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THE MOST CRITICAL COVER FOR MANUFACTURERS
Why Business Interruption Insurance Is Vital in Precision Engineering
For precision engineering and manufacturing businesses, the largest loss after a major incident is rarely the building or machine — it is the lost income and ongoing fixed costs. Customers still expect delivery, wages still need to be paid, and contractual penalties can apply long after physical repairs are complete.
Business interruption (BI) insurance is designed to protect your gross profit and cashflow when operations are disrupted following insured damage, such as fire, flood or machinery breakdown. The key is structuring BI around realistic downtime and recovery timelines.
What Business Interruption & Loss of Income Insurance Covers
Business interruption insurance is usually triggered by physical damage insured under a property or engineering policy. It then responds to the financial impact of that damage.
- Loss of Gross Profit – Income lost due to reduced or halted production.
- Increased Cost of Working (ICOW) – Extra expenses to keep the business operating.
- Wages Protection – Support for retaining skilled staff during shutdown.
- Claims Preparation Costs – Professional fees to prepare and support BI claims.
- Indemnity Period – The time the policy will pay losses (e.g. 12–24+ months).
- Extensions – Supplier/customer dependency and prevention of access (policy-dependent).
Indemnity Periods: Where Manufacturers Often Get It Wrong
One of the most common and costly mistakes in manufacturing insurance is selecting an indemnity period that is too short.
Why Recovery Takes Longer Than Expected
- Long lead times for specialist machinery and parts
- Rebuild, commissioning and calibration periods
- Customer re-qualification and audits
- Supply chain disruption and backlog recovery
- Recruitment and retraining if staff are lost
Typical Indemnity Periods
- 12 months – often insufficient for specialist manufacturing
- 18 months – suitable for some medium-complexity operations
- 24 months or more – common for precision engineering and aerospace supply chains
Common Business Interruption Scenarios
Business interruption claims often arise from relatively common incidents with severe financial consequences.
Fire or Explosion at the Factory
Even a contained fire can shut down production for months due to smoke damage, inspections and reinstatement works.
- Loss of income during rebuild
- Extra costs to outsource work
- Extended recovery timelines
Machinery Breakdown Stops Production
A single CNC failure can stop an entire production line, especially where there is no redundancy.
- Machinery BI extensions respond
- Overtime and subcontracting costs
- Delivery penalties mitigated
FREQUENTLY ASKED QUESTIONS
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What triggers business interruption insurance?
BI is usually triggered by insured physical damage, such as fire, flood or machinery breakdown,
under the associated property or engineering policy.
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Is business interruption legally required?
No, but it is often the most financially important cover for manufacturers and is
commonly required by lenders or investors.
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Can BI cover supplier or customer disruption?
Extensions may be available for supplier and customer dependency, subject to insurer terms
and disclosure of key relationships.
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How is the sum insured calculated?
The sum insured is usually based on annual gross profit (turnover minus variable costs),
adjusted for growth and seasonality.
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How can Insure24 help?
We help manufacturers calculate realistic downtime exposure, select suitable indemnity periods,
and structure BI cover that actually responds when production stops.