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CONTRACT MANUFACTURING INSURANCE THAT HELPS YOU TAKE OFF
Why Foundry & Contract Electronics Manufacturer Insurance Matters
Foundries and contract electronics manufacturers sit at the centre of modern supply chains. Whether you fabricate wafers for fabless design houses, assemble and test semiconductor devices, or operate an EMS/contract manufacturing operation producing PCBAs and electronics modules, your business is exposed to concentrated operational risk: tight tolerances, high-value equipment, customer-owned materials, long lead-time components, and contracts that can transfer financial consequences back to the manufacturer.
A single interruption—cleanroom deviation, machine breakdown, power disturbance, ESD event, fire, water escape, supplier failure, or cyber incident—can cascade quickly into missed delivery windows, rework, scrap, expedited freight, liquidated damages, and reputational harm. Generic manufacturing insurance often leaves gaps around customer property, contractual penalties, product recall exposures, and supply chain time-element impacts.
Insure24 arranges specialist cover for foundries, OSATs, packaging and test facilities, contract electronics manufacturers, and high-reliability producers supplying automotive, aerospace, defence, industrial, medical and telecoms markets.
Core Covers for Foundries & Contract Electronics Manufacturers
The right insurance programme is built around your production reality: customer-owned goods, high-value plant, quality obligations, and contractual delivery commitments. A typical solution combines property, engineering, liability, time-element and specialist extensions.
- Property Damage – buildings, cleanrooms, production areas, warehouse and offices.
- Machinery Breakdown / Engineering – SMT lines, AOI/X-ray, pick-and-place, reflow, test, wire bond, moulding, lithography, etch or deposition tools.
- Business Interruption – protection for lost gross profit and ongoing expenses following insured downtime.
- Stock, WIP & Materials – including customer-owned goods (subject to declared values and policy terms).
- Goods in Transit – inbound parts, wafers, finished devices and modules (UK/overseas options).
- Employers’ Liability – legal requirement for most UK employers (subject to eligibility).
- Public & Products Liability – third-party injury/property damage, and product-related claims (as applicable).
- Product Recall / Withdrawal – optional support for quality escapes (where available).
- Environmental / Pollution Liability – chemicals, solvents, gases, waste handling and clean-up exposures.
- Cyber & OT – incident response, recovery costs and liability (subject to underwriting).
Common Risk Scenarios in Contract Electronics Manufacturing
Electronics production combines sensitive components, tight process windows, and customer contractual requirements. Insurers will assess your controls, but your policy must also reflect how losses occur in the real world—often as a mix of physical damage, scrap, rework, requalification and financial downtime.
- Fire, smoke or clean agent discharge impacting production lines and QA labs
- Water escape from HVAC/chilled water affecting SMT lines, test equipment or stores
- Power quality events causing batch scrap, misaligned placement or tool faults
- Machinery breakdown (pick-and-place heads, conveyors, reflow ovens, testers)
- ESD events damaging components or finished assemblies
- Solder paste / flux storage deviation causing widespread rework
- Software / OT disruption impacting MES, traceability, recipes or test programmes
- Supplier delay for single-source components causing missed delivery windows
- Quality escape leading to field failure, warranty costs or recall/withdrawal action
- Customer-owned materials damaged on-site (consignment stock, wafers, dies, parts)
- Transit losses (inbound parts, outbound finished goods, international shipments)
- Contractual penalties and urgent expedited production programmes
Foundry & OSAT Risk: Clean Manufacturing and High-Value Tooling
Semiconductor foundries and packaging/test providers (OSATs) face unique exposures compared to general electronics assembly. Cleanroom stability, process gases/chemicals, tool uptime and requalification drive both incident severity and recovery time. Even where physical damage is limited, the cost of returning the line to spec and restoring yield can be significant.
Contamination, Requalification & Yield Impacts
Yield issues can be caused by a range of factors: HVAC upset, AMC breakthrough, filter failure, chemical impurity, tool drift, handling error, or maintenance intrusion. Your insurance programme should be designed around realistic triggers and the documentation you can produce during a claim. Where specialist extensions are available, they are typically underwritten carefully and require strong controls and record keeping.
