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INSURANCE DESIGNED FOR YIELD SHOCKS, BATCH LOSS & REWORK COSTS
Why Yield Loss Is One of the Biggest Financial Risks in Semiconductor Manufacturing
Yield is where semiconductor profitability lives or dies. A small drift in process parameters can turn a profitable run into scrap. A contamination event can wipe out multiple lots. A metrology calibration issue can trigger false pass/fail decisions. A temperature, humidity or power-quality excursion can create a batch of latent defects that only appear in later test or in the field. And because semiconductor manufacturing is multi-step, a problem introduced early can remain hidden until the most expensive value-add work has already been done.
The challenge is that “yield loss” is not always straightforward to insure. Many insurance policies are built around physical damage to property or stock, and they may exclude defects, faulty workmanship, gradual deterioration, or losses that are not tied to a defined insured event. That does not mean the risk is uninsurable — it means it must be approached properly: by identifying where insured triggers exist (for example, contamination following insured damage, power events leading to equipment breakdown, or physical loss of stock/WIP), and by structuring extensions and wordings that reflect how losses actually arise.
Insure24 helps semiconductor manufacturers understand the boundary between operational yield management and insurable sudden-loss events. We work with you to build a programme that protects against shock losses (batch loss, scrap, rework, WIP damage, downtime and extra expense) and aligns with customer obligations. Where yield loss itself cannot be insured directly, we help reduce uninsured exposures by aligning contracts, controls, and cover structure.
What “Yield Loss” Cover Can Look Like in Practice
Yield loss and production defect exposure tends to sit across several policy areas rather than one simple “yield insurance” product. Depending on your site, the insurable components can include: physical loss or damage to stock/WIP, rework and extra expense following an insured event, business interruption from insured damage, equipment breakdown leading to process disruption, and liability where defective product causes damage or triggers third-party claims.
The key is to map the loss pathway: what actually happens when yield collapses? What was the trigger? Was there physical damage? Was there an insured peril (such as fire, flood, escape of water, or sudden breakdown)? Or was it a process drift or quality escape with no insured trigger? We help structure cover around the scenarios that are realistically insurable and clarify where risk must be managed operationally rather than transferred.
Potential Insurable Components
- Physical loss or damage to WIP/stock caused by an insured event
- Contamination following insured damage (wording dependent)
- Scrap and rework costs as “extra expense” after insured disruption
- Business interruption from insured damage (lost gross profit)
- Machinery breakdown causing sudden process disruption
- Expediting costs to stabilise and recover production
- Third-party claims for damage caused by defective devices (liability)
- Optional: recall/withdrawal expense (where appropriate)
Often Not Insurable (Or Highly Restricted)
- Gradual process drift with no defined insured event
- Known defects or pre-existing quality issues
- Wear and tear, corrosion, and gradual deterioration
- Pure “failure to meet specification” without damage or liability trigger
- Normal rejects and expected yield variation
- Design defects (unless resulting in covered liability—wording dependent)
- Contractual penalties and chargebacks (unless insured elsewhere)
- Losses arising solely from poor maintenance or known issues
Common Yield Loss & Defect Scenarios
Semiconductor yield incidents are rarely “one thing”. They can be technical, environmental, supply chain-related, or human factor-related — and often involve a mix. Below are some common drivers of batch loss, scrap and rework in fabs and packaging/test environments. These examples also help you decide what should be insured, what should be controlled operationally, and what should be contractually managed.
Underwriters will pay close attention to how quickly you detect excursions, how you quarantine and trace lots, and how you prevent recurrence. Strong controls don’t remove the risk — but they can reduce severity and improve insurability.
