Contents insurance for manufacturing and production businesses: What companies need to cover
Manufacturing companies often have particularly high asset values. Raw materials, semi-finished goods, finished products, and expensive machinery are all housed under one roof. A fire, water damage from pipes, or a burglary can bring production to a standstill for weeks. This guide explains what contents insurance covers and when you additionally need machinery insurance.
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- Contents insurance protects raw materials, semi-finished goods, finished products, as well as business and office equipment against the most important insured property risks.
- Production machines are only protected against these standard risks via contents insurance. Damage caused by operating errors, short circuits, or technical failure belongs in a machinery insurance policy.
- For manufacturing companies, business interruption insurance is often more economically critical than pure property damage coverage.
- You must explicitly include third-party property, such as customer raw materials or contract manufacturing goods, in your policy.
What is covered in manufacturing companies?
Contents insurance for production and manufacturing businesses protects inventory, goods, and business equipment against typical insured property risks.
Insured contents typically include:
- Raw materials, semi-finished goods, and finished products
- Tools, fixtures, and measuring equipment
- Business and office equipment
- Office equipment and IT
- Machinery and technical equipment within the scope of the agreed standard risks
- Third-party property, provided it has been explicitly included in the coverage
Contents insurance only protects production machinery against agreed-upon external property risks. Damage caused by operating errors, material breakage, short circuits, or technical failure, however, falls under machinery insurance.
The sum insured must reflect the current replacement value of the business assets, not the book or current market value. Review it at least once a year, and more frequently if there are significant fluctuations in raw material prices or major investments.
Our consulting experience shows that many manufacturing companies assume their machines are fully protected by their contents insurance. The coverage gap often only becomes apparent after an operating error, short circuit, or technical defect occurs.
Do you know if your machinery is fully covered?
→ Have your insurance coverage for machinery and equipment reviewed
What are the specific risks for manufacturing companies?
Due to high asset values, technical equipment, and potential production downtime, manufacturing companies have a more complex risk profile than many office-based or retail businesses.
High insured sums
The total value of raw materials, intermediate products, finished goods, machinery, and operating equipment can quickly reach six or seven figures. If the insured sum is set too low, it will lead to a proportional reduction in the event of a claim.
Increased fire risk
Production processes involving heat, dust, solvents, or flammable materials increase the risk of fire. Insurers may therefore tie coverage to specific fire protection measures. These include, for example:
- sprinkler systems
- fire compartments and fire walls
- fire and smoke alarm systems
- regular inspections of electrical systems
- documented maintenance and cleaning intervals
If a business violates agreed security requirements, the insurer may reduce its payout depending on the individual case.
Good to know: The security precautions required vary significantly depending on the insurer, industry, and individual business risk. The specialized insurance brokers at VersicherungsEngel therefore compare not only premiums and benefits but also the respective security requirements. This allows us to find an insurer whose requirements fit your business and cause as little additional effort as possible.
Third-party property
Contract manufacturing businesses often process raw materials, components, or goods belonging to their customers. Standard coverage does not automatically include this third-party property.
Important: If you process or store customer material, the contract must take into account the maximum possible value of these stocks.
Production downtime
Property damage to a central machine or in the production hall can interrupt the entire manufacturing process. Revenue is lost while wages, rent, financing installments, and other fixed costs continue to accrue.
Business interruption insurance covers these economic consequences if a property risk insured under the contract shuts down operations. A sufficiently high insurance sum and an indemnity period that also covers longer replacement and repair times are crucial.
Fluctuating inventory
Raw material prices, seasonal production, and large individual orders can significantly change the value of goods. The insurance sum must reflect the potential peak inventory, not just an average stock value.
In our consulting work, we regularly see that manufacturing companies do not adjust their insurance sums for years. New machinery, rising raw material prices, and investments often significantly increase the actual value of business assets. In the event of a claim, it then becomes apparent that there is underinsurance and the insurer only covers the loss proportionally.
A high-performance policy should also include a waiver of underinsurance. Under certain conditions, this can prevent the insurer from proportionally reducing compensation due to an insurance sum that was set too low. It is crucial that the insurance value was determined completely and correctly at the time the contract was concluded.
- actual value of business assets: 500,000 euros
- agreed sum insured: 400,000 euros
- fire damage: 100,000 euros
- potential compensation: 80,000 euros
The business is only insured for 80 percent. Therefore, the insurer only covers 80 percent of the loss. The remaining 20,000 euros must be borne by the business itself.
In a fire documented by the German Insurance Association (GDV) at a production and storage facility in a metalworking plant, business interruption accounted for around 60 percent of the total loss of 200 million euros. "Business interruptions often cause higher costs than the damage to the building or inventory itself," says Peter Meier, Chairman of the Commercial/Industrial Clients Committee at the GDV. This is precisely why a sufficiently dimensioned business interruption insurance policy is one of the most important components for manufacturing companies.
Is your insurance coverage sufficient if production comes to a standstill for several weeks?
→ Have your business interruption insurance reviewed
Contents insurance or machinery insurance: What covers what?
