Mid-market insurance

Insurance for precision engineering companies

Reviewed by the Apex broking team · Last reviewed 2026-11-06

Precision engineering insurance is a programme protecting CNC and machining businesses against property, breakdown, employee and product risks. It matters because one faulty batch can stop a customer's production line.

Part of: Manufacturing insurance

In short

A UK precision engineering or CNC subcontract business usually needs property, business interruption, machinery breakdown, employers' liability and products liability. The bigger question is financial loss: out of tolerance parts rarely injure anyone but can cost a customer heavily, and a standard products section does not usually pay for that. Aerospace parts often need separate aviation products cover. Customer owned material, tooling at subcontractors and recall clauses in purchase terms also need declaring and reading against the policy.

What insurance does a precision engineering company need?

A CNC or precision machining business usually needs property and machinery cover, business interruption, machinery breakdown, employers' liability, and public and products liability, with motor, transit, cyber and management liability alongside. What sets the sector apart is where the money goes when something goes wrong. A part that is a few microns out of tolerance rarely injures anyone, but it can stop a customer's assembly line, scrap a batch of expensive assemblies or trigger a recall of the finished product.

That kind of loss is often pure financial loss, which a standard products liability section does not usually cover. For subcontract machinists supplying aerospace, automotive, defence, medical or energy customers, the gap between what the contract asks for and what the policy actually pays is the main issue to manage. The manufacturing insurance guide sets out the wider programme.

Main exposures and the cover that usually responds

Exposure in a machine shop	Cover that usually responds
Fire in swarf, oil mist or a machining centre enclosure	Property damage, with business interruption for lost gross profit
Sudden breakdown of a five axis machine, mill turn centre or CMM	Machinery breakdown, ideally with loss of profits following breakdown
Customer owned material, free issue castings and forgings	Goods in trust or customer property extension, declared at full value
Fixtures, jigs and tooling at your premises or at subcontractors	Property cover with an extension for tooling at third party premises
Injury or damage caused by a defective part	Products liability, subject to territorial and aviation limits
Out of tolerance parts causing a customer's financial loss	Financial loss or efficacy extension, or professional indemnity where design is involved
Cost of removing and replacing faulty parts already fitted	Removal and replacement extension, where available
Product recall by you or your customer	Product recall cover (see a recall scenario)
Dermatitis or respiratory illness from metalworking fluids; hearing loss	Employers' liability
Theft or corruption of CAD/CAM data, CNC programs or customer drawings	Cyber (see cyber for manufacturers)
Parts and materials moving between subcontract processes	Goods in transit or stock throughput

Contract terms and rules that shape the risk

Most of a precision engineer's liability is written by its customers. Purchase terms from large manufacturers often include uncapped indemnities, line stoppage charges, warranty periods tied to the customer's own product warranty, and recall cost recovery. Insurance usually responds to legal liability, not to every sum a contract says you will pay, so these clauses need reading against the policy wording.

Strict liability. Section 2 of the Consumer Protection Act 1987 makes the producer liable for damage caused by a defective product. A component maker can be a producer of that component.
Aerospace exposure. Many general products liability policies exclude parts knowingly supplied for aircraft. Work for the aerospace supply chain usually needs specialist aviation products cover; see aerospace and aviation insurance.
Quality standards. Customers often require certification such as AS9100 for aerospace or IATF 16949 for automotive. Insurers do not require these, but they are good evidence of process control.
Employers' liability. The Employers' Liability (Compulsory Insurance) Regulations 1998 set a £5 million minimum per occurrence.
Workplace health. HSE publishes guidance on metalworking fluids, including bacterial contamination of water mix fluids, and the noise regulations apply action values of 80 dB(A) and 85 dB(A).
Special purpose machines. If you build fixtures or machines that you supply, HSE explains the product supply duties that may apply under section 6 of the Health and Safety at Work etc Act 1974 or the Supply of Machinery (Safety) Regulations 2008.

