Manufacturing Insurance

Quick Summary

• Product liability is widely assumed to be the key exposure: the most damaging claims, though, are typically the consequences of a defect rather than the defect itself. Recall costs, contractual penalties and lost production can all be insured, and frequently are not, because they were never considered as part of the programme in the first place.
• Business interruption is commonly incorrectly insured: the sum insured is set from the accountancy gross profit rather than the insurance definition, which produces a figure far below what is actually needed. Indemnity periods set years ago rarely reflect current machinery lead times, and almost never allow for the trading recovery: the months it takes to win back customers and rebuild revenue once the machines are running again.
• Cyber claims now interrupt production, not just emails: connected machinery, works order systems and supplier portals mean a cyber incident can stop a factory.
• We review the entire insurance programme: manufacturing exposures cross property, business interruption, product liability, engineering, professional liability, cyber and management liability.

What Manufacturing Insurance Actually Needs to Cover

There is no single policy called manufacturing insurance. What manufacturers need is a programme that reflects three things at once: the value tied up in the building and the machinery, the money the business loses when production stops, and the liability that follows the product out of the door.

Daines Kapp has advised manufacturers and engineering businesses since 1989. We are based in Ware, Hertfordshire, and we act for manufacturers throughout the United Kingdom. The businesses we look after range from precision machining, fabrication and toolmaking to injection and blow moulding, die casting, powder coating and metal finishing, through to producers of lighting and electrical products, packaging, print, food and drink, and cosmetics. What they have in common is not what they make. It is that a disruption to production, and the loss of revenue that follows insured damage, is often more costly than the damage itself.

Understanding the Difference Between the Declared Value and the Sum Insured

There is a great deal of misunderstanding about the difference between the declared value shown on an insurance policy and the sum insured. They are two different figures doing two different jobs. We set the distinction out in more detail in our article on the distinction between buildings declared value and sum insured, which is worth reading alongside this.

On a Day One Reinstatement policy, the declared value is your assessment of what it would cost to reinstate the property at the start of the policy year, ignoring inflation that happens afterwards. Property here means the building, the contents and the machinery. The sum insured is that same figure plus a percentage uplift, and it operates as the absolute maximum the policy will pay.

Put in a single sentence: the declared value is what it would cost to reinstate those assets on the first day of the policy, and the sum insured is that figure plus the uplift the policy allows to absorb inflation after that date.

That distinction matters because serious losses take time to put right. Picture a fire that destroys a production line, with a claim that runs for two or three years. The declared value needed to have been correct on day one to fully reinstate the items insured, because that is the figure your adequacy is tested against. The uplift sitting above it is what absorbs the fact that the replacement machine, by the time it is specified and finally ordered perhaps eighteen months later, costs more than it would have done as at the first day of your policy. The two numbers are working on different timescales, which is precisely why they are not interchangeable.

If your declared value falls short of the true reinstatement cost as at the first day of your policy, the underinsurance condition reduces your settlement proportionately, and the uplift sitting above it does not save you. In our experience this is misunderstood as often by professional advisers as by the businesses they act for.

For a manufacturer the exposure is concentrated in plant and machinery, and the usual causes of a shortfall are well established: values taken from the fixed asset register, which exists for accounting and depreciation rather than insurance; written-down book values used instead of replacement cost; freight, installation, calibration and commissioning left out; and valuations that have not been revisited for several years while the plant list has changed.

If you rent your premises, the building itself will normally be insured by your landlord under a property owners’ policy. What you need to declare is your plant and machinery, stock, contents, any tenant’s improvements, and whatever your lease obliges you to insure.

Business Interruption: The Cover Manufacturers Most Often Get Wrong

For most manufacturers, business interruption is the largest number on the schedule and the least understood. Four questions decide whether it will work.

Are you insuring the right kind of gross profit? This is the one we see go wrong most often, and it is the most expensive. Gross profit means something quite different in insurance from what it means in your accounts. Your accountant’s figure is arrived at after deducting wages and other overheads. The insurance definition works the other way round: it takes turnover, adjusts for stock movement, and deducts only a short list of costs that fall away directly with turnover, typically things like purchases, carriage and packing. Wages, rent, rates, utilities and your other continuing overheads all stay inside the figure, because you will still be paying them while the factory is standing idle. If the policy has been arranged on the accountancy figure, as we often see, the sum insured will be significantly too low, and the consequence is not simply that the cover runs out early. Because the business is underinsured, the average condition applies and the insurer reduces the settlement in the same proportion as the shortfall. Insure half of what you should have insured and you are paid roughly half of your loss, however modest the claim turns out to be.

