Possibilities in 3D

Injecting new promise into the life of the manufacturing sector, producing a frighteningly realistic gun south of the border and helping to make accessible medical devices everywhere, so-called 3D printing – often now referred to as additive manufacturing – has already made its mark.

Depending on one’s point of view, the influence that 3D printing could have in future on insurance coverage, emerging risks, product accessibility and affordability, intellectual property (IP), supply chain and business interruption, and liability varies widely. Some regard the technology as a game changer for many industries, opening these to more positives than negatives; others regard 3D printing as a promising development that has shown progress in a number of industries, but is unlikely to become entrenched as broadly as some may think, at least not for some time to come.

What are the known risks and is it possible to know what issues could develop? What type of insurance questions will be raised as use of the technology expands? Can insurance and its providers keep pace with the fast-changing technology, or does experience with other technologies afford all the guidance that is needed?

As it stands, views on 3D printing run the gamut: ranging from current expectations that existing insurance policies can cover off related losses to what commercial applications are truly practical, stakeholder understanding of associated risks and whether or not sufficient risk information exists to properly underwrite the technology both now and in the future.

With acceptance, use and cost catching up to the speed of the technology’s advance, where do property and casualty insurers and their insureds now stand?

Whether one regards 3D printing as some type of leveller – one that provides affordable and helpful access to many – or sees the technology as a positive, but ultimately niche, tool, only time, loss, risk and experience will tell.

3D TECHNOLOGY

Over the years, “3D printing” has gone by many names as the technology has developed and grown. These descriptors range from “rapid prototyping” – in which models, prototypes and patterns were the usual goals – to optical fabrication and additive manufacturing, so-called because the process involves adding layer upon layer of material, rather than subtractive, say when an item is cut, derived or molded from some raw material, explains a recent white paper from the Insurance Institute of Canada.

“The 3D printing process begins with software that models the object by basically digitally slicing it up,” the paper notes. “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,” it continues.

3D REACH

The possibilities of 3D printing appear endless, depending on one’s view. It may be more a fact that the possibilities still have practical limits.

“The industry started talking about 3D printing some time ago. However, more recently it has caught everyone’s attention as a rapidly developing and exciting technology that could have wide-ranging impacts on business and insurance,” says Robert Weireter, senior treaty underwriter for Swiss Re.

“The use of this technology is likely to become more entrenched in industrial and personal use in the future,” suggests Tim Woods, AVP of engineering/risk management for Aviva Canada.

Cindy Slubowski, Zurich North America’s vice president of manufacturing, would likely agree. “Additive manufacturing is radically changing how products are being made in virtually all industries – architecture, consumer products, construction, industrial design, automotive, aerospace, food, engineering, biotechnology and fashion,” Slubowski reports.

Citing a 2015 report from Wohlers Associates – which found the overall global market for additive manufacturing grew to US$4.1 billion in 2014 – she says the report shows that “there has been strong growth in the use of industrial metal additive manufacturing systems for demanding production applications in the aerospace and medical markets.” Traditional “reductive” manufacturing processes in the industries are very expensive because of the cost of the materials used, she reports.

“Originally, most 3D printing was used for designs and prototypes, but, increasingly, it is used for actual product manufacturing,” says Derrick Hughes, vice president of the Boiler Inspection and Insurance Company of Canada.

“Just a decade ago, 3D printing was relegated to rapid production of coarse prototypes and other plastic trinkets. Since then, however, the technology has evolved to include precision laser printing of various metal alloys, now making it suitable for automotive, aerospace and other significant industries,” says Matt Pearson, Ernst & Young’s national high technology sector leader, business tax incentives. “Today, for example, 3D printing can be used to create new apparel, food, medical devices and even human organs using specialized 3D bio-printers that use living cells instead of plastic,” he says. “The opportunities created through 3D printing appear limitless, and the number of industries will continue to expand as 3D printer capabilities increase and costs decrease.”

