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PRECISION ENGINEERING INSURANCE — WHAT IT IS (AND WHY IT MATTERS)
What Counts as “Precision Engineering” from an Insurance View?
Precision engineering typically involves manufacturing components and assemblies where tight tolerances, controlled processes, and strict quality assurance are essential. That might be CNC machining, precision grinding, toolmaking, micro-manufacturing, or specialist assembly work. What makes this sector different is not just the machinery — it’s the severity of a single error.
A small dimensional variance can lead to rejection, rework, scrap, expedited remakes, or downstream disruption. If a component is safety-critical or part of an OEM assembly, the liability exposure can be much higher than standard manufacturing.
The Core Covers Most Precision Engineering Firms Need
Precision engineering insurance isn’t one “special policy” — it’s a structured programme that protects your people, premises, products, machinery and cashflow. Here’s how the main covers work.
Employers’ Liability (EL)
If you employ staff, Employers’ Liability is legally required in most UK cases. It protects you if an employee is injured or becomes ill as a result of their work.
- Covers legal defence costs and compensation for workplace injury/illness claims
- Relevant risks: machine guarding, manual handling, noise, vibration, dust/extraction, welding fumes
- Ensure labour-only subcontractors and apprentices are correctly declared
Public Liability (PL)
Public Liability protects you if your business activities cause injury to a third party or damage their property. This can happen on your premises, during deliveries, or at client sites.
- Visitor injuries on-site (slips, trips, loading areas)
- Damage to customer property during installation/commissioning work
- Often required by landlords, principal contractors and customers
Products Liability
Products Liability becomes crucial once your components leave your control. If a part you manufacture causes injury or property damage after supply, Products Liability may respond (subject to policy terms and exclusions).
- Common for OEM suppliers and contract manufacturers
- Limits often driven by customer contracts and sector expectations
- Be clear on exports and territories supplied
Property (Buildings, Contents & Stock)
Property cover protects your physical assets: premises, contents, machinery within the property section, stock and materials. For engineering firms, accuracy on sums insured is essential.
- Buildings on rebuild/reinstatement value (not market value)
- Machinery and contents on replacement cost (including installation/commissioning)
- Stock values should reflect peak periods and high-value metals
Business Interruption (BI)
Business Interruption protects your income and ongoing costs if an insured event (such as fire or flood) stops production. BI is commonly underinsured because businesses underestimate how long recovery takes.
- Based on gross profit and an indemnity period (often 12–24 months)
- Consider lead times for replacing specialist machinery and tooling
- Include Increased Cost of Working for outsourcing, overtime and expediting
Machinery Breakdown
Machinery Breakdown (also called Engineering Inspection / Breakdown cover depending on wording) can protect you against sudden mechanical or electrical failure of key equipment — separate from fire/flood perils.
- Important where one CNC machine is critical to revenue
- Can include repair costs and sometimes associated losses (policy dependent)
- Maintenance records and machine schedules can improve underwriting
Specialist Covers Precision Engineers Often Need
Many disputes in precision supply chains are not “accidents” — they’re quality, specification or financial loss disputes. These covers help address gaps that standard PL/Products policies may not cover.
- Professional Indemnity (PI) – if you design, advise, prototype or modify specifications/drawings.
- Tooling & Engineering Equipment – high-value tools, jigs, fixtures, dies, probes and gauges.
- Electronic Equipment – CNC controls, servers, metrology systems and CAD/CAM workstations.
- Goods in Transit – components during transport, including time-critical deliveries.
- Cyber & Data – ransomware, CAD/CAM compromise, invoice fraud and downtime.
- Contract Works – if you install or commission systems at client sites.
- Management Liability (D&O) – directors protection for management-related claims.
Common Gaps and Misunderstandings (What to Watch For)
Precision engineering claims often fail due to misunderstanding what liability insurance covers. Below are common gaps we see when businesses rely on generic policies.
- “Your own work” exclusions – many policies don’t pay to redo faulty work or replace defective parts.
- Financial loss claims – quality disputes may be pure financial loss (PI may be relevant, not Products).
- Territory mismatch – exporting without declaring territories can create cover issues.
- Underinsured BI – short indemnity periods often fail in major fire recovery scenarios.
- Tooling not listed – high-value tools/metrology equipment can be excluded or underinsured.
- Contract clause conflicts – your contract may accept liabilities not covered by standard policies.
FREQUENTLY ASKED QUESTIONS
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What insurance does a precision engineering business legally need?
If you employ staff, Employers’ Liability is legally required in most UK cases. Other covers (Public/Products, property, BI) are not always legally required but are commonly essential for trading and contracts.
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Do I need Products Liability if I manufacture to customer drawings?
Usually yes. Even where drawings are provided, allegations can involve workmanship, finishing, inspection, batch control or packaging. Products Liability can respond where a supplied component causes injury or damage, subject to policy terms.
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Does insurance cover the cost of redoing faulty work?
Often no. The cost of redoing your own work or replacing defective parts is commonly excluded. Cover typically responds where there is resulting injury or property damage, or where specific extensions apply.
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When is Professional Indemnity needed for precision engineers?
If you design components, advise on tolerances, prototype, or modify specifications, Professional Indemnity is strongly recommended because many disputes present as financial loss claims.
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How long should the business interruption indemnity period be?
Many precision engineering firms choose 12–24 months, depending on lead times for specialist machinery replacement and commissioning. The right period depends on your dependency and recovery plan.