How long is your indemnity period, and when was it last tested? An indemnity period is the maximum time the policy will keep paying while you recover. Machinery lead times have lengthened considerably, and a period that was generous when it was set may now be shorter than the time it takes to specify, order, install and commission a replacement line. Twelve months is very rarely sufficient. For most businesses twenty-four months is the minimum needed to cover the true scope of a business interruption loss, and thirty-six is more robust again, because it allows for the long tail of the recovery: winning back the customers who went elsewhere while you were unable to supply them.

Also, the sum insured has to cover the gross profit lost across the whole indemnity period, not one year of it. On a twenty-four month indemnity period that means two years of projected gross profit added together, and on a thirty-six month period, three. On a growing business you cannot simply take the current year’s figure and multiply it by two or three, because each successive year is larger than the one before it. A business growing at eight per cent a year will lose materially more gross profit in the second year of an indemnity period than in the first, and more again in the third. The projection also has to start from the worst case, which is a loss on the last day of the policy year, so the figure has to carry the business through the years that follow rather than the year that has just been declared. Take a single year’s figure, multiply it, and the business is underinsured from day one, with the average condition reducing every penny of the claim in proportion.

Can one machine stop everything? Where a single press, oven, moulding machine or CNC cell is critical and not readily replaceable, that is a risk which should influence how the business interruption cover is structured, so that the business is robustly protected.

What happens if the problem is at your supplier, or your customer? A fire at a sole-source supplier can halt your production without a single thing going wrong on your own site. Extensions for suppliers’ and customers’ premises are available, but many policies provide only a small inner limit, commonly in the region of £100,000 for each supplier or customer, which is often inadequate where you are heavily dependent on one of them. Cover at higher limits is available on a specified basis, but it does require the supplier or customer to be named, and the insurer to carry out more thorough underwriting due diligence before those limits are granted.

Product Liability and Product Recall

Product liability responds when a product you supplied causes injury or damage to other property. It is essential, and it is often assumed to do more than it does.

It does not pay to recall, repair or replace a product that has not yet caused harm. That is what product recall cover is for, and recall in particular is a cover that manufacturers frequently have not bought and have often never been offered. Depending on how it is arranged, a recall policy can extend to the contractual penalties and the pure financial loss that follow a withdrawal, which a product liability section will not pay.

Machinery, Plant and Statutory Inspection

Manufacturing carries obligations that other businesses do not. Work equipment must be inspected under the Provision and Use of Work Equipment Regulations 1998 at suitable intervals, with power presses subject to their own prescribed regime. Lifting equipment requires thorough examination under the Lifting Operations and Lifting Equipment Regulations 1998, at least every six months for lifting accessories and equipment used to lift people and at least every twelve months for other lifting equipment, or in accordance with an examination scheme. Pressure systems require a written scheme of examination drawn up or certified by a competent person under the Pressure Systems Safety Regulations 2000. Local exhaust ventilation must be examined and tested at least every fourteen months under the Control of Substances Hazardous to Health Regulations 2002. The Health and Safety Executive publishes guidance on each.

These inspection services can be bundled onto an insurance programme, with one provider, one schedule of plant, one set of reports and renewal dates that line up. They can equally be bought from an independent inspection body. Which works out better value depends on the plant you have and how often it needs examining, so it is worth pricing both ways.

Where inspection is arranged alongside the insurance, consideration can also be given to extending the cover to include machinery breakdown, which pays for the damage when a machine fails, and business interruption following machinery breakdown, which pays for the output lost while it is down.

Buying the inspection through an insurance programme does not move the legal duty. Under each of the regulations above the duty sits with you as the employer, or as the user or owner of the equipment. What you are buying is a competent person to carry out the examination and report on it.

Where Cyber and AI Now Sit in a Manufacturing Programme

Manufacturing is no longer a low-technology risk. Works order systems, connected machinery, supplier portals and automated quality control all mean that a cyber incident can stop a production line rather than simply inconvenience an office.

There is a second exposure worth naming. Manufacturers selling on account are targeted with fraudulent orders: goods are ordered, made, delivered in good faith and never paid for, and the customer turns out not to exist, with false identities and delivery addresses used to route the consignment somewhere it can be collected and disappear. Cover is available in the market for exposures of this kind and it is an area we can advise on.

Daines Kapp is a BIBA Accredited Cyber Insurance Broker, and our cyber and AI advice is led in-house by Stefan Daines, a recognised speaker on AI and insurance risks. We look at whether your cyber cover responds to interrupted production rather than only to data loss, and whether the growing use of AI in design, quality control and predictive maintenance is addressed by your wordings or simply unmentioned by them. Our AI insurance page explains that distinction in more detail.

Where Manufacturing Risk Sits in Your Insurance Programme

The table below maps the main manufacturing exposures to the policy sections that should address them, and to the point at which each most often falls short.

