Sorting Out the Insurance Risks Related to 3D Printers
Sorting Out the Risks Related to 3D Printers
November 2015 | By Ingrid Sapona
No doubt you’ve heard about 3D printing. Over the past three years a number of news stories featuring things people have made with 3D printers have made quite a splash. In 2013, for example, there was a heart-warming story about a father in Massachusetts who spent a couple years looking for an affordable way to get his son a prosthetic hand. Eventually he found a digital design and instructions online and used a 3D printer purchased for his son’s school to build a prosthetic hand for his son.
In 2013 there was also a rather sobering story about a “Texas group run by a self-described anarchist” who posted a video showing the firing of a plastic handgun created with a 3D printer. That group then posted the blueprints for the gun online. The U.S. State Department contacted the group’s founder and demanded that the blueprints be taken down from the website because the group did not seek prior authorization from the Directorate of Defence Trade Controls to publish technical data about items on the US’s Munitions List. The group complied with the order but, according to news reports, the blueprints had already been downloaded 100,000 times.
And, in what once might have sounded like something out of science fiction, earlier this year there was news about the astronauts on the International Space Station (ISS) crafting a wrench and a ratchet using a desktop 3D printer that was delivered to the space station in 2014. Having demonstrated the utility of the printer on the ISS, NASA is now partnering with a company called Made in Space to install a 3D printing station and a polymer recycling station on the ISS. The intent is that the recycling station might provide the polymer filament for printing tools on the ISS in the future. According to Jason Dunn, co-founder and CTO of Made in Space, these innovations would solve a number of problems that are unique to the ISS. For example, it costs about $10,000 per kilo to blast something into orbit – think of the savings if they could print items rather than send the up. Also, the astronauts would be able to make objects that are too fragile to withstand the two Gs of pressure they’d be subject to on blast off. In other words, obvious supply chain efficiencies to be gained.
What is 3D printing?
Despite its name, 3D printing is not what most of us think of as printing. Indeed, in the early years it was called “rapid prototyping” because it was used to create three dimensional models, prototypes and patterns. (Note: Other terms for it are stereolithography, which appeared on a U.S. patent in 1986, optical fabrication, photo-solidification.) But, the term 3D printing has become the generic term most often used. A far better name for it is “additive manufacturing” because it builds objects layer-by-layer. Such a process is quite different from traditional manufacturing, which is often referred to as “subtractive” because it usually involves cutting or molding raw materials.
The 3D printing process begins with software that models the object by basically digitally slicing it up. A computer program then directs the device to “print” each slice as a thin layer, starting from the bottom and working its way up. The layers are basically extruded from a printer head that is heated to melt the material. The layers are cured, for example using ultraviolet laser light in the case of photopolymers, as they are added.
The types of materials that can be used is more varied than most people realize. The first 3D printers use photopolymers, but now there are printers capable of producing objects out of metals (using wire filaments and also powdered metal ), gels, food products, chemicals, and even human cartilage. See, for example, an article about Alcoa’s plans for developing new powdered metals specifically for 3D print applications.
Though 3D printing has only been around since the 1980s, a 2014 PwC survey of more than 100 industrial manufacturers found that 66% of those responding to the survey use 3D printing technology in some way already. In terms of the potential impact on the industrial economy, McKinsey Global Institute research suggests that 3D printing could have an impact of up to U.S. $550 billion a year by 2025.
These stories about items individuals have made using 3D printing are interesting and they help showcase the creative uses for them. Much of the growth in the 3D printing sector, however, is expected to come in terms of its use in manufacturing. Indeed, it is already used in manufacturing airplane and auto parts, clothing and jewelry.
Products that require customization are prime candidates for additive manufacturing. Medical devices, like replacement joints and heart valves, are prime candidates for 3D printing because they can be made patient-specific. As well, 3D printers are also being used to create actual size models of parts of patients in advance of surgery so that surgeons can practice and work out the best way to repair or get at different problems.