Duncan Stewart, director of technology, media and telecommunications research at Deloitte, notes that about 70% or so of what comes out of enterprise 3D printers is still used for prototyping, with another 20% to 25% being used for intermediate part manufacture, including things like tools, moulds and casts.

“The idea that 3D printers would disintermediate the traditional retailer, wholesaler supply chain warehouse” has not yet come to pass, Stewart says.

“What we have seen is that 3D-printed parts can be lighter, stronger and substantially cheaper to make than conventionally manufactured parts,” says Weireter.

For things made from 3D metal printers, Stewart suggests the time needed for post-processing, which could amount to hours per part, must be taken into account. In addition, he says, it is important to determine if a final part, in fact, offers the materials properties that would have been achieved through traditional manufacturing techniques.

“The industry consensus is that 3D printing has evolved beyond the hype, prototype and novelty stage and must be recognized as a mainstream technology,” says Weireter. He notes that “whole commercial ecosystems are forming around 3D printing and the insurance industry needs to understand the implications of this technology.”

3D BENEFITS… AND RISKS

In the best of circumstances, 3D printing affords a whole host of benefits: among others, mitigation of business interruption exposures by making parts on site; ability to more rapidly retool production lines; ability to bring new products to market more quickly; make available short-run production of products; create more complex shapes than are now possible with other manufacturing techniques; and ability to refine or modify designs as needed.

Those positives, nonetheless, offer pause. “One problem that could evolve would be the quality of products produced by this additive layering process, which, depending on the process environment and material used, could result in hidden defects produced by lamination (weakness in material layers) or inclusions (foreign material between layers),” Woods cautions.

“A key exposure is the fact that the manufacturing process can be relatively slow compared to other techniques. If a large and complex part takes 10 hours to produce, a five-minute power outage at any point during that process could ruin a day’s worth of work,” says Hughes.

“3D printers making things layer by layer is always going to be slower and more expensive than stamping them, casting them, milling them,” suggests Stewart. As it stands today, “3D printing is exceptionally good for items that are extremely expensive with long supply chains, incredibly high value, at extremely high prices, where speed is not relevant,” he points out.

“On the risk side of the equation, a vast majority of the current digital software recipes are unpatented, allowing them to be copied and sold by anyone,” Slubowski cautions. But perhaps most concerning is the lack of regulatory oversight for 3D printing, “since much of it will take place outside of a traditional mass production factory, and not subject to inspection from regulatory agencies that govern those facilities,” she says.

Hughes’s take is 3D printing technology increases some insurance risks and decreases others. “The equipment is valuable and subject to mechanical, electrical and cyber hazards, as well as hazards associated with the materials used in manufacturing, some of which can be toxic or volatile,” he says.

“Is a 3D-printed house as safe and sturdy as a standard one? Is a car that has 3D-printed parts as strong and safe as a classically built car? Is a plane with 3D-printed wings as safe?” asks Craig Beattie, senior analyst with Celent’s Insurance Practice.

“Standard testing procedures should account for this, but we’re seeing new materials and new techniques coming in as part of this process that need watching,” Beattie advises.

“Just as the 3D process itself is a multiple layering of materials, there is also the potential for a multiple layering of risks,” Slubowski suggests.

The risks, she says, include those below:

• business interruption – 3D printing technology requires more energy than is required in traditional manufacturing, and a manufacturer’s supply chain could be an added risk if it has not been assessed thoroughly;

• contractual risk – the process requires a multitude of participants and a defective product could result in any participant being held accountable;

• intellectual property – current intellectual property law does not explicitly regulate 3D printing;

• manufacturing materials – contaminated, defective or incorrect materials may result in a faulty product, perhaps creating an overall greater potential liability exposure than those presented by the 3D printer itself;

• product liability – 3D printer makers sell printers and supplies for a range of applications, unlike a traditional industrial machine manufacturer that may produce machines for just one application;

• security and privacy – being a digital manufacturing process, meaning there is a higher risk for hackers to steal information or sabotage the process; and

• risk to workers – new materials in the 3D printing process, for example, could present exposures to workers.

