Business insurance needs for manufacturers

Manufacturing represents more than 10% of the U.S. economy, or $2.9 trillion, according to the National Association of Manufacturers, and is expected to continue to grow.  

Cutting edge technology, including artificial intelligence, is bringing significant advancements to factories and small businesses that participate in the manufacturing industry. 

With opportunity comes risk. Your small business may be able to control some risk, but not all. That’s why business insurance for manufacturers is so important: it can help keep your business afloat when the unexpected happens. 

This information is for educational and illustrative purposes only. For questions about your specific insurance needs and coverage, consult a licensed insurance agent and/or insurance provider. 

What Types of Insurance Does a Manufacturing Company Need?

For a manufacturing company, the right insurance is crucial to protect against unexpected events. Key types of business insurance coverage include:

Property insurance

This insurance is essential to cover damage to your buildings, equipment, and inventory.

Liability insurance 

Protects against claims if your products or operations cause harm.

Workers’ compensation

Covers employees’ medical expenses and lost wages if they’re injured on the job.

Commercial auto insurance

Most manufacturer’s will use commercial vehicles of some type. It’s very important to make sure your business vehicles and employees are covered with commercial auto insurance and/or commercial truck insurance. This is a separate policy.

What Specific Risks Are Covered Under a Manufacturer’s Insurance Policy?

Here are the risks manufacturer’s insurance policies can cover:

Business interruption insurance

This type of insurance helps reduce financial loss if your operations are halted due to a covered event. Coverage may include:

Lost Income:  If a fire, natural disaster, or other covered event forces your manufacturing facility to shut down temporarily, business interruption insurance can provide compensation for business income you lose during that time. 

Operating expenses: Expenses like rent, utilities, and salaries for key employees don’t just stop if your business is shut down. Business interruption insurance can help cover these fixed costs until your business is up and running again. 

Supply chain interruptions: Some policies may also cover losses resulting from disruptions in your supply chain, such as a key supplier being unable to deliver materials due to a covered event.

Temporary relocation: What happens if you need to relocate while your facility is being repaired? This coverage can help with those costs. 

Other expenses: Depending on the coverage options you choose, you may get reimbursed for additional costs your business incurs to keep your business running after a covered event. These could include expenses like expedited shipping for replacement machinery or overtime for employees to catch up with outstanding orders.

Business owners policy (BOP) 

This type of coverage packages  property damage, general liability insurance, and business interruption insurance in a single policy. It may be cheaper than individual policies.

Commercial property insurance

Most manufacturing businesses have business property that must be insured. This type of coverage may include: 

Buildings and structures: Whether it’s a fire, tornado, flood or vandalism, this insurance is essential to cover damage to your factory, warehouses, or other structures.

Equipment and machinery: If your machinery or equipment is damaged in a covered event, this insurance can prove invaluable. Equipment breakdown is another coverage to consider.

Inventory: Protects against loss or damage to your raw materials, work-in-progress, and finished goods.

Business personal property: Your business probably has non-manufacturing-related property such as computer equipment or office supplies that you may want to protect.

Furniture and fixtures: This coverage extends to office furniture, fixtures, and other property that is not directly involved in manufacturing. 

Cyber liability insurance

Many manufacturers today rely heavily on technology in the manufacturing and/or fulfillment process. A cyber attack can shut down their business. A business considering manufacturing business insurance should also consider cyber liability insurance when getting an insurance quote. (This may be a separate policy.) 

It may cover data breach notification costs, cyber extortion, business interruption due to the threat or attack, forensic investigation, data restoration and network security liability. 

Employee injuries 

Workers’ compensation insurance is essential in case an employee gets ill or injured while on the job. In many cases it is required under state law. 

Product liability insurance

This insurance is crucial if someone claims your product has caused injury or damage. We’ll discuss it in more detail shortly. 

Product recall insurance

Product recalls are expensive, and can often sink a small business. There is the cost of notifying customers and the public, replacing products, destroying existing inventory, PR expenses to restore the company’s reputation, defending against lawsuits or threats of lawsuits, increased customer service costs and more. This coverage can help with those costs, depending on your specific coverage. 

