Factory insurance

A factory is rarely a single risk — it is a building, a production line, a stockroom and a payroll all under one roof, and a serious fire or machinery failure can take out several of those at once. Factory insurance is bought to protect the physical assets that make the product and, just as importantly, the income the business earns while those assets are working. Where it most often goes wrong is not the headline decision to buy cover, but the detail beneath it: buildings and plant insured for less than it costs to rebuild and replace them, a business interruption indemnity period set too short to survive a full reinstatement, and warranties or conditions on the schedule that quietly go unmet on the shop floor. Apex is a specialist commercial broker; we place manufacturing risk on the markets that understand it, with a named broker who presents your business properly rather than reducing it to a postcode and a trade code.

Key covers for factory insurance

• Buildings and premises — the factory structure, outbuildings, boundary walls, yards and fixed services against fire, explosion, storm, flood, escape of water and impact; sums insured should be full rebuild cost including demolition, debris removal and professional fees.
• Plant and machinery — production lines, presses, CNC and process equipment against sudden and accidental damage, insured at replacement value including installation and commissioning.
• Machinery breakdown (engineering) — sudden mechanical or electrical failure of plant — motors, control gear, pressure and lifting equipment — that a standard fire-and-perils section does not cover.
• Stock and raw materials — raw materials, work in progress and finished goods, with seasonal uplift where stockholding peaks; valuation basis matters for WIP and finished goods.
• Business interruption — loss of gross profit and increased cost of working following an insured event, with an indemnity period long enough to rebuild, re-equip and recover trade.
• Employers' liability — compulsory for employed staff, and a core exposure in any environment with machinery, manual handling and moving vehicles.
• Public and products liability — injury or damage to third parties, and crucially harm caused by a product after it leaves your premises — central to a manufacturer.
• Deterioration of stock — spoilage of temperature-sensitive stock following breakdown or power failure, relevant to food and process manufacturers.
• Goods in transit and marine cargo — stock and materials in transit or held at a third-party site, subject to the trading pattern.

What underwriters focus on

Manufacturing is priced primarily on fire and business interruption exposure, because those two perils dominate the severe-loss picture for a factory. An underwriter is trying to understand how bad a fire could be, how quickly it would spread, and how long the business would be out of action if the worst happened. The detail you present shapes both the terms offered and the price.

Construction and the fire-load. The materials the building is made from, the presence of composite panel or sandwich-panel insulation, the height and layout, and how combustible the processes and stock are all feed the fire assessment. A single large open production hall with no compartmentation is a different risk from a building divided by fire walls and doors.

Processes and heat sources. Anything involving heat, flame, dust, solvents, spray, plastics, timber or flammable liquids raises the hazard grade. Underwriters look closely at hot work, spray booths, dust extraction, oven and drying processes, and how by-products and waste are stored and removed.

Protections. Sprinklers, fire detection and alarm, extinguishers, thermal-imaging or electrical inspection regimes, and how the site is secured out of hours all influence terms. Sprinklered, well-protected sites are viewed very differently from unprotected ones, and the presence of a monitored alarm often affects both fire and theft rating.

Business interruption dependency. Reliance on a single critical machine, a bespoke tool with a long lead time, one key supplier or one dominant customer all lengthen the realistic recovery period. Underwriters want to understand the maximum indemnity period the business genuinely needs, not a default 12 months.

Values and adequacy. The declared sums insured are scrutinised for realism — rebuild cost against a professional assessment, plant at true replacement, and a gross profit figure calculated on the correct basis. Under-declared values are the single most common reason a manufacturer is left short at claim.

Claims and risk-management history. Past losses, and equally the management response to them, tell an underwriter how the site is run. A clear maintenance regime, electrical testing, and a hot-work permit system all support better terms.

Common claims

A fire in a dust-extraction unit spreads through the production hall overnight — buildings and plant sections respond for reinstatement, stock cover for materials and finished goods destroyed, and business interruption for the lost gross profit while the line is rebuilt.

A critical press suffers a sudden electrical failure and cannot run — machinery breakdown covers the repair or replacement, and business interruption (where breakdown is included as a peril) covers the shortfall in output while a long-lead part is sourced.

Escape of water from a failed pipe floods a ground-floor stockroom — stock cover responds for the damaged goods, with business interruption if production is halted.

A finished product fails in the field and injures a member of the public or damages their property — products liability responds, subject to the policy terms and the sum insured.

An employee is injured by a moving machine or during manual handling — employers' liability responds; RIDDOR reporting and an HSE investigation are likely.

A power outage disables refrigeration and temperature-sensitive stock spoils — deterioration of stock cover responds, where the breakdown or public-supply failure trigger applies.

A storm strips roof cladding and driven rain damages plant and stock below — buildings, plant and stock sections respond, subject to the perils insured.

The mistakes that cost you at claim

Underinsurance. The most damaging error in manufacturing. If buildings, plant, stock or gross profit are insured for less than their true value, the average (underinsurance) condition can cut the payout proportionately — even on a partial loss where the sum insured would otherwise have been ample. Rebuild costs, plant replacement and construction inflation move every year; a figure set five years ago is rarely still right. Our free underinsurance check at /underinsurance-check/ is a straightforward way to sense-check your declared values before renewal rather than at a claim.

An indemnity period that is too short. Business interruption is where manufacturers are most often caught out. Rebuilding a factory, re-ordering bespoke machinery with a long lead time, recommissioning a line and winning back lost customers can easily run beyond 12 months. If the indemnity period expires before trade recovers, the policy simply stops paying. For most factories 24 or 36 months is a more realistic starting point — the right figure depends on your slowest-to-replace asset.

Breached warranties and conditions. Factory policies carry conditions — hot-work permits, alarm maintenance and setting, electrical inspection, housekeeping and waste storage, minimum security. If a condition precedent is not met, the insurer may decline the related claim. These obligations must be understood and actually followed on the floor, not filed and forgotten.

Wrong gross profit basis. The insurance definition of gross profit is not the accountant's figure. Deducting the wrong variable costs, or forgetting to project turnover forward across the indemnity period, leaves the sum insured too low and the payout short.

Undeclared activities and changes. A new process, a new material, a mezzanine, taking on a subcontracted operation, storing another party's stock, or moving into a second unit all change the risk. If the insurer is not told, cover for the undeclared activity may not respond. Tell your broker when the business changes — not at the next renewal.

Compliance and risk considerations

Employers' liability insurance is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969 for virtually all businesses with employees, and the certificate must be available to staff. This is a legal obligation, not an optional cover.

The Health and Safety at Work etc. Act 1974 and its associated regulations place general duties on manufacturers to ensure, so far as is reasonably practicable, the health and safety of employees and others affected by the work. Machinery guarding, safe systems of work, maintenance and risk assessment sit within this framework, and the evidence of compliance supports both defensibility and insurability.

Serious workplace injuries and certain dangerous occurrences must be reported under the reporting duties that apply to workplace incidents (commonly referred to as RIDDOR). A robust incident-recording and reporting process protects the business and supports any liability claim.

Where processes involve hazardous substances, flammable materials, waste or emissions, additional regulatory duties may apply — for example environmental permitting for certain activities. If your site holds a permit or handles regulated substances, this should be disclosed to underwriters, as it affects both the hazard assessment and any pollution exposure.

As a product manufacturer you carry potential liability for goods placed on the market, including duties around product safety. Products liability cover, and clear records of design, testing and traceability, are central to managing that exposure. These points are duties to be aware of, not legal advice; your own compliance advisers should confirm what applies to your specific operation.

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