Starting a Machine Shop? Here Are The Insurance Essentials

Machine shops power much of the U.S. manufacturing sector, turning raw materials into precision components for everything from aerospace to agriculture. While starting a machine shop may begin with a business plan and quality machinery, it also requires another foundational element: comprehensive insurance coverage.

Machine shop owners must address the various risks they face in their field, such as on-site injuries and equipment breakdowns that can stall operations or lead to costly liability claims. 

In this article, Thomas McMillan, commercial lines staff underwriter at Central Insurance, outlines some of the core insurance protections that can help machine shop owners mitigate risk and protect their investment from day one.

Understand the Risks Machine Shops Face

The first step in acquiring the right insurance for your machine shop is understanding what unique risks your business might face.

Alongside those mentioned above, McMillan outlines other common risks machine shops face:

• Employee injury due to lifting, repetitive motion, or machinery use
• Premises liability from vendor or visitor slip-and-fall accidents
• Product liability if a manufactured part fails after delivery
• Equipment damage from power surges or mechanical failure
• Fire and property loss from flammable materials or overheating equipment

Each of these exposures can create significant financial setbacks without proper coverage. McMillan emphasizes the importance of risk-informed insurance decisions when launching a machine shop.

Start with a Commercial Package Policy

McMillan recommends beginning with a commercial lines package (CLP) policy, a bundled insurance solution that combines many of the core coverages machine shops typically need.

A CLP policy may include:

Don’t Skip Workers’ Compensation Coverage

“In many cases, the largest losses machine shops experience aren’t from fire or theft—they’re from employee injuries,” McMillan shares.

Whether caused by equipment malfunction or improper handling, these incidents can result in high medical costs and wage replacement needs. Workers’ Compensation insurance helps offset those expenses while meeting legal requirements in most states. 

McMillan also stresses the importance of preventive safety measures: “OSHA compliance, machine guarding, and emergency shutoff systems are all vital to mitigating workplace injury.”

Tip: View OSHA’s Machine Guarding Guidelines for worker protection best practices.

Equipment Breakdown Coverage Can Save Your Bottom Line

Many property policies don’t cover some common risks in machine shop operations, such as mechanical failure or power surges. “Your whole production line can halt if a single critical machine breaks down,” McMillan warns.

That’s where equipment breakdown insurance comes in. This policy can help cover repair or replacement costs and reduce downtime due to covered equipment accidents. If your control panels, lathes, or milling machines sustain a covered accident, for example, this insurance policy can help when equipment loss threatens the success of your new shop. 

Additional Policies Worth Considering

Depending on your shop’s intended size, output, and client base, McMillan outlines several additional policies that may be important:

Optional Endorsements:

• Manufacturer’s Errors and Omissions (E&O) covers professional mistakes resulting from product failure or error in a multi-stage manufacturing process. This policy can protect your business from resulting financial loss due to defects.  

• Product withdrawal coverage can assist with the cost of recalls. Manufacturers should evaluate their exposure to product withdrawal when considering this option.
• Cyber liability insurance is essential if a business stores client or product data. Manufacturers can sometimes become easy targets for cyber attacks. In addition to insurance protection, companies can take additional measures to protect their business from cyber threats.
• Employment practices liability helps with HR-related claims such as discrimination, harassment, or wrongful termination. Runaway juries can drive up awarded amounts in court, which can be detrimental to small and medium-sized businesses.

Keep in mind, a knowledgeable insurance agent will have the necessary experience to guide you through choosing the tailored insurance policies you need for your business model.

Partnering with the Right Carrier Matters

For McMillan, he can’t overstate the value of working with knowledgeable underwriters . “A machine shop has complex risks. Owners need someone who understands what they do,” he says.

The Central Difference

Central Insurance brings nearly 150 years of experience supporting clients across high-risk industries, including machine shops. With dedicated insurance underwriters, responsive claims teams, and a people-first mindset, Central helps machine shop owners starting their businesses navigate risks and build a strong foundation for long-term success.

Whether you’re launching your first CNC operation or expanding your precision tooling capabilities, Central can help protect your investment with coverage designed for your industry.

Reach out to your local independent Central agent to learn more.