Contents insurance protects machinery against external hazards. Machinery insurance, on the other hand, covers unforeseen internal operational damage and operator errors.
Contents insurance typically covers:
- Fire
- burglary
- tap water
- storm and hail
Depending on the policy, machinery insurance covers, among other things:
- operator error and clumsiness
- short circuit and overvoltage
- material defects and breakage
- technical failure
If a production hall burns down, contents insurance covers the insured damage to the machines. If an employee causes a defect in the same machine due to an operating error, machinery insurance is generally responsible.
Machinery insurance complements contents insurance; it does not replace it. For manufacturing companies with high-value equipment, a combination of both policies is therefore often advisable.
Which additional modules or policy features are useful for manufacturing companies?
Business interruption and machinery insurance are among the most important additions for many manufacturing companies. Further modules depend on the facilities, location, and operational processes.
Especially important for many manufacturing companies:
- Business interruption insurance: Replaces lost profit and ongoing costs if an insured property risk interrupts production.
- Machinery insurance: Protects production machinery against unforeseen damage such as operator error, short circuits, breakage, or technical failure.
Useful depending on the business:
- Electronics insurance: Protects electronic control, information, and communication technology. For CNC systems and complex control systems, the distinction from machinery insurance must be clearly defined.
- Natural hazard coverage: Depending on the policy, this covers flooding, sewer backup, earthquakes, landslides, snow load, or other natural hazards.
- Off-premises insurance: Protects tools, equipment, and certain goods outside the insured premises, for example at construction sites or during external operations.
- Extended coverage for third-party property: Important for contract manufacturers and businesses that process or store customer materials.
Important policy features:
Pay attention not only to the right add-ons but also to the insurance terms and conditions. A waiver of underinsurance, a sufficiently long indemnity period for business interruption insurance, and the inclusion of gross negligence can be decisive in the event of a claim. Also, check which safety requirements apply to fire protection, electrical systems, and maintenance intervals. If these obligations are not met, the insurer may reduce your benefits.
Frequently asked questions about contents insurance for production and the manufacturing industry
Are rented or leased machines covered by contents insurance?
That depends on the contract and the type of leasing or rental agreement. Some contents insurance policies include leased or other third-party machinery under certain conditions. Therefore, check who owns the machine, what its value is, and whether it is listed as an insured item in the contract. Additionally, machinery insurance may be required for technical damage.
Does insurance pay for theft by your own employees?
Standard contents insurance generally does not cover theft by your own employees under burglary protection. For financial losses resulting from theft, embezzlement, fraud, or breach of trust by employees, a fidelity insurance policy is the appropriate solution.
What happens in the event of a dust explosion in production?
Explosion damage is generally covered under the fire hazards included in contents insurance. Whether a specific loss caused by a dust explosion is covered depends on the agreed insurance terms. Manufacturing companies dealing with explosive dust must also comply with legal and contractually agreed protective measures. Non-compliance can, under certain circumstances, affect insurance benefits.
Is an indemnity period of twelve months sufficient for a manufacturing company?
Not always. The appropriate indemnity period depends on how long it would take in a worst-case scenario to restore buildings, machinery, and production capacity. For specialized machinery with long lead times, twelve months may be too short. Therefore, check not only the sum insured but also realistic replacement, installation, and restart times.
Conclusion: Coordinating contents, machinery, and business interruption coverage
Manufacturing companies usually need more than just basic contents insurance. High asset values, technical equipment, and potential production downtime often require a combination of contents insurance, machinery insurance, and business interruption insurance.
You can find more details on services, exclusions, costs, and useful add-on modules in our guide to commercial contents insurance.
The specialized insurance brokers at VersicherungsEngel compare insurers to find the provider whose services, terms, and security requirements match your manufacturing business. They don't just support you during the sign-up process: they provide transparent guidance on the obligations, deadlines, mandatory inspections, and maintenance intervals you need to follow. This helps you keep track of your contractual duties and reduces the risk of benefit reductions in the event of a claim.
Have the specialized insurance brokers at VersicherungsEngel check whether your manufacturing business is optimally protected.
→ Request a consultation on contents insurance for manufacturing companies now
About the author:
Dennis Leiendecker is Head of Sales at VersicherungsEngel and specializes in coverage for small and medium-sized enterprises. He holds a Bachelor of Arts in Business Administration with a focus on insurance and possesses many years of practical experience in the field of commercial insurance.
His career began at an insurance brokerage specializing in corporate clients, where he spent over three years supporting companies in various industries and personally acquiring and advising more than 500 corporate clients. Additionally, he was involved in building a specialized insurance brokerage for professional athletes and clubs.
Today, Dennis is responsible for sales at VersicherungsEngel. Together with his team, he coordinates up to 100 inquiries daily from companies across a wide range of industries. In doing so, he assesses the individual risks of the firms and decides which specialized commercial insurance broker and which insurance company are best suited for the respective insurance needs. Through this daily work, he gains insights into a multitude of industries, risk profiles, and insurance solutions.
His expert articles combine scientific principles with extensive practical experience. The goal is to make complex insurance topics easy to understand and to provide entrepreneurs with sound guidance for important coverage decisions.