Process & Equipment Drivers
- Tool calibration drift causing mis-measurement and false pass/fail
- Vacuum instability affecting deposition/etch quality
- Chiller or cooling loop failure causing temperature excursions
- Power disturbance causing equipment trip and process instability
- Handler/test interface failure creating test escapes
- Robotics and automation faults leading to handling damage
- Incorrect recipe / parameter change (change control failure)
- Incorrect set-up after maintenance or part replacement
Contamination, Materials & Handling
- Particle contamination events affecting multiple lots
- Chemical concentration errors or cross-contamination in wet processes
- Humidity breaches affecting moisture-sensitive devices (MSL)
- ESD events and latent defects during packaging/test
- Substrate/leadframe/material defects impacting bond integrity
- Delamination, voiding, bond lift and assembly defects
- Improper storage/transport leading to damage or degradation
- Supplier quality issues and incoming inspection failures
Downtime, Extra Expense & “Catch-Up” Costs
Yield shocks nearly always create a second-order problem: disruption. Even when the defective batch is quarantined, production must be stabilised, root cause must be identified, equipment must be re-qualified, and customers must be managed. During this period, businesses incur significant “catch-up” costs: overtime, expedited materials, extra metrology, additional burn-in and re-test, subcontracting overflow, and logistics to meet delivery windows.
Many of these costs are not automatically covered unless the programme includes appropriate business interruption and extra expense language tied to an insured trigger (property damage, insured breakdown). This is why we advise semiconductor manufacturers to consider the whole programme, not just one line of cover. The structure should reflect how you recover from an incident — and the true duration of recovery.
Costs Often Seen After Yield Events
- Overtime and additional shifts to recover schedule
- Extra metrology, inspection and testing to confirm stability
- Rework, re-test and re-qualification programmes
- Expedited spare parts and emergency engineer callouts
- Subcontracting or outsourcing to protect customer deliveries
- Scrap disposal and controlled destruction costs
- Freight and logistics for replacement shipments
- Claims preparation and documentation time/cost
How Insurance Can Be Structured
- Business interruption following insured property damage
- Engineering breakdown downtime extensions (where arranged)
- Increased cost of working / extra expense to reduce loss
- Expediting expense extensions for emergency recovery
- Coverage alignment across property, breakdown and stock/WIP
- Realistic indemnity periods reflecting lead times and re-qualification
- Deductibles calibrated to likely event sizes
- Claims readiness planning to speed response
Contractual & Customer Impact (Where Insurance Stops)
Many semiconductor businesses are surprised by how quickly a yield issue becomes a contractual problem. Customers may impose chargebacks, rework fees, line-stoppage claims, warranty programmes, or “right of set-off” deductions. These are often framed as commercial remedies rather than third-party damage.
Standard insurance is not designed to replace commercial performance obligations. However, a well-designed programme can reduce exposure by protecting assets and cashflow (stock/WIP, downtime, extra expense) and by providing liability protection when there is covered damage. We also help you reduce the risk of uninsured contractual liabilities by reviewing key terms and making sure the insurance programme aligns with what your contracts assume.
Common Contract Issues
- Chargebacks, rework fees and sorting costs imposed by customers
- Delivery failure penalties and liquidated damages
- Warranty replacements and RMA programmes
- Set-off deductions against invoices
- Limits of liability that do not reflect real risk allocation
- Obligations to insure customer-owned goods / bailment clauses
- Jurisdiction and governing law risks in global contracts
- Notification and audit obligations following incidents
How We Help Reduce Exposure
- Align cover with stock custody and customer-owned goods exposure
- Structure downtime and extra expense to protect cashflow
- Territory/limit alignment for product/device liability
- Optional recall cover where it is appropriate and available
- Contract review to flag uninsured assumptions of liability
- Improve risk presentation to negotiate better terms
- Claims readiness planning and incident response templates
- Risk improvement roadmap to reduce frequency and severity
Key Underwriting Information (What Insurers Will Ask)
Underwriters do not “price yield” directly — they price your controls, resilience and loss history. The more confidence they have in your detection and containment systems, the more willing they are to offer broader cover and workable deductibles.
We help you present the information that matters: how you detect excursions, how you quarantine lots, how you manage change control, and what you do after an incident. This can materially improve terms and reduce restrictive exclusions.
