With 3D printing expected to totally transform manufacturing, what does it mean for the insurance industry?
Helping astronauts make spare parts while in space, building human organs for transplant or creating chocolate models of your nearest and dearest – 3D printing is being heralded as one of the most significant manufacturing advances in recent times. But as more applications are found for this new technology, there are concerns about the implications for the insurance industry.
As with many new forms of technology, 3D printing (or additive manufacturing, to give it its much less exciting name) is growing rapidly. Although it has been available since the 1980s, it is only in the past few years that it has become commercially viable.
In fact, figures from market research group Freedonia, in its World 3D Printing report, indicate global demand for 3D printing will have reached an annual growth rate of 20.7% by 2017 (compared with 2012).
Although it is being touted as a game‑changer, the cost of the technology means 3D printing is presently more prevalent in higher-end sectors. “We’re seeing it in areas such as aerospace and motorsports,” says Matt Turner, technology specialist and development executive for corporate at Perkins Slade. “The scope is tremendous, though – we expect to see it creep into other sectors as the costs fall.”
Freedonia, meanwhile, expects to see the fastest growth in the medical and dental markets, where 3D printing could be used to manufacture items such as crowns, bridges and prostheses. Additionally, it predicts 3D printing will become a significant force in the consumer goods sector, with toys, jewellery and consumer electronics all benefiting from this form of production.
Naturally, as prices fall it is also expected to reach the consumer market. For example, while a 3D printer would have set you back tens of thousands of pounds a couple of years ago, you can now pick one up for less than £750.
The reason for these predictions of heady growth is clear – 3D printing promises countless benefits. It can enable mass customisation, as well as taking considerable time and expense out of the production cycle. “A company can go quickly from design to manufacture by using a 3D printer,” says Russell Corbould-Warren, head of underwriting for SMEs at Zurich Insurance. “This might enable it to bring production in‑house, giving it more control over its operations.”
As an example of the financial savings to be had, BAE Systems has recently confirmed it has started to use 3D printing to manufacture parts for the RAF’s Tornado fighter planes. By doing this it expects to save £1.2m over the next four years.
And further savings can be made on the distribution side of things. As 3D printers become more commonplace, companies will be able to distribute their products by simply sending the design for printing. This will cut down on distribution costs and remove the customer frustration associated with items being out of stock.
However, as well as the advantages, 3D printing also introduces a number of new risks – including product liability, property liability and employers’ liability. Understanding the implications of these emerging risks will be key to insurers seeking to provide appropriate cover to businesses hoping to use this new technology.
For starters, the actual process of 3D printing can introduce additional risk. “Items can take a long time to print, so there’s the potential for unattended overnight processing,” says Roy Watkinson, head of commercial at Ageas Insurance. Coupled with the heat that some of these printing processes can generate, this could increase fire hazard risk.
And although providing a customer with a 3D design so they can print their own item or replacement part can save considerable time and enable customisation, it would also remove some of the company’s control of manufacturing.
“Pushing the manufacture out to the customer in this way puts more onus on the control of the design specifications,” says Colin Bradbury, director of commercial underwriting at RSA. “Companies have traditionally relied on a combination of specification control at the front end and quality control after production to ensure there isn’t a problem, but this second stage is removed when the production is completed by the customer.”
This could mean fewer quality controls in place, leaving product manufacturers open to increased accountability. And even if businesses do pay close attention to the accuracy of the design, there could still be a risk of product integrity being compromised if customers use other printing materials or adapt the design.
Bradbury says companies will have to be careful they don’t pick up liability in these cases. “Instructions will need to be very specific. Then, if the customer doesn’t follow them, liability doesn’t automatically lie with the company,” Bradbury explains.
But while product liability risks may be changing, Ingrid Hobbs, partner in the insurance and reinsurance group at Mayer Brown, says 3D printing should not necessarily increase the risk of a product being unsafe: “There’s a lot of hype around the risk increasing but, providing a company has appropriate quality assurance programmes in place, there is no reason to regard products created using additive manufacturing techniques as being inherently more susceptible to failure.”