“With the sophisticated type of software used for 3D printing, the piece of complementary hardware may require constant 24/7 attention, especially with the constant threat of hackers seeking to steal the digital recipe,” says Slubowski.

“As the hardware ‘host’ of the software, a manufacturer now may need to consider risk transfer techniques more typical of a software manufacturer, such as security and privacy to cover intellectual property theft, errors and omissions (E&O) to handle any software malfunctions that result in problems with the printer function, and business interruption if enough energy is not available to run the equipment for any significant length of time,” she explains.

3D INSURANCE ISSUES

What p&c insurance issues may result because of 3D printing? “Risk assessment is key, so pricing is paramount to that assessment,” says Jennifer Soper, director of casualty corporate underwriting for Northbridge Insurance.

“From a casualty perspective, one of the key questions is the use of the end-product. Is it a prototype only? Or is the product incorporated into, or actually a finished-use product?” Soper asks, noting that “how that product is used becomes very material.”

Hughes suggests that 3D technology raises some interesting challenges for insurers. “We may find that some commercial insureds in non-manufacturing classes of business may start to do some manufacturing using this technology,” he says. “For example, a store may start to manufacture some of the merchandise that it sells. It’s still a store, but now it’s also a manufacturing location. How should it be coded and rated?” he asks.

“Something similar to the disruption of the music business by IP piracy could be repeated in the world of manufacturing,” Pearson predicts. “In additive manufacturing, there is a question of who owns a product’s IP – the designer, the software engineer who translates the design into a printable file, and the business printing the final product, each has a potential claim on the ownership of the IP, and the potential liability in the event of a failure,” he explains.

“Product liability may be impacted as traditional methods of manufacturing change, bringing to light testing, durability, product life cycle and the possibility of a multiplet manufacturing process from design, to distribution, to end-use,” Soper suggests.

“Just as the advent of modern photocopying machines made it harder (but not impossible) to enforce copyrights of text material, so the advent of 3D printing will make it harder (but not impossible) to enforce IP rights regarding product designs. Product liability will be found in locations and occupancies unexpected by insurers,” Hughes says.

“Product liability is normally covered by a general liability (GL) policy and design services by a professional liability policy, so it does not seem that we require a new type of coverage,” Weireter comments. “3D printing does, however, blur the lines between what used to be clearly separated as design work from production or manufacturing. In insurance terms, this creates some grey area between a professional liability and a general liability policy,” he suggests.

Beattie also does not believe there will be a need for a new type of coverage when it comes to 3D printing. “It’s more likely this will have some influence over classic policies over time. I don’t see any need for specific cover,” he says. “It’s likely they (losses related to 3D printing) are covered and that the set of currently common manufacturing processes are not enumerated in the policy. It may well be insureds are on cover for this without the insurer/broker/agent realizing.”

Soper, too, does not think 3D printing is likely to require an entirely new suite of products. That said, “it may bring other coverages into the forefront, like product recall, errors and omissions, cyber, intellectual property, and directors and officers insurance,” she says.

“3D printers would be considered under a policy wording as any other piece of equipment on an all-risks form would be,” Woods offers, but points out that there is currently no specific SIC (Standard Industrial Classification) code for 3D printers. “Underwriters will have to be made aware of the fact that such equipment is present on the premises so that the proper policy, pricing and conditions are put in place,” he says.

“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,” he adds.

“The issues can be understanding the risks in a business,” Hughes believes. “For example, a machine shop may well have a $2 million 3D printer where the underwriter only believes there is a $200,000 CNC machine,” he says.

“The legal issues can become greyer if there is a multiple channel in the production of a product,” Soper suggests.

“If the product is a component that ends up as part of a final product, the question becomes who produces that component for the final product?” she asks. “Contractual agreements for all parties involved in any phase of a prototype or end-product requires diligence to ensure that there is a clear understanding of the role of each party; and what responsibilities each party has,” she says.

