For manufacturers, an interruption can be devastating and can mean not just lost revenue but broken contracts, delayed shipments, and damaged customer relationships.That’s where business interruption insurance (BI insurance) comes in.
But getting it right requires more than just checking a box on your policy. Here’s how manufacturing businesses can help ensure their BI insurance provides the protection they truly need.
What is BI insurance?
BI insurance compensates for lost income and additional costs when an insured event forces a suspension or scaling back operations.
While property insurance covers physical damage, BI insurance is designed to helps your business stay financially afloat during resultant downtime.
For some manufacturers, it can mean the difference between a temporary setback and permanent closure.
What it typically covers:
Lost profits based on your historical output and orders
Fixed costs such as rent, salaries, and loan payments
Temporary relocation and other additional costs if you need to shift production
Costs to expedite recovery, such as rush orders for replacement machinery or outsourcing production
Training costs if you need to retrain staff on new systems or equipment
Some policies also include contingent business interruption (CBI), losses at a supplier or customer site, for example. This cover can be important for manufacturers relying on key suppliers, vendors, or customers.
Manufacturing-specific risks and pitfalls
1. Overlooking equipment downtime
BI policies often focus on building damage, but equipment failure can be just as disruptive in manufacturing. Check if you buy machinery breakdown cover instead of just property damage.
2. Ignoring supply chain dependencies
If a critical supplier suffers a loss, you may be forced to halt production. This is where CBI cover becomes an important consideration.
3. Underestimating the time to resume production
Restarting a manufacturing line isn’t as simple as reopening the doors. You may need to reorder parts, recalibrate systems, retrain workers, retest outputs and perhaps even seek government or local authority approval to start manufacturing again. Choose a BI policy with an indemnity period (coverage length) that realistically accounts for your downtime.
4. Inaccurate or incomplete records
BI claims may be based on your past financials and output, but calculated on future forecasting so incomplete records can drastically reduce payouts. Maintain accurate production logs, sales forecasts, and cost breakdowns, and back them up digitally.
5. Assuming all perils are covered
Standard BI policies may not cover losses from utility outages, cyberattacks, or civil authority actions (like a government-ordered shutdown). You may need to pay attention to coverage in order to understand gaps and develop strategies to plug them.
Best Practices for Manufacturers
Conduct a Manufacturing Risk Assessment
Identify critical equipment, single-source suppliers, and bottlenecks to help determine the right BI limits and necessary add-ons.Check if Machinery Breakdown cover is required
Ask your broker about the availability of cover under your BI (or separate equipment breakdown policy) for mechanical and electrical failures.Include Contingent Business Interruption (CBI)
If you're reliant on specific suppliers or contract manufacturers, ensure your policy includes CBI. Losses upstream or downstream can be just as damaging as issues in-house.Work with a Specialist Broker
Manufacturing risks are complex. Partner with a broker who understands industrial operations, production processes and models, and just-in-time supply chains.Review Coverage Annually
Your production volumes, suppliers, and exposure risks change. So should your insurance. Reassess your BI coverage every year.
Final Thoughts
Manufacturers can face unique, high-stakes risks when operations are interrupted.
Business interruption insurance isn't just a nice-to-have; it's a strategic tool to help protect cash flow, customer relationships, and long-term viability.
But for it to work, it must be properly structured, frequently reviewed, and tailored to your operations.
Don’t wait for a crisis to discover gaps in your coverage.
Contents of this publication are provided for general information only. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. Lockton arranges the insurance and is not the insurer. Any insurance cover is subject to the terms, conditions and exclusions of the policy. For full details refer to the specific policy wordings and/or Product Disclosure Statements available from Lockton on request.
