What Machine Shop Insurance Do I Need For My Business?

Operating one of the 17,000 machine shops in the U.S. comes with a unique set of risks—powerful equipment, sharp tools, and combustible materials all contribute to a higher-hazard environment where a single mistake can have serious consequences. That’s why having the right insurance coverage is critical to comply with legal requirements and protect your business from devastating financial losses.

From property damage to equipment breakdown, machine shop owners face a wide range of exposures that can instantly derail operations. And with today’s increased demand for precision manufacturing and faster turnaround times, the margin for error is smaller than ever. 

Proper insurance coverage helps safeguard your physical assets and workforce and provides peace of mind, allowing you to focus on production, growth, and meeting customer expectations.

The article below breaks down a mix of insurance coverage options your machine shop may need, with expert guidance from Mike Morse, senior commercial lines underwriting manager at Central Insurance.

Understand Your Machine Shop Insurance Risks

According to Morse, machine shop owners face several key risks daily. 

“Anything associated with your equipment, the machinery you use, and potential product issues can create liability concerns,” he explains. Even something as simple as a vendor slip-and-fall incident on the premises could lead to a general liability claim. 

Additionally, whenever heavy machinery is used, the risk of severity due to human error increases, thereby raising the likelihood of accidents that may result in costly Workers’ Compensation claims.

In addition to physical hazards, machine shop owners must consider product-related exposures. For example, if your shop manufactures a component that later fails, you could face significant legal and financial consequences. And when raw materials are delayed or damaged, production and profitability can grind to a halt.

Start with a Commercial Lines Package Policy for Machine Shops

According to Morse, a commercial lines package (CLP) policy is a great option for machine shops, offering the flexibility and coverage needed to address the unique risks of this higher-hazard industry.

A CLP can bundle many essential machine shop insurance coverages into one easy-to-manage package. Typically, CLP policies may include the following coverages:

• General Liability Insurance: Protects against third-party injuries and property damage. If a vendor is injured on-site or if a faulty product causes damage, general liability coverage can help cover legal fees and settlements.
• Products Coverage: Addresses liability risks stemming from the parts or components your shop manufactures. If a product you produce fails or causes harm, even if it’s just one part of a larger system, you could face serious legal and financial repercussions. Products coverage can help protect your business from these exposures.
• Commercial Property Insurance: Can cover buildings, contents, equipment, and raw materials on-premises used in your commercial operations. Morse recommends including business income coverage to protect against lost net income due to equipment breakdown or other covered physical losses to your property.
• Inland Marine Insurance: Can provide financial protection for mobile tools, equipment, and other unique property that may be excluded or only partially covered under Commercial Property Insurance.
• Commercial Auto Insurance: While most machine shops don’t operate a fleet of delivery vehicles, even a single company-owned truck or van used to transport parts, tools, or finished goods makes commercial auto insurance an important consideration.
• Umbrella Insurance: Offers extra liability coverage when other policies are exhausted, helping ensure that a serious injury, major property damage, or costly lawsuit doesn’t drain your business’s financial resources.

Workers’ Compensation: A Critical Component of Machine Shop Insurance

Morse explains that Workers’ Compensation coverage should be a cornerstone of machine shop insurance. 

“You could have someone trip over a wire or suffer a severe injury from equipment,” he notes. “These shops often involve lifting, repetitive motion, and exposure to powerful machinery—all of which can lead to serious injuries.”

In many cases, a machine shop’s most significant loss isn’t from damaged property, but from an employee injury. Workers’ Comp can cover medical bills and lost wages and ensure you meet your state’s legal requirements and avoid costly lawsuits.

Digging Deeper: While specific data on Workers’ Compensation claims exclusively for machine shops is limited, industry-wide statistics provide insight into the risks involved. For example, in 2019, the U.S. Bureau of Labor Statistics reported that machine shops experienced just over three injury incidents per 100 full-time workers. This rate underscores the importance of comprehensive insurance coverage to protect against potential liabilities and ensure the safety and well-being of employees.

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Loss Control Practices to Protect Against Workers’ Comp Claims

No insurance policy can fully replace a proactive safety culture in a machine shop setting to help mitigate the risk of injuries. Morse stresses the importance of regular safety meetings, employee handbooks, and detailed training protocols. “These shops require hands-on oversight and a deep understanding of the machinery. OSHA compliance, machine guarding, and emergency shutoffs are key loss control measures.”

At Central, our loss control experts specialize in helping manufacturing clients build safer workplaces and are here to assist with recommendations when you need it. Central’s hands-on approach can help businesses not only reduce claims but also build a culture of accountability and safety, protecting your team and your bottom line.

Equipment Breakdown Coverage: A Must-Have

Many Commercial Property policies exclude loss caused by mechanical breakdown, artificially generated electrical currents, and explosion of steam boilers and pipes. That’s why machine shop owners may want to carry a separate Equipment Breakdown policy as it could provide coverage for these types of losses.

“Machinery is critical to operations; if it goes down, production stops,” Morse explains. “This coverage can help cover costs for repair or replacement of vital equipment due to a covered loss, minimizing a business income loss.”

He goes on to explain that equipment breakdown coverage can include “physical loss to equipment from artificially generated electrical surges, motor burnout, and even boiler or pressure vessel explosions and internal covered accidents”—all of which may be common risks machine shop owners face.

Specialized Machine Shop Insurance Endorsements Worth Considering

Depending on your shop’s size and specialization, Morse recommends evaluating additional endorsements. Below, he outlines some of the top add-on coverage options to consider:

• Manufacturer’s Errors and Omissions (E&O): Helps protect against claims related to mistakes in manufacturing or design.
• Product Withdrawal Coverage: Helps cover costs associated with recalling a faulty product.
• Cyber Liability Insurance: If your shop stores customer data—even just contact information—a breach could be costly.
• Employment Practices Liability (EPL): Can help protect against claims related to wrongful termination, discrimination, or harassment.

The Importance of the Right Machine Shop Insurance Partner

Morse encourages machine shop owners to partner with an independent agent who understands the industry. 

Because many machine shops deal with high-value property and complex operations, being underinsured can lead to massive out-of-pocket losses. “It’s worth investing in adequate protection up front,” Morse expands, “so you’re not left vulnerable when a claim occurs.”

The Central Difference

When it comes to protecting machine shops, Central stands out for its deep industry knowledge, flexible policy options, and commitment to partnership. With nearly 150 years of experience, Central works closely with independent agents to craft customized commercial policies that meet the complex needs of machine shops. From coverage for precision tools and equipment to responsive claims handling, Central offers the reliability and support machine shop owners need to operate with confidence. Talk to your independent local Central agent about crafting a comprehensive machine shop insurance strategy tailored to your operation.