“Regardless if parts are produced via traditional or non-traditional methods, firms should always have written contracts with suppliers which contain adequate risk transfer language, including hold harmless agreements,” advises Peter Dion, line of business director, product liability for Zurich North America.

“One insurance issue that could be affected is contingent business interruption (CBI) coverage,” suggests Hughes. “Some manufacturers purchase CBI coverage for either upstream exposures (suppliers) or downstream exposures (receivers). Adoption of 3D printing could, for example, potentially change a supplier contingency into a receiver contingency,” he explains.

“The supply chain in an additive manufacturing environment is blurred by digital design files that are as integral to the process as the metal or plastic used in the manufacturing,” Pearson says.

With regard to supply chain challenges, Slubowski says “the purchase of different types of materials is likely necessary, requiring manufacturers to perform the appropriate due diligence on new suppliers and in-house testing of materials.”

Soper says the expanding methods and materials available to the manufacturing sector afford many different options to explore product development possibilities. “For the insurance industry, it means understanding the process, contractual responsibilities, who owns the design, is it a finished product, component product or a prototype, how is the product tested to ensure it performs as desired in a live environment and how testing records are stored and/or shared.”

For Pearson, a primary consideration in the manufacturing sector is liability not just for failures of the end-product, but also for environmental, physical and economical damages resulting from incidents during the shipment of products via boats, trains, or airplanes.

“The law is trying to catch up with this technology, and the insurance implications will then have to catch up with the law,” Hughes suggests. “Anyone can now manufacture products normally outside their coverage. The classic example would be firearms manufacture is possible with a $500 machine,” he says.

“We currently see 3D market participants attempting to narrow the scope of potential liability through disclaimers and carefully worded representations and wordings,” Weireter says. “We see a lot of interesting limited liability language, but we need to be careful not to rely on it too much, at least until we get some legal clarity on these liability issues.”

3D LEGAL TAKE

“3D printing will revolutionize legal theory as to product liability, as it blurs the traditional divisions between manufacturers, suppliers, distributors and consumers,” says Heather Sanderson of Sanderson Law.

“Liability for the failure of a 3D-printed product will be highly fact-dependent and influenced by the indemnity and hold harmless clauses (should they exist) between the players,” Sanderson suggests. “The liability analysis could develop another layer of complication in the case where a 3D-printed part fails, causing damage to the entity in which it was installed,” she explains.

Placed into this environment, Sanderson says that traditional liability insurance coverage will be sorely tested. “In this environment, it is unlikely the traditional CGL product exclusion will apply solely to the printer of the product.”

Per occurrence and aggregate limits “will have to be carefully monitored and assessed by both the insureds and underwriters as the ability to quickly and efficiently produce 3D-printed parts and objects increases the likelihood that more than one failure can occur during a given policy period,” she advises.

“As these products enter the stream of commerce and there are multiple ‘touch points’ on an individual product,” says Weireter, “there is clearly the risk of potential accumulation, especially in light of the difficulties associated with clearly identifying and establishing liability.”

3D FUTURE

“As the systems become cheaper, the cost of entry into markets should decline, allowing highly niche businesses to develop,” Slubowski expects. “Because of the customization benefit of 3D technology, companies will focus on customer-centred design and feedback, making their products more desirable in the marketplace,” she points out.

“The reliability/quality/durability of 3D printed parts was highly questionable even less than a decade ago,” says Pearson. “But significant strides have been made in these areas in recent years, particularly in the development of 3D printing of metal alloys,” he notes.

“However, the sort of holy grail of 3D printing, which is the mass manufacture of final parts, of printing out an actual thing that I then go and use and then do another 10 of them, almost never happens,” Stewart suggests.

“So the final part manufacture is small and is likely to stay small for at least the next few years,” he predicts.

“New technologies rarely move in straight lines, but we are clearly moving forward,” Weireter contends. “Products made with 3D printers are certainly subject to various types of testing, but only time will tell how well they will perform in real-life applications.”