Electrical Faults & Fire Risk: Insurance for Component Manufacturers (UK Guide)

Why electrical faults are a bigger risk in component manufacturing

Component manufacturing sites often run high-load, high-heat processes with tight tolerances and long production hours. That combination increases the chance of:

• Overheating, arcing and insulation breakdown
• Dust or residue ignition (plastics, composites, metal fines)
• Damage to CNC, SMT lines, test rigs and clean-room equipment
• Long downtime due to specialist repairs and recalibration

A small electrical defect can become a major fire quickly, and the biggest cost is often not the flames—it’s the interruption, lost orders, and the knock-on impact on customers.

Common electrical fault scenarios (real-world examples)

1) Distribution board and switchgear failures

Loose connections, ageing breakers, incorrect ratings, or poor maintenance can cause arcing and heat build-up. Fires here can take out whole sections of the plant.

2) Machinery and motor issues

Motors, drives, compressors and extraction systems can fail due to bearing wear, overload, or blocked ventilation. Variable speed drives and control panels can be vulnerable to heat and contamination.

3) Battery charging and energy storage

Forklift batteries, lithium-ion packs, and charging stations create a concentrated ignition risk—especially if charging areas are poorly ventilated or located near combustibles.

4) Soldering, reflow ovens and heat processes

Even when the heat source is “normal operations”, electrical faults in heaters, sensors or control systems can lead to runaway temperatures.

5) Temporary electrics and contractor work

Maintenance shutdowns often bring temporary leads, portable heaters, PAT failures, and rushed changes. Hot works plus temporary electrics is a classic loss pattern.

6) Poor housekeeping and dust build-up

Dust and fine particles can create a fuel source. Add a spark from a faulty motor or static discharge and you have a fast-moving incident.

The insurance covers that matter most

Insurance should be built around your site, processes, and customer obligations—not a generic “factory package”. For component manufacturers, these are the covers that typically do the heavy lifting.

1) Commercial property insurance (buildings and contents)

This is the foundation. It covers physical damage to:

• Buildings (owned) or tenant’s improvements (leased)
• Plant and machinery
• Stock, raw materials and finished goods
• Office contents and IT equipment

Key points to get right:

• Sum insured accuracy: underinsurance can reduce claims payments.
• Fire protections declared correctly: alarms, sprinklers, compartmentation, fire doors.
• Electrical installation condition: insurers may ask about EICR testing and remedial works.

2) Business interruption (BI) insurance

BI covers loss of gross profit and ongoing expenses during downtime after insured damage (like fire). For manufacturers, BI is often more valuable than the property claim.

What to focus on:

• Indemnity period: many manufacturers need 12–24 months, sometimes longer for specialist kit.
• Increased cost of working: overtime, temporary premises, outsourcing, expedited shipping.
• Claims preparation costs: professional fees to evidence the loss.

3) Machinery breakdown / engineering insurance

A fire may start with an electrical failure, but not every electrical failure becomes a fire. Machinery breakdown cover can respond to sudden and unforeseen breakdown of:

• Control panels, drives, motors, compressors
• CNC/automation equipment
• Specialist test and calibration equipment

This can be critical when a fault causes major damage without a “fire” event.

4) Stock and materials: including customers’ goods and goods in transit

Component manufacturers often hold:

• Customer-supplied materials
• High-value micro-components
• Work-in-progress (WIP)

Make sure the policy addresses:

• Customer goods (property of others) on site
• WIP valuation (materials + labour + overheads)
• Goods in transit (own vehicles, couriers, international shipments)

5) Product liability and recall (where relevant)

Fire risk isn’t only a site issue. Electrical faults can also affect product performance.

Depending on what you manufacture, consider:

• Public and products liability: injury or property damage caused by your products.
• Product recall / rectification: costs to withdraw or fix products (often optional and tightly defined).

6) Employers’ liability (EL)

If a fire or electrical incident injures staff, EL is a legal requirement in most UK cases. Ensure:

• Correct wage roll and activities declared
• Any labour-only subcontractors are addressed

7) Cyber insurance (often overlooked)

Modern manufacturing is highly connected: PLCs, SCADA, MES, remote maintenance, cloud-based QA.

