Running a manufacturing company is never easy. There is no room to make mistakes between managing production schedules, supply chains, workforce, and expensive equipment. One fire, machinery failure, or accident involving an employee can interrupt the work process and cause costly financial damages. And this is where the right insurance cover comes in- not as an outlay, but as a cover that cushions your business against unexpected risks.
In the current competitive business environment, manufacturing companies in India can not afford to operate without proper insurance cover. Whether you are a small manufacturing unit or a big factory, the appropriate combination of insurance policies guarantees continuity of your business and peace of mind.
Here, we will discuss the top six categories of insurance every manufacturing company should have in place to protect its assets, employees and long term profitability.
1. Fire and Property Insurance: Protecting the Backbone of Your Business Operations
All manufacturing companies work in an environment that contains valuable resources, tools and equipment, such as machinery, raw materials, finished products, electrical and other systems, etc. Such assets are exposed to the risks of fire, explosion, lightning, short-circuits, and even natural disasters, like floods or earthquakes.
A Fire and Property Insurance policy protects your business premises and everything inside it against such perils. It reimburses the expenses of restoration or repair of damaged property, substitution of destroyed goods, and restoration of operations.
Why it is important for manufacturing businesses:
- Fire hazards are common because manufacturing facilities commonly keep flammable substances.
- Even one fire can destroy years of investment in a few seconds.
- Property insurance can ensure prompt recovery and less downtime.
Example:
In 2023, a chemical processing plant in Gujarat experienced a significant fire incident, which made the plant lose more than ₹15 crore. Those manufacturing units that had comprehensive fire insurance policies were able to resume business within weeks whereas uninsured businesses took months to repair their facilities.
Please Note: It is always recommended to choose an insurance policy that includes both the fixed assets (such as machinery and buildings), and the current assets (such as stock and raw materials).
2. Machinery Breakdown Insurance: Safeguarding Expensive Machinery & Equipment
Machinery is the lifeblood of any manufacturing operation. When key equipment fails, it may lead to production halts, missed deadlines and lowering of profits. This is where Machinery Breakdown Insurance would play a critical role.
This policy includes the cost of fixing or replacing damaged machinery caused by unforeseen events – electrical or mechanical failure, short-circuit, operator error, or malfunctioning parts. This insurance covers your equipment regardless of the type of equipment you have, be it a boiler, compressor, generator or production line machinery.
Why it is important for manufacturing businesses:
- Protects against costly machinery repairs or replacements.
- Minimizes operational disruption caused by sudden equipment failure.
- Offers peace of mind, especially for high-value, precision-based machinery.
Example:
A textile factory in Tiruppur faced a critical loss when a dyeing machine malfunctioned, leading to production delays worth ₹50 lakh. The plant’s machinery breakdown cover helped cover repair expenses and resume production swiftly.
Please Note: Combine machinery breakdown insurance with a maintenance plan to reduce risk exposure and claim frequency.
3. Machinery Loss of Profit Insurance: Ensuring Continuity After Machinery Downtime
Even if your damaged machinery is insured, what happens to the income lost during downtime? That’s where Machinery Loss of Profit (MLOP) Insurance comes in. This policy complements your machinery breakdown cover by compensating for the loss of income and increased expenses during production interruption.
When machinery breaks down, it’s not just repair costs that hurt — it’s the halt in manufacturing, missed contracts, idle workers, and operational overheads that follow. MLOP insurance bridges that gap, helping businesses stay financially stable even when operations stop temporarily.
What it covers:
- Loss of gross profit due to reduced output or downtime.
- Fixed overheads like rent, salaries, and interest payments.
- Additional expenses incurred to resume operations faster.
Why it is important for manufacturing businesses:
Manufacturing plants often run on tight schedules, and delays can have a domino effect on supply chains. MLOP insurance ensures your business doesn’t bleed cash while waiting for machinery repairs.
Example:
A packaging unit in Pune faced a 20-day shutdown due to a machinery breakdown. While the repair cost was covered under machinery breakdown insurance, the business lost ₹30 lakh in profit. MLOP insurance helped recover that loss and maintain financial stability.
4. Product Liability Insurance: Shielding Against Defective Product Claims
If your business manufactures or supplies goods, there’s always a risk that a defective product might cause harm to a customer or property. The result? Legal claims, compensation costs, and reputation damage. Product Liability Insurance safeguards you against such risks.