Who We Help

• Precision engineers, machinists and toolmakers: where tolerances are the product, and a single machine going down halts the contract.
• Fabricators and metal finishers: including powder coating, plating and treatment processes, with the fire and environmental exposures those carry.
• Plastics and moulding businesses: injection, blow and extrusion moulding, compounding and specialist plastics fabrication.
• Producers of electrical and lighting products: where design responsibility and product liability sit close together.
• Print, packaging and signage manufacturers: with high-value press equipment and tight delivery obligations.
• Food, drink and cosmetics producers: where contamination, recall and traceability drive the risk more than fire does.

Why Choose Daines Kapp for Manufacturing Insurance

We are an independent broker based in Ware, Hertfordshire, and we have been advising manufacturers since 1989. We were a finalist at both the British Insurance Awards and the UK Broker Awards in 2026.

We place business directly with a range of insurers and have access to the wider specialist market as a Willis Network Broker, which matters for manufacturing because the difference between an adequate and an excellent manufacturing programme is usually in the wording rather than the price.

Most importantly, we do not review manufacturing risk one policy at a time. We look at the whole programme: what the business makes, what stops it, what follows the product out of the door, and where the sections meet or fail to. Then we set the position out in plain English so you can decide.

Request a Manufacturing Insurance Review →

Frequently Asked Questions About Manufacturing Insurance

What insurance does a manufacturing business need?

Most manufacturers need cover for the premises and their contents including plant, machinery, stock and work in progress; employers’ liability, which is a legal requirement where you have staff; public and product liability; and business interruption to replace the profit lost while production is stopped. Beyond that core, the answer depends on what you make and how. Manufacturers supplying food, drink, cosmetics or consumer goods should consider product recall. Those with connected machinery need cyber cover written around interrupted production rather than data loss. Those with lifting equipment, pressure systems or power presses will need statutory inspection arranged, and should consider machinery breakdown alongside it. We start by understanding the process, then build the programme around it rather than the other way round.

Does product liability insurance cover a product recall?

Almost never, and this is one of the most expensive misunderstandings in manufacturing insurance. Product liability responds when a defective product has caused injury or damage to other property. A recall is what you do to stop that happening, and the cost of tracing, retrieving, replacing and destroying stock, along with the lost profit and the reputational work that follows, sits outside a standard product liability section. Every wording we see excludes the cost of putting right your own product. Product recall is a separate cover, and depending on how it is arranged it can also pick up contractual penalties and financial loss that product liability will not pay.

How long should a manufacturer’s business interruption indemnity period be?

Long enough to get back to the trading position you would have reached had the loss not happened, which for a manufacturer is rarely twelve months. The practical test is how long it would take to find premises, specify and order replacement machinery, wait for delivery, install and commission it, retrain where necessary, and win back customers who went elsewhere. Twelve months is very rarely sufficient. For most businesses twenty-four months is the minimum needed to cover the true scope of the loss, and thirty-six is more robust again, because it allows for the long tail of that trading recovery rather than only the physical rebuild. A longer period does not usually cost proportionately more, because the exposure in the later part of a long interruption is smaller than in the opening months: most interruptions resolve quickly, and a business still disrupted after a year has normally recovered some trade or reduced some costs. How that is reflected in your premium is a matter for the individual insurer, so ask us to quote twenty-four and thirty-six months alongside twelve and judge for yourself.

Is my machinery insured for what it would cost to replace today?

That depends on the basis of cover, and for most manufacturers our preference is reinstatement rather than indemnity. Reinstatement, often described as new for old, pays the cost of replacing the machine with a new one of similar type, capacity and utility, with no deduction for age or wear. Where the original model is no longer made, the measure is a modern equivalent. Indemnity settles with a deduction for wear, depreciation and obsolescence, which can leave a substantial shortfall on older equipment that is still fully productive. Reinstatement only works if the value you declared reflects the cost of a new machine including freight, installation, calibration and commissioning. This is worth discussing properly, so that you know what you have declared and what the insurer will pay.

Do manufacturers really need cyber insurance?

If your works orders, stock control, machine settings or supplier ordering depend on systems, then yes, and the reason is production rather than data. A ransomware incident that locks a works order system can stop a factory as effectively as a fire, and the losses look like business interruption losses. Some basic cyber policies are built around third-party exposures such as data and GDPR liability and carry comparatively little first-party cover, which means a stopped production line may not be an insured loss at all. As a BIBA Accredited Cyber Insurance Broker we assess whether your wording addresses interrupted production, damage to connected equipment, and fraud carried out through your supply chain or by fraudulent ordering, rather than assuming a policy labelled cyber covers all of them.