- Cleanroom shutdown and validation costs following insured events
- WIP sensitivity (wafers/dies in process) and scrap exposure
- Extra expense to restore throughput (additional shifts, outsourced steps)
- Critical spares strategy and lead-time management
Tool Failure & Engineering-Style Losses
High-value tools can fail in obvious ways (mechanical breakdown, electrical failure) or subtle ways (calibration drift, sensor faults, vacuum instability). Engineering cover can protect sudden and unforeseen breakdown risks, while business interruption can address the revenue impact of downtime. The most effective solutions align deductibles and indemnity periods to your true recovery timeline—repair + requalification + stable output.
- Repair/replacement of insured tool components (subject to wording)
- Associated BI and extra expense to protect output and delivery dates
- Optional cover for hired-in plant/temporary solutions (where applicable)
- Claims readiness: tool schedules, maintenance records, and incident logs
Contract Risk, Customer Requirements & Indemnities
Contract manufacturing is heavily governed by customer terms. Many EMS and foundry agreements include strict delivery KPIs, specification compliance clauses, audit rights, and liability provisions. Your insurance should be aligned with the reality of your contracts— and your contracts should be reviewed with a view to insurability.
While insurance cannot replace good contract management, a well-structured policy can reduce the financial shock of an incident and help protect cash flow during recovery. Where contractual penalties are uninsurable, we focus on covers that mitigate adjacent costs: extra expense, urgent logistics, temporary outsourcing, and business interruption (subject to triggers).
- Customer-owned materials: consignment stock, wafers, dies, components on-site
- Bailee / customer goods exposure and declared values
- Consequential loss exclusions and how customers may attempt to flow these down
- Fitness for purpose / warranty obligations and limitation of liability clauses
- Quality escape events: field failures, rework, withdrawal, returns and investigation costs
- Export contracts and overseas jurisdiction exposure
- Audit requirements (traceability, calibration, ESD controls, change management)
- Critical supplier and single-source component dependency
Insurance Tailored to Your Manufacturing Model
“Contract manufacturer” can mean very different things. Your risk profile depends on whether you run high-volume SMT lines, low-volume high-mix builds, high-reliability assembly, semiconductor packaging/test, or wafer fabrication services. We tailor cover based on process, customers, and the type of loss that would hurt you most.
Electronics Manufacturing Services (EMS / PCBA)
- SMT lines, reflow ovens, selective solder and conformal coating risk
- Component storage, moisture sensitivity and handling controls
- ESD management and batch traceability exposure
- Rework and scrap spikes following process deviation
- Products liability for assembled modules and integrated systems
Semiconductor Packaging, Assembly & Test (OSAT)
- Wire bond, die attach, moulding, singulation and test equipment breakdown risk
- Customer-owned wafers/dies on-site and bailee responsibility
- Yield and handling damage exposures
- Recall and warranty exposure where devices reach high-reliability markets
- BI design reflecting requalification timelines and outsourced step options
Semiconductor Foundries & Fabrication Services
- Cleanroom dependencies and critical utility resilience
- High-value tool schedules and long lead-time replacements
- Contamination/event-driven downtime and requalification costs
- Chemical, gas and waste handling liability exposures
- Supply chain penalties and customer delivery obligations
High-Reliability & Regulated Supply Chains
- Automotive quality regimes, PPAP-style documentation and audit requirements
- Aerospace/defence contract obligations and export considerations
- Medical device supply chain sensitivity and product performance expectations
- Higher severity liability and warranty exposures
- Traceability and recall preparedness emphasis
The Real Cost of an Electronics Manufacturing Incident
In contract manufacturing, the largest losses are often not the obvious ones. A machine repair bill can be painful, but it’s usually the knock-on costs that hurt: missed delivery windows, overtime and extra shifts, premium freight, rework programmes, customer chargebacks, and the internal cost of investigation and containment.
A good insurance programme is designed to keep the business stable while you recover. That means combining covers in a way that mirrors how you actually take a hit: property + engineering + BI + stock/WIP + liability. It also means being clear on what is and isn’t covered, and improving claims-readiness so that if a loss happens your documentation and process controls support the claim.
Direct Losses
- Repair/replacement of damaged production equipment
- Damage to buildings, services and clean manufacturing environments
- Scrap and spoilage of WIP, finished goods, and certain materials (subject to wording)
- Damage to customer-owned goods where you have responsibility
- Emergency response costs and site stabilisation
Indirect & Hidden Losses
- Lost gross profit due to downtime and reduced throughput
- Extra expense to recover (overtime, temporary outsourcing, expedited components)
- Premium freight to meet customer deadlines
- Contractual chargebacks and SLA failures (often partially uninsured)
- Reputation impact and future order loss
Quality Escape Events
If a defect escapes into the field, the costs can escalate quickly: investigation, containment, returns, replacement, rework, line stoppage at a customer site, and potential recall action. For high-reliability supply chains, these events can be financially severe.