Cyber cover can help with:

• Ransomware that stops production
• Data restoration and incident response
• Business interruption from network outages (policy-dependent)

Policy details that can make or break a claim

Material damage vs machinery breakdown triggers

Property policies typically respond to “insured perils” (fire, explosion). Machinery breakdown responds to sudden breakdown. If you only buy one, you can have gaps.

Electrical exclusions and conditions

Some policies include conditions around:

• Electrical inspection frequency (EICR)
• Thermographic surveys (thermal imaging)
• Maintenance records

If these are warranties or conditions precedent, missing them can cause claim disputes. It’s worth getting them clarified in writing.

Average (underinsurance) clauses

If your sums insured are too low, insurers may apply average and reduce the payout proportionally. This is common with:

• Buildings reinstatement values
• Plant and machinery replacement costs
• Stock peaks (seasonal or contract-driven)

Indemnity period realism

If a key machine has a 26-week lead time, plus installation and calibration, a 12-month indemnity period can be tight. Add planning delays, building works, and customer requalification, and 24 months becomes more realistic.

Alternative premises and outsourcing

If you can move production to another site or subcontract, BI can fund that—if the wording supports it. It’s worth documenting:

• Which processes can be outsourced
• Key suppliers and lead times
• Minimum viable production levels

Risk management: what insurers like to see (and what reduces losses)

Good insurance is easier to place and often cheaper when the risk controls are clear.

Electrical safety basics

• Regular EICR inspections by competent contractors
• PAT testing programme for portable equipment
• Clear isolation and lockout/tagout procedures
• Avoid overloading circuits and daisy-chaining extensions

Thermal imaging (thermography)

Periodic thermal imaging can spot hot connections and overloaded components before they fail.

Housekeeping and dust control

• Extraction and filtration maintenance
• Cleaning schedules for plant rooms and control cabinets n- Safe storage of flammables and packaging

Battery charging controls

• Dedicated charging area with separation from combustibles
• Correct chargers and no “workarounds”
• Procedures for damaged batteries

Fire protection and response

• Detection and alarm maintenance
• Extinguishers suitable for electrical fires
• Compartmentation and fire doors kept in working order
• Staff training and drills

What information you’ll be asked for when arranging cover

To get accurate terms, insurers typically want:

• Turnover split by product type and sector
• Premises details: construction, size, security, occupancy
• Electrical inspection dates and any remedial works
• Fire protections: alarms, sprinklers, compartmentation
• Processes: heat work, soldering, ovens, dust/extraction
• Values: buildings, plant, stock, WIP, customers’ goods
• Business interruption: gross profit and indemnity period
• Claims history (even “nil claims” helps)

Quick checklist: common gaps for component manufacturers

• BI indemnity period too short
• No machinery breakdown cover
• WIP undervalued or not defined
• Customer goods not covered
• Goods in transit not included
• Electrical inspection conditions not understood

FAQs

Is a fire caused by an electrical fault covered?

Usually yes if fire is an insured peril and you’ve complied with key conditions. The detail matters, especially around maintenance and inspections.

Do I need machinery breakdown if I already have property insurance?

Often yes. Property insurance may not cover “breakdown” without fire or external damage. Machinery breakdown can fill that gap.

What’s the most important number to get right?

For many manufacturers it’s the business interruption gross profit and indemnity period. That’s what keeps cashflow stable while you rebuild.

Will insurers require an EICR?

Many will ask for the date of the last EICR and whether any C1/C2 issues were resolved. Some will add conditions if it’s overdue.

Can I cover loss of revenue if I move production elsewhere?

Potentially. Look for “increased cost of working” and wording that supports temporary premises or outsourcing.

Call to action

If you manufacture electrical or mechanical components, your fire risk profile is unique—high-load electrics, specialist machinery, and customer delivery penalties can turn a small incident into a major financial hit.

If you want, share your rough turnover, key processes (e.g., SMT, CNC, clean room), and your biggest single machine value. I can outline the typical cover structure and the questions insurers will ask, so you can approach the market with confidence.