7 Policies Electrical Manufacturers Need To Protect Their Business
Electrical manufacturers operate in a complex landscape, balancing high-value equipment, intricate supply chains, and strict safety regulations. The right insurance coverage is critical to safeguarding operations and financial stability, from equipment breakdowns to liability risks.
To better understand the key risks electrical manufacturers face—and the coverages that help mitigate them—we sat down with Rachel Pinsonneault, commercial staff underwriter at Central Insurance. Read on to learn about key policies she identifies that all electrical manufacturers need and the benefits of working with an insurer who understands the industry’s risks and nuances.
Electrical Manufacturers: Key Risks
While many risks overlap with general manufacturing, electrical manufacturers face unique exposures tied to their materials, processes, and supply chain.
- High-Value Materials
Electrical manufacturers tend to work with rare, expensive metals like copper, gold, and palladium, essential for conductivity in electronic components. These materials are prone to theft or sourcing delays in the global supply chain which can halt production. - Product Liability
Electrical components are often integrated into complex systems, like industrial control panels, home appliances, and medical devices. A faulty wire or circuit board can cause the entire system to fail, damaging expensive equipment or creating safety issues. Electrical manufacturers can face costly litigation in these instances, even if the part was produced to spec. - Equipment Breakdown
Precision tools used to extrude wiring or assemble circuit boards are often custom-built and difficult to replace. If one machine goes down, production could halt, leading to delayed orders and lost contracts. - Cyber Threats
Electrical manufacturers frequently work with proprietary designs and specifications. They also conduct large wire transfers and maintain vendor and customer data. A phishing scam, ransomware attack, or data breach has the potential to compromise sensitive information and freeze operations. - Worker Safety
Electrical manufacturing works face a range of safety risks related to heat, electricity, and heavy machinery.
Essential Insurance Coverages for Electrical Manufacturers
Identifying risks is only the first step in safeguarding your business. Electrical manufacturers need a proactive risk management strategy—and proper coverage is critical. Key coverages include:
General liability covers claims related to bodily injury or property damage caused by business operations. Electrical manufacturers should also consider product liability, which provides protection if a component they produce fails and leads to damages or injury.
“In a highly litigious environment, businesses can’t assume they’re exempt from liability,” Pinsonneault says. “Even if they manufacture on behalf of another company, they need product liability coverage to protect against lawsuits.”
Example: In January 2023, a class action lawsuit was filed against Whele, LLC, the manufacturer of Mighty Bliss electric heating pads. The lawsuit alleged that design defects caused the heating pads to overheat, posing fire and burn risks.
“A major equipment loss can be devastating if a business isn’t adequately insured,” noted Pinsonneault. “Working closely with an experienced agent who understands the industry ensures manufacturers have the right coverages and limits in place.”
Manufacturers often house expensive equipment, raw materials, and inventory. Property insurance protects the cost of these assets against fire, theft, and other types of damage.
Example: A fire at an electrical manufacturing facility significantly damages expensive machinery and inventory. The downtime required for repairs leads to substantial income loss. Property insurance would cover repairing or replacing the damaged assets, while business income coverage can compensate for the lost net income during the interruption.
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Workers’ Compensation is essential for employees working around heavy machinery and high-voltage systems. It covers medical expenses and lost wages if an employee is injured on the job.
Pinsonneault also emphasizes the importance of proactive loss control, which helps manufacturers proactively identify and mitigate workplace hazards.
“Electrical manufacturers deal with high-value transactions and sensitive client data, which makes them prime targets for cybercriminals,” Pinsonneault cautions.
As cyberattacks become more sophisticated, electrical manufacturers must protect their businesses from data breaches and financial fraud. Cyber liability insurance helps cover the costs of responding to a breach, including legal fees, notification expenses, and system recovery.
- Product Recall
Electrical manufacturers often mass-produce components. If a defect is discovered, they could be responsible for recalling, repairing, or replacing thousands of units.
