risks arising from HR legislation, increased training and skills development in a specialist area.

Operational risks

Robots were created first and foremost to carry out tasks, and nowhere is this more evident than in manufacturing. They cut, they wrapped they packed. There was still the need for human management and inspection.

However, AI is leading to robots that can inspect, diagnose and make decisions - and this takes us into a whole new realm. To date, conventional manufacturing methods have contained acceptable room for error, as a replacement shift of employees could be deployed. A robotics error could mean a longer delay in production and in a fast-paced world, the impact to reputation could be significant.Backups need to be planned.

Cyber risks

Being technology-based, AI is significantly exposed to a range of exposures that fall under the general description of cyber risk. Relying on complex computer-controlled machinery and its corresponding operating software means more exposure, from potential viruses to hacking or even ransom demands.

The impact of a cyber event would be catastrophic and cannot always be prevented by inbuilt system protection and fire walls. Your business needs to be prepared and consider insurance cover prior to the introduction of new technologies.

To put it simply, conventional insurance may not be adequate to deal with the significant cultural changes AI will bring to manufacturing.

Manufacturers need to put in place the risk management procedures that will identify and quantify potential risk exposures - and prepare a plan to mitigate those risks, giving serious consideration to the insurance options available to provide cover against the costs of production delays, material damage, business interruption, impact on reputation, engineering breakdown, cyber exposures and business continuity planning.

Startups are driving this, as they don’t have the cultural, logistical and traditional hurdles older manufacturers face. To keep up, those traditional manufacturers will need to adapt their processes at the same time as effectively understanding and managing the developing risk exposures.

The growth of AI brings a lot of changes and some incredible opportunities. But before those changes are even considered - to your production, your employees, your training, your security, your HR processes and your culture, you need to be prepared for a discussion with your insurance broker and risk management advisor, who can help you to be ready for the additional measures and insurance solutions that are available, to help you in your journey into the future.