Ask a factory owner what their factory is worth and they might start with the building. Ask what keeps the business profitable, however, and the answer will probably be rather different.

It could be a specialist production line. A warehouse full of stock. A handful of skilled employees. Or a machine that turns raw materials into finished products faster than the competition.

The building houses the business. It doesn’t necessarily keep the business running.

That distinction matters when arranging factory insurance. A policy might cover the physical premises while leaving important gaps in machinery, stock, business interruption or liability. As a result, a business can appear well insured right up until it needs to make a claim.

For manufacturers, engineering firms, packaging companies, printers, woodworking businesses and metalworking operations, the real question is not simply whether the factory is insured. It is whether the cover reflects how the business actually works.

In this guide, we explain what factory insurance should consider, which common oversights can prove costly and how a practical review can help protect your operation.

Why factory insurance needs to cover more than the building

There is no single, standard factory insurance policy that suits every manufacturer. Instead, cover is usually assembled around the property, equipment, processes, stock and liabilities involved in running the business.

That is important because two factories can occupy similar buildings yet face very different risks. One might rely on relatively simple equipment, while another depends on specialist machinery that takes months to replace.

Similarly, a manufacturer holding modest stock throughout the year may face a very different exposure from a business that fills its warehouse ahead of a major seasonal order.

In other words, the right insurance starts with understanding the operation, not just measuring the building.

Cornerstone Insurance arranges factory and manufacturing cover for businesses across the East Midlands and nationally. This includes a range of industries, from electronics and domestic appliances to printing, packaging, engineering and metalworking.

Here are the main areas worth reviewing.

1. Buildings insurance: are you insured for the right amount?

Buildings insurance remains essential. However, the value used for insurance purposes is not necessarily the same as the property’s market value.

The important figure is generally the cost of rebuilding the premises following a major loss. This may include demolition, site clearance, professional fees and the cost of meeting current building regulations.

Consequently, insuring a factory for its purchase price or market value could leave a significant shortfall.

There is another issue to consider: underinsurance. If the building is insured for less than the amount required, an average clause may reduce a claim payment proportionately, depending on the policy terms.

That means the problem may not become apparent until the business needs financial help most.

A professional reinstatement valuation, reviewed periodically, can help keep the sum insured realistic. It is also worth reviewing the figure after substantial alterations or extensions.

2. Machinery, plant and business equipment

A factory building may be expensive to rebuild, but the machinery inside can be just as critical to the business.

Consider a CNC machine, specialist press or bespoke production line. Replacing it may involve more than buying another machine. There could be installation costs, specialist engineering, calibration and delays while the equipment is commissioned.

For that reason, contents and plant cover should reflect realistic replacement costs for machinery, tooling, fixtures and fittings.

It is also important to understand how the policy settles a claim. Some cover may provide a reinstatement or new-for-old basis, while other arrangements may deduct for wear and tear. The difference can be substantial when replacing expensive equipment.

Meanwhile, don’t overlook machinery that is leased or hired. The agreement may make your business responsible for damage or loss, even though you do not own the equipment.

A useful question to ask is: if the most valuable machine on the factory floor disappeared tomorrow, would the policy provide enough to replace it and get production moving again?

3. Machinery breakdown: when the machine fails by itself

There is a subtle but important difference between insuring machinery against external damage and insuring it against mechanical or electrical failure.

For example, a fire might damage a production line and trigger cover under the relevant property section. However, a motor that burns out or a machine that suddenly seizes may not be covered by standard contents insurance.

This is where machinery breakdown, sometimes called engineering cover, can be important.

It can provide protection against specified sudden mechanical or electrical failures, subject to the policy’s terms, conditions and exclusions.

For a factory dependent on a small number of critical machines, that distinction deserves attention. One failed component can interrupt an entire production process, even if the building itself is perfectly intact.

Depending on the equipment and operation, statutory inspection arrangements for items such as lifting equipment and pressure systems should also be reviewed.

4. Stock, raw materials and goods in transit

Stock has a habit of changing value. Unfortunately, insurance figures don’t always change with it.

A factory may hold raw materials, partly completed products and finished goods at different stages of the year. When a major order arrives or seasonal demand rises, the total value on site can increase considerably.