Already 30% of manufacturers surveyed by PwC believe that the biggest potential 3D will have is in the area of supply chain. For example, if you need to get items to a remote location (again, the space station is one example, but there are many places right here on earth where it is difficult, and costly, to ship things to), the ability to produce the product right there can be a huge benefit. Or, if a component goes out of commercial production, the ability to produce the part using a 3D printer can prevent having to discontinue manufacturing items that require the otherwise obsolete part. Similarly, instead of a repair shop stocking all sorts of replacement components, or having to wait to receive the replacement part, the shop can custom print the necessary part and make the repair. A McKinsey survey of executives who believe that 3D technology is highly relevant concluded that reducing spare parts inventories is one of the main advantages that can be derived from employing 3D printing. Of course, the cost of investing in a 3D printer must be factored into the supply chain cost analysis. As a spokesperson at Solid Concepts, a fire arms manufacturer in Texas that has made a metal handgun using a 3D printer pointed out, the types of 3D printers they use are industrial printers that cost more than college tuition at a private university in the U.S.
Additive vs. Conventional Manufacturing
As noted, additive manufacturing is fundamentally different from conventional manufacturing, even highly automated computer numerical control (CNC) manufacturing. Proponents of 3D printing often point to the following as the primary advantages additive manufacturing has over traditional manufacturing:
- Slashes development time – 3D printing was originally referred to as “rapid prototyping” because it allows companies to make prototypes without retooling. This means that companies can test multiple configurations to determine customer preferences, which means a lower product launch risk and time to market. It can be used to enhance or even replace research and development in some situations.
- Eliminates tooling costs – this can be especially important for production runs that involve relatively lower volumes. (A prime example being the lone wrench needed on the space station!)
- Eliminates waste that accrues in subtractive manufacturing – by definition, subtractive manufacturing involves removing material from a larger whole (drilling holes, stamping parts from sheets of metal, filing wood off a block, and so on) and therefore creating waste. With 3D printing the material used to make the item is extruded, so there is virtually no waste.
Potential Types of Risks with 3D Printing
Unlike other disruptive technologies the insurance industry is addressing with new policies or products, most agree that risks related to 3D printing fall under existing coverages. In this section we consider some specific types of risks clients may not anticipate with respect to use of a 3D printer, and different types of coverage that may respond.
Like any piece of production machinery, someone using a 3D printer could be injured. Because 3D printers can get very hot, there could be a higher risk of injury from burns for people using them. As well, depending on what material the printer works with, there could be additional risk from breathing in fumes. If the person exposed to such injury is an employee, a claim could arise under worker’s compensation coverage.
If a business that owns a 3D printer that it lets non-employees use (for example, a self-serve, Kinkos-type store that lets people use its printers) and a person using the printer is burned, a claim could be made against the business’ general liability policy.
Equipment Breakdown and Business Interruption
Given the fact that 3D printing is not in wide use, there is little evidence about whether they are more likely to break than any other type of production machinery. But, given the cost of 3D printers, clients should consider whether their property policy’s coverage for equipment breakdown is sufficient. If it’s insufficient, a separate equipment breakdown policy may be warranted.
There is also no way to say whether a company is more likely to suffer business interruption in the event a 3D printer breaks. But, clients should consider how fast the printer can be fixed or replaced. If repair or replacement will take long, their production could be shut down for an extended period. Business interruption coverage should be considered
In addition to the printer itself being down, there is some concern that 3D printing might cause additional strain on the business’ electric supply. If it does, power could go down, which could also result in the business being disrupted. The client should consider the extent to which their property policy might cover such a business interruption.
In terms of a product liability claim related to something made using a 3D printer, the analysis is the same as for any other type of manufacturing. As Kyle Nichols, Manager, Manufacturing and Tech Group of Aon Risk Solutions explained, “product liability is never easy to unravel and liability can vary from jurisdiction to jurisdiction. Depending on where the 3D printer lies in the value chain, it is not just the manufacturer of the 3D printer but also the distributors and suppliers through to the end brand and original equipment manufacturer that could be liable.”
To evaluate product liability risks manufacturers should know whether their suppliers are using 3D printers. And, if they are, they should consider whether the 3D printing impacts on the quality/reliability of inputs.