3D printing may sidestep potential risks including human error and structural integrity.For example, where a firm uses a 3D printer to make a complete part rather than fusing together different components, it may ultimately be of higher quality.
“Where a company is manufacturing its own products rather than buying components from third-party suppliers, it should have much more control over their quality – although rights of recovery against parties in the supply chain will then fall away,” Hobbs adds.
While a pragmatic approach to product safety is likely to address any potential issues surrounding production, the digital aspect of 3D printing may well see an increase in claims relating to intellectual property infringements.
CFC Underwriting marketing director Graeme Newman explains: “The world of intellectual property rights management will be disrupted in the same way that Napster disrupted the music industry at the turn of the century.
“Instances of inadvertent infringement will rise as peer-to-peer networks enable the sharing of designs over the internet. We already see this with software code but, due to the digital nature of 3D printing, it will become an issue for products too.”
The Intellectual Property Bill seeks to address some of these issues by making it easier for businesses to protect and enforce their rights. But as it proposes that ownership of a design will ultimately lie with the designer, rather than the person who commissioned it, designers could find themselves increasingly in the firing line.
“There is the potential for a right of recourse against the designer, but only if they have a responsibility to the company,” says Hobbs. “I expect we’ll see lots of debate as to whether duties of care are owned by designers. If [they are, questions will need to be asked about] the scope of these duties and whether a breach of that duty has caused loss. These are age-old legal questions being applied to 21st century manufacturing processes.”
This could also fuel an increase in sales of professional indemnity as designers look to protect themselves from these claims.
While insurers are grappling with the way 3D printing will alter risk, there are also concerns that as 3D printing becomes more affordable, the risk profile of many businesses will change. “One minute a company is a paper-based design consultancy, using external suppliers to manufacture its designs; the next, it’s bought a 3D printer and is manufacturing first the prototypes and then the items in-house,” says Corbould-Warren. “This operational drift is unintentional, but it can have a significant impact on [a company’s] risk profile and could even mean it’s not covered.”
As an example, by bringing production in‑house, not only does the nature of a business change, potentially altering property risk, but there are also implications for business interruption cover. Where a company might have had a key supplier extension to cover a problem with the external manufacture of the items, it may now need to have a key customer extension as well, if it finds itself unable to supply demand for its product.
There is also an international angle. The work the internet has done in helping bring down borders and creating a global marketplace for businesses will be accelerated as a result of 3D printing. Rather than having to ship a product, a manufacturer will be able to provide a design that can be downloaded and printed anywhere in the world.
But this freedom has its own risks. “Once you get outside the UK you can find yourself up against all sorts of legal jurisdictions,” Corbould-Warren says. “Most businesses will have liability coverage for the UK only or, if it is worldwide, it may have a North American exclusion. The arrival of 3D printing is very positive for businesses, but we need to know how they’re evolving so we can ensure they have the right cover.”
Although the insurance industry is aware 3D printing potentially presents a new set of risks, the response so far has been muted. The Association of British Insurers is keeping an eye on developments but has yet to undertake any formal research into the risks associated with this new technology.
Turner says this is fairly typical of individual insurers’ responses, too. “Insurers are remaining silent on 3D printing,” he says. “We haven’t seen any changes or endorsements to policies – which concerns me.”
In particular, Turner is worried that, should claims start to arise, insurers may point to the policyholder’s failure to disclose a material fact as a way of avoiding paying claims. In turn, this could result in a PI claim against the broker for failing to provide appropriate advice. “It is a bit scary so, as brokers, we have to fully understand what a client is doing and how this might affect their cover. At the moment, if a client buys a 3D printer this is sufficient to trigger a full risk review,” he adds.
While it is frustrating, this is standard practice with many new technologies. As the risks are not yet fully understood, insurers tend to watch how the courts react to related cases before they determine how their cover will respond.
Turner does not believe the market will need to wait long. “I expect to see the first cases involving 3D printing to come before the UK’s courts this year,” he says. “As soon as we start seeing legislation, we’ll see insurers move on it. Until then we’re making sure our clients understand the importance of keeping us informed if their business changes.”
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