Typical Underwriter Questions
- Process overview and key loss scenarios at your site
- Stock/WIP maxima and valuation basis (including customer-owned goods)
- Traceability, lot control, quarantine and hold procedures
- Change control and recipe/parameter management
- Calibration, metrology controls and maintenance regimes
- Environmental controls (temperature, humidity, contamination) and alarms
- Power quality resilience and utilities redundancy
- Loss history: scrap events, RMAs, major incidents and corrective actions
How Insure24 Improves the Outcome
- Map insurable triggers and structure cover around them
- Align property, breakdown, BI and stock/WIP cover to reduce gaps
- Set realistic deductibles and indemnity periods
- Support evidence of controls to improve underwriting confidence
- Clarify contract exposures and avoid uninsured assumptions of liability
- Negotiate practical policy wording to avoid hidden exclusions
- Build claims-ready documentation and incident response workflows
- Provide a risk improvement roadmap that can reduce premium over time
When an environmental excursion impacted multiple lots, Insure24 helped us restructure our programme so WIP, downtime and recovery costs were properly addressed — not just the obvious damage.
Operations Director, Semiconductor Manufacturing FacilityPROTECT WIP & CASHFLOW
- Cover for physical loss/damage to stock and WIP from insured events
- Downtime and extra expense protection following insured disruption
- Expediting costs to recover production faster
- Alignment with equipment breakdown and property BI cover
- Claims support to document complex loss pathways
REDUCE UNINSURED YIELD RISK
- Clarify what is insurable vs operational/quality-managed
- Improve contract alignment to avoid uninsured liabilities
- Strengthen risk presentation to underwriters
- Review exclusions and negotiate practical wording
- Build a risk improvement roadmap that supports better terms
Compliance, Quality & Evidence (Why It Matters for Insurance)
Yield losses are defended and managed through evidence: traceability, lot control, calibration records, alarms, change logs, and corrective actions. Strong documentation reduces risk and improves claims outcomes. It also improves underwriting confidence and can reduce exclusions over time.
- Documented quality management systems and audit readiness
- Traceability, lot control and quarantine procedures
- Change control (recipes, parameters, software and tooling)
- Calibration and maintenance records for key tools
- Environmental monitoring and alarm response logs
- Failure analysis and CAPA (corrective/preventive actions)
FREQUENTLY ASKED QUESTIONS
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Is yield loss insurable for semiconductor manufacturers?
Some yield-related losses can be insured, but it depends on the trigger and policy wording. Insurance typically responds to physical loss or damage caused by an insured event (and can include related downtime/extra expense). Gradual process drift or pure failure to meet specification is often excluded. Insure24 helps structure cover around realistic insurable scenarios and clarify any gaps.
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Does insurance cover scrap, rework and re-test costs?
Scrap and rework can sometimes be covered where they arise as extra expense following an insured event (for example insured property damage or equipment breakdown). Pure process defects without an insured trigger are commonly excluded. We’ll help you understand what is achievable in the market for your specific operation.
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What causes the biggest yield losses?
Common drivers include contamination events, environmental excursions (temperature/humidity), tool drift or calibration failures, utilities disruptions, power quality events, recipe/parameter errors, handling/ESD damage, and supplier quality issues. Strong detection, traceability and quarantine controls help reduce severity and improve insurability.
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Can yield incidents lead to liability claims?
Yes. If defective devices cause third-party property damage or injury, product/device liability cover may respond (subject to terms). Many customer “chargebacks” or contractual penalties are not automatically insured, so it’s important to align your insurance programme with contracts and understand where commercial exposures sit.
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What do insurers need to quote yield loss-related cover?
Insurers typically want: a process overview, stock/WIP maxima and valuations, traceability and quarantine procedures, change control systems, calibration and maintenance regimes, environmental monitoring and alarms, resilience for power/utilities, and loss history including corrective actions taken.
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How can I reduce yield-loss risk and improve insurance terms?
Underwriters value strong traceability and lot control, disciplined change management, robust calibration and maintenance, environmental monitoring with rapid response, clear quarantine/hold procedures, and effective failure analysis/CAPA. Demonstrating these controls can reduce exclusions and improve pricing over time.