Illustrative examples

Illustrative example 1: bore out of tolerance. A machine shop supplies 2,000 hydraulic manifolds with a bore slightly oversize. The customer only finds out after fitting them into finished units, which then leak on test. No one is hurt and nothing else is damaged, so a basic products liability section may not respond. A financial loss or removal and replacement extension, if included, may cover the customer's costs of stripping and refitting, subject to its limit.

Illustrative example 2: spindle crash. A programming error crashes the spindle of the shop's main five axis machine. The replacement spindle has a long lead time and urgent orders go to a competitor. Machinery breakdown usually responds to the repair, and the loss of profit only if breakdown business interruption was bought.

Illustrative example 3: free issue material. A batch of customer supplied titanium forgings is scrapped after a fixture failure. Whether the policy pays depends on how customer goods are declared and whether faulty workmanship exclusions apply.

Common mistakes and misunderstandings

Assuming products liability covers bad parts. It usually covers injury and damage to other property. The cost of the faulty part, and often the customer's lost production, are different risks.
Not telling insurers about end use. Supplying aircraft, medical, rail or automotive safety parts changes the risk. Undeclared aerospace work can leave you without cover.
Undervaluing customer property. Free issue materials and customer tooling can be worth more than your own stock.
Ignoring export routes. Parts shipped into a customer's assembly that is sold in the United States or Canada can carry North American exposure even if you only invoice a UK customer.
Short business interruption cover. Requalifying parts on replacement machines can add months after the machine is back.

What underwriters usually want to see

a turnover split by sector and end use, with aerospace, medical, automotive and defence named separately;
quality certification, inspection regime, CMM and first article inspection, and lot traceability;
copies or summaries of key customer terms, especially indemnities and recall clauses;
export destinations, including indirect exposure through customers' products;
machine list with ages, values and lead times, and maintenance arrangements;
swarf, oil mist and coolant management, fire suppression in enclosures, and housekeeping;
backup arrangements for CNC programs and CAD/CAM data, and controls on remote access to machines.

When to review your programme

Review before you sign a new long term supply agreement, gain AS9100 or IATF 16949 approval, move into a new sector such as medical or aerospace, add significant machine capacity, take on a second site or acquire another shop. Each changes your products liability and financial loss profile. An insurance programme review reads contract terms against the policy and checks declared activities and values. See also PI for precision engineers, manufacturers insurance and the sister page on automotive component manufacturers.

Apex arranges insurance programmes for precision engineering companies; a broker reads every enquiry.

Sources

Frequently asked

Does products liability cover parts that are out of tolerance?

Usually not on its own. Products liability is built for injury and damage to third party property. If the out of tolerance part simply fails to work, the customer's loss is mainly financial. Some policies can be extended for financial loss, efficacy or removal and replacement costs, subject to limits and terms, so ask for this specifically.

Can a subcontract machinist supply aerospace parts on a normal policy?

Often not. Many general liability policies exclude aircraft products, or parts knowingly supplied for use in aircraft. Aerospace work usually needs aviation products liability, either within the programme or as a separate policy. Declare the work and the type of part so the right cover can be arranged.

Is customer supplied material covered if we scrap it?

It can be, through a goods in trust or customer property extension, but faulty workmanship is commonly excluded. The cover is more likely to respond to accidental damage, fire or theft than to a machining error. Read the wording and declare the maximum value of customer material held at any time.

What happens if a customer recalls a product containing our part?

The customer may try to recover its recall costs from you under the supply contract. Products liability does not usually pay recall costs. A separate product recall policy or a recall extension may help, subject to terms. Check whether your contract caps your liability and what it says about recall.

Mid-sized business? Have your programme reviewed

Send us your current schedules or renewal pack and we will review the whole programme and tell you plainly what to keep and what to change. No fee and no obligation. Or call 0117 325 0027.

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Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.