Example: In 2022, Schneider Electric recalled approximately 1.4 million electrical panels due to thermal burns and fire hazard risks. These panels, manufactured between February 2020 and January 2022, were installed in various settings, including homes and commercial establishments. The recall was initiated after identifying that the circuit breaker boxes could overheat, posing significant safety risks. Schneider Electric contacted all known purchasers to arrange free inspections and necessary replacements or repairs.
“A large-scale recall can be costly,” Pinsonneault explains. “While some manufacturers assume they won’t need recall insurance, it’s a critical coverage for businesses producing consumer-facing or widely distributed products.”
Manufacturer’s E&O coverage is designed to protect businesses against claims arising from financial losses due to design, engineering, or production errors. Unlike general liability insurance, which covers bodily injury or property damage, E&O insurance addresses situations where a product’s failure results in economic damages without physical harm. A minor oversight in design or production can lead to significant financial repercussions for clients, especially when components are integrated into larger systems. Such scenarios can result in clients seeking compensation for their losses, emphasizing the need for robust E&O coverage.
“Imagine a manufacturer produces a part that doesn’t meet the correct specifications, and the issue is caught before installation,” Pinsonneault explains. “Even though no physical damage occurred, the financial loss to the customer could be significant.”
Example: An electrical manufacturer produces a batch of control panels used in industrial HVAC systems. Due to a programming error in the firmware, the panels are incompatible with a customer’s automation software. The issue was discovered before installation, so there was no property damage, but the delay forced the client to halt a scheduled facility upgrade. They incur significant costs from project delays, rescheduling contractors, and sourcing an immediate replacement. Without E&O coverage, the manufacturer would be on the hook for those economic damages, legal costs, and settlement expenses.
- Manufacturer’s Plus
For manufacturers involved in installation, Manufacturer’s Plus coverage extends protection to materials in transit, equipment used for installation, and potential income loss if tools are damaged or stolen.
“This coverage is important for businesses that deliver and install their products at customer sites,” Pinsonneault says. “It ensures that the product and the necessary tools are covered.”
Proactive Prevention: The Importance of Loss Control
Proactive risk management plays a vital role in protecting employees and preventing claims. That’s where loss control services come in. Central offers dedicated loss control services to help our policyholders proactively manage risk, protect their employees, build a culture of accountability, and avoid costly setbacks.
From electrical hazards to equipment safety and fire prevention, our experienced Loss Control Team works closely with businesses to develop a customized program to prevent accidents and protect your people, property, and reputation. Partnering with an insurer experienced in loss control ensures expertise guides your risk management efforts.
Here are a few simple starter steps to enhance your site safety:
- Provide employees with proper personal protective equipment: Employees should have the right gloves, eyewear, and insulated tools and be trained on how to use them correctly.
- Maintain machine guards and lockout/tagout procedures: These reduce the risk of serious injury when working around energized equipment.
- Reinforce safe forklift operation: Only certified drivers should operate forklifts, and routine training should be in place to reduce collision or tip-over incidents.
- Designate a safety coordinator: Having someone responsible for tracking incidents and maintaining compliance helps keep safety a consistent priority, especially for larger operations.
- Invest in ongoing safety training and education: OSHA offers extensive training materials and guidelines on electrical safety, including:
The Central Difference
Electrical manufacturers operate in a high-risk environment where even minor disruptions can have significant financial consequences. Working with a knowledgeable insurance partner to find the right coverage is the best way for businesses to protect their operations, employees, and bottom line.
“As an underwriter, I see firsthand how important it is for electrical manufacturers to have the right protections in place before a loss happens,” Pinsonneault says. “Working with an agent who understands the industry—and an insurer who knows what they’re writing—can make all the difference in navigating risks and keeping business running smoothly should a loss occur. Experienced agents know what to ask for and understand the exposures. They can help businesses secure the right coverage while ensuring no critical gaps are unprotected.”
Find an agent to learn more about how Central can help protect your electrical manufacturing business.
The information above is of a general nature and your policy and coverages provided may differ from the examples provided. Please read your policy in its entirety to determine your actual coverage available.
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