- Products liability exposures (where injury/property damage is alleged)
- Recall/withdrawal options (where available) for removal and crisis management
- Traceability and lot control as key underwriting factors
- Contract review to reduce uninsurable obligations
Cyber / OT Disruption
Contract manufacturers increasingly depend on connected systems: MES, traceability platforms, test programmes, firmware repositories, production scheduling, warehouse systems, and supplier portals. A cyber incident can halt production or corrupt records that customers require.
- Incident response and recovery costs
- Data restoration and forensic investigation
- Business interruption exposure (subject to policy structure)
- Third-party liability and regulatory exposures (as applicable)
When a key production line failed, the cover Insure24 arranged meant we could focus on recovery, protect cashflow, and keep customers informed with confidence.
Managing Director, UK Contract Electronics ManufacturerPROTECT YOUR BUSINESS
- Repair and replacement costs for manufacturing and test equipment
- Loss of gross profit during insured downtime
- Extra expense to restore output (overtime, temporary outsourcing, expedited shipping)
- Customer-owned goods and consignment stock protection (subject to declared values)
- Products liability and optional recall/withdrawal support (where available)
- Cyber response and recovery support for connected manufacturing environments
Compliance & Regulations
Our programmes can be structured to support common obligations linked to:
- Health & safety duties and safe systems of work
- Environmental obligations for chemicals, waste, emissions and spill response
- Customer audits (traceability, calibration, ESD controls, change management)
- Cyber security expectations for OT-connected manufacturing
- Contractual insurance requirements and evidence of cover
FREQUENTLY ASKED QUESTIONS
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What does foundry & contract electronics manufacturer insurance cover?
Cover is typically arranged as a package including property damage (buildings, plant, cleanrooms where applicable), machinery breakdown/engineering cover for production equipment, business interruption, stock/WIP and customer-owned goods (subject to declared values and terms), employers’ liability, public and products liability, and options for environmental liability and cyber/OT. Many manufacturers also explore product recall/withdrawal options where available.
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Does insurance cover customer-owned components and consignment stock?
It can, but it needs to be arranged correctly. Many contract manufacturers hold customer-owned materials on-site, and policies usually require these values to be declared (often with a specific “customer goods/bailee” section or endorsement). Accurate records, storage controls, and clear contract terms help underwriting and claims handling.
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Is product recall insurance available for electronics manufacturers?
In many cases, yes—subject to risk profile and insurer appetite. Recall/withdrawal cover can help with costs associated with removing affected products from the supply chain, customer communications, and crisis management. The availability and scope depend on your products, markets served, QA controls, traceability, and claims history.
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Will business interruption cover missed delivery penalties?
Business interruption generally covers your own loss of gross profit and certain increased costs of working following insured damage, subject to policy wording. Contractual penalties and liquidated damages are often excluded or restricted. The best approach is to structure BI, extra expense, and supply chain-related covers (where available) to mitigate the financial impact of downtime and enable faster recovery.
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What are the biggest insurance gaps for contract manufacturers?
Common gaps include under-declared customer goods/consignment stock, insufficient business interruption indemnity periods, lack of engineering cover for critical equipment, limited transit cover for high-value shipments, and unclear product liability alignment with contract terms. Another frequent issue is assuming “standard” policies cover quality escape scenarios—these often require specific product liability and (where available) recall arrangements.
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Do contract electronics manufacturers need cyber/OT insurance?
Increasingly, yes. Manufacturing operations depend on MES, traceability systems, test programmes, firmware repositories, warehouse systems and supplier/customer portals. A cyber incident can halt production or compromise records customers require. Cyber/OT insurance can provide incident response and recovery support, and may include liability and certain business interruption elements depending on policy structure and underwriting.
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What information do you need to quote foundry or EMS insurance?
We typically ask for: locations and building details, protections (sprinklers, alarms), equipment schedule and values, stock/WIP and customer-owned goods values, turnover and gross profit, customers/markets served, key contracts and insurance requirements, QA/traceability controls, ESD controls, cyber/OT environment overview, claims history, and business continuity arrangements.