Engineering insurance

Engineering insurance protects the plant and machinery a business depends on to trade — from a single compressor or refrigeration pack to a full production line, boilers, lifts, cranes and pressure systems. It responds to sudden and unforeseen breakdown, the kind of failure an ordinary property policy specifically excludes, and it usually bundles the statutory inspection service that keeps lifting and pressure equipment legal. Businesses buy it for two reasons: to get plant back in service quickly, and to discharge a legal duty to have that plant examined by a competent person. Where it goes wrong is rarely the peril — it is the detail. Plant left off the schedule, declared values pitched at book value rather than replacement cost, an indemnity period too short for bespoke machinery with a long lead time, or a missed inspection that breaches a condition. Each turns a payable claim into an argument. Apex places this cover through a named broker who presents the risk properly to the specialist market.

Key covers under an engineering policy

• Machinery breakdown — sudden and unforeseen electrical or mechanical failure of plant: motors, compressors, gearboxes, pumps and drives. This is the core peril that property policies exclude, covering repair or replacement of the failed item, subject to underwriter assessment.
• Sudden and unforeseen damage — a broader wording than breakdown alone, extending to accidental physical damage to insured plant from causes such as operator error, foreign objects or overload, where not otherwise excluded.
• Computer and electronic equipment — breakdown of servers, control panels, PLCs and electronic systems, often with an increased cost of working extension to hire replacement capacity while the failed unit is repaired.
• Business interruption following breakdown — loss of gross profit and increased cost of working when insured plant fails and halts or slows production. The indemnity period must reflect the real time to source, install and commission replacement machinery.
• Deterioration of stock — spoilage of refrigerated or frozen stock following breakdown of refrigeration or freezer plant, or failure of the public electricity supply, subject to the relevant conditions and time excess.
• Damage to surrounding property — damage caused to your own adjacent property, or to third-party property, arising from the explosion or collapse of insured plant such as boilers and pressure vessels.
• Statutory inspection and certification service — periodic thorough examination of lifting and pressure equipment by the insurer’s competent person, producing the reports that satisfy your legal inspection duties. A service bundled with cover, not a policy section itself.
• Boiler and pressure plant — explosion and collapse cover for steam boilers, pressure vessels, receivers and associated pipework, reflecting the higher hazard these systems carry.
• Plant, tools and hired-in plant — physical loss or damage to owned and hired-in machinery, including continuing hire charges you remain liable for while damaged hired plant is off-hire.
• Defect (DE/LEG) wordings — on construction and erection risks, defects clauses (the DE series or LEG 1/2/3) define how far cover extends to damage arising from faulty design, materials or workmanship. The clause chosen materially changes what is paid.

What underwriters focus on

Engineering risk is priced off the plant, not just the premises. The starting point is an accurate schedule of insured items: make, model, age, capacity and, critically, the current replacement cost of each significant unit. Underwriters treat this schedule as the risk itself, so an out-of-date or incomplete list is the single biggest source of dispute later. Older plant, obsolete control systems and machinery with poor spares availability are rated harder, because the practical cost and time to reinstate them is greater regardless of book value.

Maintenance regime carries real weight. A documented planned preventative maintenance schedule, service contracts with manufacturers, condition monitoring and a clean inspection history all point to a well-run risk and support both terms and the defensibility of a claim. Where breakdown cover is being offered, underwriters want to see that failures are genuinely sudden and unforeseen rather than the predictable end of a neglected asset — wear, gradual deterioration and lack of maintenance are standard exclusions, so the maintenance story is what keeps the cover meaningful.

For business interruption, the assessment shifts to dependency and recovery time. How central is each machine to output? Is there redundancy, or is a single bespoke line a genuine bottleneck? What is the realistic lead time to manufacture, deliver, install and commission a replacement — often measured in months for specialist plant? These questions drive both the gross profit sum insured and the indemnity period, and getting the indemnity period wrong is far more common than getting the sum insured wrong.

Environment and use also matter: corrosive, marine, food-grade or high-temperature settings accelerate deterioration; continuous or shift running raises exposure versus intermittent use. On lifting and pressure plant, underwriters look at inspection frequency, the competent person arrangements and the written scheme of examination. Finally, claims history, industry sector and the quality of the presentation itself all feed the rate. Under the Insurance Act 2015 duty of fair presentation, a full, well-organised disclosure of plant, maintenance and past losses is not just good practice — it is what protects the policy from being reduced or avoided at claim.