With cyber risk there is potential first and third party implications. The first party implication is two-fold: a party could hack into the source code of the 3D design and shut it down, resulting in business interruption not covered under traditional business interruption insurance. The second is if a hacking incident results in actual theft of the intellectual property. Again, such risks are not unique to manufacturing processes that involve 3D printing.
Third party liability could arise if there is malicious tampering with the design by an outside intruder that purposefully creates a flaw in the product that injures third parties, for example, consumers.
Ultimately, the analysis of whether cyber risk insurance is needed will depend on whether the client is an attractive target of cyber attack. As Nichols points out, most manufacturers are not usual targets for cyber criminals. But, “these types of situations are nuanced, which is why clients need technical brokerage expertise in cyber-related coverages,” he added.
Making Sure the Premium is Commensurate with the Exposure
Since 3D printing is not yet widely used, the first time an underwriter deals with it they may be left scratching their head. Jessie Garland, Senior Underwriting Specialist, National Commercial Underwriting at Aviva, spoke about the first time she came across the issue. “I got a call from an underwriter asking, ‘what SIC code does this piece thing come under?’ In fact, at this point, there is no specific SIC (Standard Industrial Classification) code for 3D printers,” she noted.
“So, you have to determine how the 3D printer is being used. It ended up that it was being used in production and so once you figure that out, then you treat it as production machinery. And, as with any kind of production machinery, you find out things like: What product is the printer being programmed for? Is it being used to produce a critical or non-critical part? What materials are being used? Who is overseeing the quality of the end product? Will the products be inspected? And so on,” she said.
The key is not that 3D printing is so different from other types of manufacturing, the concern comes from situations where an insured is using 3D printing and the broker and underwriter are unaware of that. In such a situation, if a claim arises the insurer may have exposure that it didn’t consider when underwriting the policy. The real unknown surrounding 3D printing stems from the fact that there’s no case law on the books at this point, making it difficult to tell where/how fault (liability) will be assigned. So, underwriters can only give thought to what the exposure might be and anticipate potential coverage disputes.
What should brokers be doing?
They should be asking their clients whether they use 3D technology and educating them on their potential exposures. They should also encourage them to find out if their suppliers do. “It’s incumbent on the broker to understand the client’s process, including the key aspects of the production line,” said Kyle Nichols, Manager Manufacturing and Tech Group, Aon Risk Solutions.
“So, for example, if a 3D printer is being used as a piece of production equipment, given that printers can be expensive, the broker should consider whether the client’s property policy coverage for equipment breakdown is sufficient, or whether additional coverage is in order,” Nichols said.
“Our job as a broker is to make sure the client understands how their insurance would respond in the event of a problem. So, we want to walk through scenarios and say, for example, if this happens, your property coverage would respond. But, if this were to happen, you might be at risk because there’s a gap in your coverage. Then we try to provide solutions for the client to consider. It could be insurance, it could be risk management, for example, we might suggest they do a cyber vulnerability test, and so on,” said Nichols.
Marcus Morson, Manufacturing Segment Lead for Zurich Canada, agrees that educating clients about the risks that might arise as a result of 3D printing is key, especially as use of the technology grows. “In any discussion with a manufacturer about risks related to 3D printing, the focus isn’t about different coverages just because they’ve introduced this new machine. The coverages they already have may not change. But we do need to help them think about how to understand and mitigate the risks. That starts with walking with the client through their production facility and helping them understand the risks all along the manufacturing process,” said Morson.
Jason Dunn of Make it in Space (the company partnering with NASA) believes that 3D printing will be a pathway to being able to populate other planets and allow us to print supplies from locally harvested materials or from recycled materials. Only time will tell if that’s just a lot of hype from a guy who’s into 3D printing in a big way. But, it’s undeniable that additive manufacturing has gone far beyond a mere concept here on earth and the technology and uses will continue to evolve, perhaps quite quickly. And, as with all new technology, insurance claims will be made and some of the issues about where different risks and liabilities lie will get sorted out.
In the meanwhile, people in the insurance industry need to understand the new applications that 3D printing is being used for, and they should take care to coordinate between underwriting, loss control, risk engineering and claims so that premiums are commensurate with potential risks.
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