If the sum insured reflects a quieter month, there may be a gap when stock levels peak.

A declaration-linked arrangement may help businesses whose stock values fluctuate, although the appropriate solution depends on the policy and the nature of the stock.

It is also worth looking beyond the factory gates.

Once goods are being transported, separate goods in transit cover may be needed. Businesses using their own vehicles should also consider how their motor and fleet arrangements fit with the risks of moving goods.

After all, a finished product does not stop being valuable simply because it has left the warehouse.

5. Business interruption: the cost of not being able to trade

Of all the areas to consider, business interruption may be one of the easiest to underestimate.

Imagine a serious fire damages a production facility. The building is insured, and the machinery can eventually be replaced. However, production stops while repairs take place.

During that time, wages, rent and other expenses may continue. Orders may be delayed, customers may look elsewhere and income may fall.

Repairing the building is one challenge. Keeping the business financially alive while it happens is another.

Business interruption insurance can help protect against covered losses of income following insured damage, according to the policy terms. The sum insured and the indemnity period are therefore crucial.

The sum insured needs to be calculated on the correct basis, taking account of the policy’s definition of the relevant financial measure, such as gross profit. Simply using turnover without understanding the calculation can lead to an inadequate figure.

The indemnity period also matters. A year may sound generous until a specialist machine has to be sourced, delivered, installed and commissioned. Add building work and the time needed to restore customer relationships, and recovery can take longer than expected.

For some manufacturers, 24 or 36 months may be worth considering. The appropriate period depends on the operation, replacement lead times and the time it would realistically take to recover.

Finally, consider whether extensions for disruption involving key suppliers or customers, or denial of access to the premises, are available and appropriate.

The objective is simple: plan for the time recovery actually takes, rather than the time everyone hopes it will take.

6. Employers’ liability, public liability and product liability

Factories have risks that extend beyond buildings and machinery. People can be injured, property can be damaged and products can cause harm after leaving the site.

Three types of liability cover deserve particular attention.

Employers’ liability

Employers’ liability insurance is generally a legal requirement for businesses employing staff, subject to applicable exemptions. The statutory minimum cover is £5 million, although many policies provide £10 million as standard.

Check the requirements that apply to your business and ensure the policy reflects your workforce and activities.

Public liability

Public liability insurance can cover specified claims involving injury to third parties or damage to their property. This may be relevant when customers, contractors, suppliers or other visitors interact with your premises or operations.

The appropriate limit depends on the risk. Some customers and contracts may require a particular level of cover, so check contractual requirements as well as your own exposure.

Product liability

Product liability is particularly important for manufacturers. It can cover specified claims involving injury or property damage caused by products after they leave your premises.

This matters whether your business manufactures goods from scratch, assembles components or supplies products under another brand.

Exporting also changes the picture. Sales to the United States or Canada, for example, can introduce different liability exposures and should be declared to your insurer. Never assume that cover arranged for domestic sales automatically extends to every overseas market.

7. Environmental, cyber and other overlooked risks

Once the main areas are covered, it is worth considering the risks that can sit outside a standard package.

Environmental or pollution liability may be relevant where operations involve chemicals, dust, effluent or other substances that could cause contamination. Standard public liability insurance may not cover every pollution-related claim.

Cyber risk deserves attention too. Modern factories may depend on connected production lines, digital design files, automated systems and customer data. A cyber incident could affect both information and the ability to manufacture goods.

Neither environmental liability nor cyber insurance should be assumed to be included automatically. Check the wording and decide whether additional cover is appropriate for your operation.

Other sections, such as money, glass, theft and lock replacement, may also be relevant depending on the premises and policy.

The point is not to buy every available extra. It is to identify which risks could cause meaningful disruption or financial loss, then decide how best to manage them.

Common factory insurance mistakes to avoid

Many insurance gaps develop gradually. A factory expands, machinery is upgraded, stock levels rise and new contracts bring unfamiliar risks. Meanwhile, the insurance policy is renewed using last year’s information.

As a result, the paperwork may no longer describe the business that actually exists.

Here are some common issues to check:

• Incorrect building values: using market value rather than the cost of rebuilding.