Common claims

The windings on a large refrigeration compressor burn out during a summer peak. The unit is a total loss and a replacement has a several-week lead time. Machinery breakdown responds to the compressor, deterioration of stock covers the frozen product lost while it is down, and business interruption following breakdown picks up the lost trading margin — provided the indemnity period is long enough to cover the full replacement.

A pressure vessel on a process line suffers a sudden failure, venting and damaging adjacent pipework and a neighbouring unit. The vessel and pipework fall to boiler and pressure plant cover, while damage to your own nearby assets and the third party’s property is met by damage to surrounding property, subject to the limits in place.

A control panel and PLC governing a packing line fail electronically, stopping the line. Computer and electronic equipment cover responds to the unit, and an increased cost of working extension funds hiring temporary capacity so orders are still met while the board is rebuilt.

An overhead travelling crane develops a fault that had gone unreported. Because the equipment had been examined under the inspection service, the report supports the position; the mechanical failure itself is met by machinery breakdown or sudden and unforeseen damage, depending on cause, subject to policy terms.

A bespoke CNC machine is damaged when a workpiece breaks loose. As accidental physical damage rather than pure wear, it is handled under sudden and unforeseen damage, with continuing costs and lost output flowing through business interruption where the machine is a production bottleneck.

The mistakes that cost you at claim

Underinsurance is the classic engineering failure. Declared values are quietly set at written-down book value, or at what the machine cost years ago, rather than the current cost to replace it new including delivery, installation and commissioning. Most engineering policies carry an average (underinsurance) condition, so if the sum insured is 60% of the true replacement value, a partial claim can be cut by around the same proportion. Because bespoke and imported plant has risen sharply in cost, values set even a couple of years ago are frequently well short. Run the free underinsurance check at /underinsurance-check/ before renewal to test whether your declared values still hold.

The wrong indemnity period undermines business interruption cover more often than a low sum insured. A twelve-month indemnity period feels standard, but if a critical machine is bespoke, imported or has an eighteen-month manufacturing and commissioning lead time, the policy stops paying long before you are trading normally again. The indemnity period should reflect the worst realistic recovery time for your most critical, hardest-to-replace plant — not a default number.

Breached conditions and warranties catch out well-run businesses. Engineering policies frequently make cover conditional on maintenance being carried out, on statutory inspections being completed on time, and on defects flagged in an inspection report being acted upon. Miss a scheduled thorough examination on a lift or pressure system, ignore a defect notice, or let a maintenance contract lapse, and the insurer may decline the related claim. The inspection service exists partly to keep you compliant — but only if the reports are read and their remedial actions closed out.

Undeclared plant and activities are the final trap. New machinery bought mid-term and never added to the schedule is simply not insured; hired-in plant assumed to be covered may not be; and a change in process, materials or a move to shift working can alter the risk materially. Under the Insurance Act 2015 duty of fair presentation, these are things the insurer needs to know. Keeping the plant schedule live and telling your broker about changes as they happen is what keeps the policy answering when it matters.

Compliance and risk considerations

Engineering insurance sits directly alongside legal duties, which is why the inspection element matters as much as the cover. Under the Lifting Operations and Lifting Equipment Regulations 1998 (LOLER), lifting equipment must undergo thorough examination by a competent person — broadly at six-monthly intervals for equipment lifting people and certain accessories, and twelve-monthly for other lifting equipment, or in accordance with an examination scheme. The insurer’s engineer surveyor commonly acts as that competent person.

The Pressure Systems Safety Regulations 2000 (PSSR) require a written scheme of examination for relevant pressure systems, drawn up or certified by a competent person, with examinations carried out to that scheme before defined operating limits are exceeded. The Provision and Use of Work Equipment Regulations 1998 (PUWER) place broader duties to keep work equipment safe, suitable and maintained. Underpinning all of these, the Health and Safety at Work etc. Act 1974 sets the general duty on employers to ensure, so far as is reasonably practicable, the safety of employees and others affected by the work.

The inspection reports produced under an engineering policy are the documentary evidence that these duties are being met, and they are what the Health and Safety Executive would expect to see. Treat them as compliance records, not paperwork: log defects, close out remedial actions and keep certificates current. Where staff are employed, Employers’ Liability insurance remains a separate legal requirement under the Employers’ Liability (Compulsory Insurance) Act 1969. This page is general information; specific duties should be confirmed for your equipment and setting.

Frequently asked

Related

• Get a commercial quote
• Free underinsurance check
• Areas we cover
• Speak to a broker