How Does Product Liability Insurance Protect a Manufacturer?

Product liability insurance is crucial for manufacturers. It can provide coverage for:

Legal defense costs

If a lawsuit is filed against you alleging that your product caused injury, damage, or loss, product liability insurance can cover the legal fees and expenses associated with defending your company.

Settlements and judgments 

If your company is found liable for damages, product liability insurance can help pay the settlements or judgments awarded to the claimant, up to the policy limits.

Product recalls

As mentioned earlier, some policies may also cover expenses related to recalling a faulty product from the market, although this coverage might be an additional option or separate policy.

Reputation management 

In the event of a product-related issue, some policies may provide support for public relations efforts to manage and mitigate damage to your company’s reputation. Again, this might be part of product recall coverage. 

What Does Business Insurance Cost for a Manufacturer?

Manufacturing insurance costs will vary widely based on a variety of factors, including:

Size of the business

Larger manufacturing operations with more employees and higher revenue will typically pay more for insurance.

Type of manufacturing

The nature of the products being manufactured can significantly impact insurance costs. High-risk products, such as chemicals or heavy machinery, will generally result in higher premiums. Children’s products or consumables also carry additional risk. 

Location

The geographic location of the manufacturing facility can affect insurance costs. If your factory or facility is based in an area of the country that is prone to natural disasters, or one with higher crime rates, you’ll usually pay higher premiums. 

Coverage limits 

The amount of coverage you choose will directly impact your premiums. Higher coverage limits provide more protection but come at a higher cost. 

Deductibles

Opting for a higher deductible can lower your premium costs, but it means you’ll pay more out-of-pocket in the event of a claim.

Safety Measures 

Implementing safety protocols and equipment can reduce the risk of accidents and injuries, potentially leading to lower insurance costs.

You’ll need to balance risk versus cost to determine what’s right for your business. Talk to an insurance agent or insurance company to get a quote based on your business needs.

While it may be tempting to skimp on coverage, especially early in your business or when cash flow is tight, you don’t want to risk going out of business in the event of a disaster.

In addition to insurance, consider what other resources your business has available if the worst happens. Can you tap a business line of credit or even a low-rate business credit card in the event of a fairly minor incident? Does your business qualify for a small business loan that you can use if needed. (Also consider how you’d make any small business loan payments if you were forced to temporarily shut down. Failing to make your payments on time can significantly hurt your business credit scores.) 

Are There Specialized Insurance Options for Small Manufacturing Businesses?

Yes, small businesses in the manufacturing industry often need several of the types of coverage listed earlier, but can often benefit from getting a specialized quote that makes sure their business is protected.

What Types of Manufacturing Companies Need Insurance?

A wide variety of types of businesses in the manufacturing industry need insurance, including the following:

• Air conditioning and heating equipment
• Appliances and accessories
• Auto parts 
• Aviation industry
• Bakeries – commercial and retail
• Bakery products 
• Beverage 
• Bottle and jar 
• Breweries and craft 
• Cabinets
• Chemicals
• Clothing
• Communications equipment
• Computer equipment
• Dairy processors
• Drinks, soda, and water
• Defense and federal government contractors
• Electrical components and electronic accessories
• Eyeglass lenses
• Fabricated metal 
• Fabricated structural metal
• Food and beverage, and food products
• Furniture and fixtures
• Glass products
• Instruments
• Lumber and wood products
• Machine shops, machine tools and machinery
• Metal, metal good and metal products
• Paper and allied products
• Paper products
• Plastics, plastic goods and plastic products 
• Printers and publishers
• Printing and publishing
• Produce packing and processing
• Sign manufacturers
• Textile and fabric manufacturers and finishing mills
• Wood and wood product manufacturers

Nav’s Verdict: Insurance for Manufacturing Businesses 

Business insurance provides more than just peace of mind for manufacturing businesses. It can be the difference between staying in business or going out of business if something goes wrong. 

Explore your insurance needs with a reputable insurance company or independent agent to find the right coverage for your business.