• Outdated machinery values: failing to account for the current cost of replacement, installation or specialist equipment.

• Inadequate business interruption cover: using an unsuitable financial calculation or an indemnity period that is too short.

• Missing machinery breakdown cover: assuming that contents insurance includes mechanical and electrical failure.

• Stock underinsurance: overlooking seasonal peaks, large orders or work in progress.

• Gaps in product liability: failing to check cover for the products supplied and the countries where they are sold.

• Undisclosed changes in processes: not telling the insurer about changes involving heat, spraying, dust, solvents or other higher-hazard activities.

The solution is not simply to renew more carefully. It is to review the policy against the current operation and make sure material changes are disclosed.

Why a factory visit can make a difference

Most underinsurance is not intentional. It often happens because a business changes faster than its insurance arrangements.

A new production line is installed. A warehouse starts holding more stock. A manufacturing process changes. An overseas customer places a substantial order.

Each development can alter the risk.

A site visit gives an insurance broker an opportunity to understand how the factory operates, identify changes and ask questions that a form alone may not capture. It can also help clarify machinery values, stock arrangements, processes and the practical consequences of a major interruption.

That is why Cornerstone offers to visit clients’ premises where appropriate, rather than relying solely on information supplied remotely.

As an independent insurance broker based in Leicester, Cornerstone arranges factory and manufacturing insurance for businesses across the East Midlands and nationally. We work with recognised insurers, specialist markets and Lloyd’s brokers, including for some higher-hazard or more difficult-to-place risks.

Each client has a dedicated account executive who can review the cover against the operation and help with the claims process when needed.

Good insurance should not be judged only by the premium. It should also be judged by how well the policy responds when something goes wrong.

How Cornerstone can help with factory insurance

A useful factory insurance review begins with a straightforward question: what would happen to your business if a major part of the operation stopped tomorrow?

The answer helps identify where cover needs closer attention, from buildings and machinery to stock, liability and business interruption.

Cornerstone can review your existing arrangements or discuss cover for a new manufacturing operation. Where helpful, we can arrange a site visit to build a clearer picture of your premises, equipment and processes.

To discuss factory insurance, call 0116 3440 040 and ask for Tim Lee, or request a call-back through the Cornerstone Insurance website.

The aim is not to insure everything indiscriminately. It is to make sure the risks that matter to your business have been properly considered.

Because a factory is worth more than its walls. It is worth what it makes, the people who make it and the customers who rely on it.

Frequently asked questions about factory insurance

Is factory insurance a legal requirement in the UK?

Not every element of factory insurance is legally compulsory. Employers’ liability insurance is generally required if you employ staff, subject to exemptions. Other cover may be required by a lender, landlord or customer, depending on your circumstances and contracts.

What is the difference between contents insurance and machinery breakdown cover?

Contents or plant insurance generally covers specified events such as fire, theft or flood. Machinery breakdown cover can protect against specified sudden mechanical or electrical failures. The cover is different, so check whether both are appropriate for your equipment.

How long should business interruption insurance last?

The indemnity period should reflect how long it could realistically take to restore operations and recover financially after insured damage. Although some businesses choose 12 months, manufacturers relying on specialist machinery may need to consider a longer period, such as 24 or 36 months.

Do manufacturers need product liability insurance?

Manufacturers should carefully consider product liability cover if they make, assemble, rebrand or supply goods. It can protect against specified claims involving injury or property damage caused by products. The appropriate cover depends on the products, markets and policy terms.

Can Cornerstone insure high-hazard factories?

Cornerstone can explore options through specialist insurers and underwriting markets for some risks that standard insurers may decline. Acceptance depends on the specific processes, risk information and insurer requirements.

How much does factory insurance cost?

The premium depends on factors such as the type of manufacturing, building and machinery values, stock levels, claims history, risk management and cover required. A meaningful quote needs to reflect the actual operation rather than a generic factory description.

Request a factory insurance review

Is your current policy keeping pace with your business?

Contact Cornerstone Insurance on 0116 3440 040 and ask for Tim Lee, or request a call-back to discuss a factory insurance quote or review.

Where appropriate, we can arrange a visit to help ensure the cover reflects how your factory really works.