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SUPPLY CHAIN DISRUPTION INSURANCE FOR ENGINEERING & MANUFACTURING
Why Supply Chain Disruption Is a Major Manufacturing Risk
Engineering and manufacturing businesses increasingly rely on complex global supply chains. One delayed shipment, one failed supplier, one critical component shortage, or one logistics disruption can bring production to a standstill.
Supply chain disruption can lead to missed delivery deadlines, contractual penalties, expedited freight costs, overtime costs, production inefficiencies, lost customers, and significant loss of profit. Even if you have strong operations, disruptions can occur outside your direct control.
Insure24 helps you understand which insurance solutions may be available — and where limitations exist — so you can build a realistic risk transfer strategy that fits your operations and contracts.
What Is Supply Chain Disruption?
Supply chain disruption is any event that interrupts the flow of materials, components or services required to produce and deliver your products. It can be caused by physical damage, transportation issues, supplier failure, geopolitical events, cyber incidents, labour disputes, compliance failures, or unexpected demand spikes.
In manufacturing, disruption risk is often concentrated around “single points of failure” such as:
- Single-source suppliers for specialist components or raw materials
- Long lead-time parts (electronics, castings, specialist bearings, motors, PLCs)
- Customer-owned tooling or critical consumables
- Key logistics routes and hubs
- Specialist subcontractors (heat treatment, coating, finishing, testing)
Common Causes
- Supplier insolvency or operational failure
- Component shortages and allocation by manufacturers
- Shipping delays, port congestion, customs delays
- Transport disruption (strikes, driver shortages, weather)
- Quality failures at suppliers or subcontractors
- Fire/flood at supplier premises
- Cyber incidents affecting ordering, payments or logistics
- Regulatory compliance failures (sanctions, export controls, certifications)
Common Outcomes
- Production downtime and underutilised labour
- Missed delivery deadlines and contract penalties
- Overtime and expedited freight to recover timelines
- Loss of key customer accounts
- Increased costs of working (alternative sourcing)
- Margin erosion due to spot-buy pricing
- Damage to reputation and supplier scorecards
Which Insurance Covers Supply Chain Disruption?
Supply chain disruption is one of the most misunderstood insurance topics in manufacturing. Many businesses assume business interruption covers “any interruption”, but standard business interruption cover usually requires physical damage to your own insured premises.
There are, however, specialist options depending on your risk profile. These can include:
Business Interruption (BI)
Standard BI generally responds when you suffer loss of profit due to an insured event causing physical damage at your premises (e.g., fire). It may not respond to component shortages alone.
- Best for: downtime following insured damage at your premises
- Not typically for: supplier shortages without insured physical damage trigger
- Key factors: indemnity period, increased cost of working, dependencies
Contingent Business Interruption (CBI)
CBI (also called “supplier/customer extension” or “denial of access” in some contexts) may be available where your business depends on named suppliers or customers and they suffer insured damage that prevents supply/receipt.
- Best for: disruption caused by insured damage at a key supplier/customer
- Often requires: named suppliers, limits, and clear dependency
- Key factors: trigger wording, sub-limits, territory and time excess
Trade Credit / Non-Payment (Supply Chain Financial Risk)
If supply chain problems lead to customer non-payment or insolvency exposure, trade credit insurance can help protect receivables. This is a different risk category but often linked to supply chain disruption cycles.
- Best for: insolvency/non-payment risk from customers
- Helps: stabilize cashflow during market shocks
Marine Cargo / Goods in Transit (Logistics Disruption)
If your supply chain risk includes shipment loss or damage, marine cargo and transit cover can protect the value of goods in movement. While it may not cover delay alone, it can reduce financial loss from damaged shipments.
- Best for: physical loss/damage to goods during transport
- Not typically for: pure delay without loss/damage (depending on wording)
What Insurers Need to Assess Supply Chain Risk
Specialist supply chain and contingent BI solutions are underwritten carefully. The more you can demonstrate control, planning, and resilience, the better the chances of viable cover and sensible pricing.
- Key suppliers list – including locations, what they supply, and criticality
- Single-source dependencies – and any alternative supplier options
- Lead times – longest lead-time components and how you manage them
- Stock strategy – safety stock, consignment, buffer levels
- Subcontract processes – heat treatment, coating, specialist testing
- Supplier contracts – SLAs, penalties, Incoterms, cancellation rights
- Contingency planning – approved alternative suppliers, qualification processes
- Financial impacts – typical gross profit, margin, and downtime cost model
Practical Resilience Improvements
- Dual-source high-risk components where possible
- Maintain approved alternatives for specialist subcontractors
- Introduce safety stock for long lead-time items
- Tighten supplier QA and incoming inspection to reduce quality disruption
- Review Incoterms and transit responsibilities
- Ensure cyber resilience for procurement and logistics systems
These improvements not only reduce risk but can strengthen your underwriting position.
Why Choose Insure24 for Supply Chain Disruption Risk?
Supply chain disruption is a real-world manufacturing risk — but it’s not always easy to insure. Insure24 helps you navigate what’s realistically available, how policies trigger, and what information is needed to place cover properly.
- Manufacturing-focused insurance advice and market access
- Support structuring BI and contingent BI correctly
- Guidance on supply chain exposures, contracts and practical resilience steps
- Fast turnaround and straightforward quote process
- Clear explanation of triggers, exclusions and realistic expectations
How to Get a Quote
We’ll ask about your supplier dependencies, critical components, and the financial impact of downtime. Once we understand your risk, we’ll approach suitable insurers and present options clearly.
- 1. Tell us what you manufacture and where critical components come from
- 2. Identify key suppliers and single points of failure
- 3. Confirm BI needs and desired indemnity period
- 4. We compare insurers and present options
- 5. Put cover on risk quickly with supporting documentation
When a key supplier had an incident, our deliveries were impacted. Insure24 helped us understand contingent BI options and restructure our interruption cover properly.
Operations Director, UK ManufacturerFREQUENTLY ASKED QUESTIONS
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Does business interruption cover component shortages?
Standard business interruption usually requires physical damage at your premises from an insured event (e.g., fire). Component shortages alone may not trigger cover unless you have a specialist extension or contingent cover that applies.
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What is contingent business interruption (CBI)?
Contingent business interruption is designed to cover loss of profit where your business depends on key suppliers or customers and they suffer an insured event (typically physical damage) that prevents supply or receipt, subject to policy terms, sub-limits and triggers.
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Can I insure supplier insolvency or non-delivery?
Supplier insolvency and non-delivery are not typically covered under standard BI. Some specialist solutions may exist depending on the scenario, but cover is often focused on physical damage triggers. Trade credit insurance can help with customer non-payment risks rather than supplier failure.
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Does goods in transit cover supply chain disruption?
Goods in transit (marine cargo) typically covers physical loss or damage to goods while being transported. It generally does not cover delays alone, but it can reduce losses where a shipment is damaged or lost.
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What information is needed to quote contingent BI?
Insurers typically require key supplier details, locations, dependency level, single-source exposures, lead times, contingency planning, BI figures (gross profit), and the impact of downtime. Named supplier extensions may have sub-limits and trigger requirements.
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How quickly can Insure24 arrange cover?
Many BI-related policies can be arranged quickly once financial figures and risk details are clear. Specialist contingent BI may require additional underwriting information, but we aim to progress the quote promptly and keep the process straightforward.