This policy covers legal liabilities arising from third-party injury, illness, or property damage caused by a product you manufactured, sold, or distributed. It also includes defense costs and settlements.
Why it is important for manufacturing businesses:
- Protects against costly lawsuits due to manufacturing defects.
- Covers compensation and legal defense costs.
- Helps maintain brand trust and business reputation.
Example:
An automotive parts manufacturer was sued after a faulty brake component led to multiple vehicle failures. The company’s product liability cover absorbed the legal expenses and compensation payouts, saving the business from financial distress.
Please Note: In today’s regulatory environment, product safety compliance alone is not enough. Product liability insurance adds an extra layer of protection for unforeseen issues.
5. Workmen Compensation Insurance: Securing Your Workforce
Employees are the backbone of your manufacturing operations. Unfortunately, factory environments often expose them to risks such as injuries, accidents, or occupational diseases. Workmen Compensation Insurance ensures that workers and their families are financially supported in such events.
This insurance policy, governed by the Workmen Compensation Act, 1923, covers compensation for death, permanent disability, partial disability, and medical expenses arising from workplace accidents.
Why it is important for manufacturing businesses:
- Complies with statutory requirements in India.
- Protects both employer and employee interests.
- Reduces legal exposure and enhances employee morale.
Example:
A worker in an engineering workshop experienced a serious injury to his hand when working with a lathe machine. Workmen compensation policy offered by the employer covered medical costs and disability compensation, thus preventing a potential legal battle.
Please Note: Combine workmen’s compensation insurance with an effective safety program and training of the workers to reduce the possibility of accidents at the workplace.
6. Marine Cargo Insurance: Protecting Your Goods in Transit
Logistics play a vital role in manufacturing companies, as goods have to be transported to the vendors and finished products to customers. In such movements, the goods are at risk of theft, accidents, fire, or natural disasters. Marine Cargo Insurance, insures products in transit, be it by road, rail, air, or sea.
This is an insurance policy that covers damage or loss of goods during transportation within India or abroad. It provides financial security to your supply chain even in cases of unforeseen circumstances.
Why it is important for manufacturing businesses:
- Covers against loss or damage of goods in transit.
- Covers perils such as theft, accidents and natural disasters.
- Ensures uninterrupted supply chain and delivery commitments.
Example:
A manufacturer of machinery parts based in Mumbai lost a complete shipment because of an accident involving one of his trucks during transportation to Chennai. The company had a marine cargo policy, which compensated the losses, avoiding a financial setback.
Please Note: Never forget to make sure that your insurance covers all transport options and has a “door-to-door” protection , for complete peace of mind.
Importance of Having the Right ‘Insurance Mix’
Different manufacturing ventures have distinct risk profiles based on their operations, products and size. A small textile plant and a heavy engineering plant do not have the same risk profile. Therefore, a universal method of insurance cannot work out.
By combining the essential insurance covers discussed above-you can create a robust safety net for your manufacturing business. Together, they can provide safety to your assets, human resources, production, and business continuity.
Periodically re-examine and revise your insurance policies as your business grows, equipment is modernized, or the manufacturing capacity varies. Remaining underinsured is no less dangerous than remaining uninsured.
Final Thoughts
Insurance is not merely a regulating requirement anymore. Rather, it’s an important shield to business continuity. In the case of manufacturing companies, where stakes are high, and risks are also abundant, the correct mix of insurance will mean the difference between a temporary setback and permanent closure of business operations.
With the right mix of the 6 key insurance covers discussed above, you can guarantee that your business remains stable during disruptions, your workforce is safeguarded, and you are able to be profitable over time. Keep in mind, preparation is power in manufacturing and insurance is the ultimate form of preparation.
In case you are not aware of which policies would best suit your business needs, seek the advice of seasoned insurance advisors who have the knowledge of the current manufacturing ecosystem. The right advice can ensure you maximize coverage and expenses – to ensure that your business remains robust, stable, and prepared.
At BimaKavach, we provide reliable and customizable insurance solutions designed to safeguard your business from unexpected financial setbacks. We thrive in meeting the unique needs of businesses at every stage and empowering them with unwavering support. We will help you obtain the right, yet the most comprehensive coverage and absolute peace of mind- so that you can focus more on growth, while these policies handle the risks unique to your business.
