Reengineering Risk: A Strategic Insurance Guide for Australian Engineering Firms

These are the foundational insurance policies every engineering firm should have. They provide essential coverage for core business activities, contractual obligations, and liability risks.

1. Contract Works Insurance (CAR/EAR)

Essential for any firm involved in construction, installation, or infrastructure development. This policy covers physical loss or damage to works in progress, including to materials and equipment. 

Why Your Business Needs Contract Works Insurance:

• Covers physical loss or damage to construction projects during the build phase
• Includes materials, plant, and temporary structures on-site
• Protects against events like fire, theft, natural disasters, and vandalism
• Often required by contracts on public infrastructure and large-scale private builds

Learn more about Contract Works Insurance

2. Professional Indemnity (PI) Insurance

Covers firms against claims arising from errors, omissions, or negligence in professional services. Given the complexity of engineering projects, PI insurance is vital to safeguard against potential legal and financial repercussions.

Why Your Business Needs Professional Indemnity Insurance:

• Provides cover for design flaws, miscalculations, or failure to meet professional standards
• Responds to third-party claims for financial loss due to negligent advice or services
• Includes legal defence costs even when allegations are unfounded
• Essential for consultants, project managers, and designers in engineering fields

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3. Public and Products Liability Insurance

Protects engineering firms from legal liabilities for third-party injury or property damage caused by your business activities or products. This is crucial for engineering firms operating in public spaces or supplying products to clients.

Why Your Business Needs Public and Products Liability Insurance:

• Covers injury to third parties or damage to property caused by your business
• Includes incidents at your business premises, on a worksite, a client site, or caused by delivered products
• May cover legal costs and compensation payouts
• Vital for engineers visiting sites or supplying custom components

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4. Workers’ Compensation Insurance

Mandated by law in every Australian state and territory, Workers’ Compensation covers your employees in the event of work-related injury or illness. In engineering, where employees may be exposed to site hazards, machinery, or fieldwork, this policy is critical. It typically includes compensation for lost wages, and medical and rehabilitation costs. Companies that fail to implement and maintain this coverage may face steep penalties and liability exposures. 

Why your Business Needs Workers’ Compensation Insurance: 

• Required by Australian law
• Covers medical treatment, wage replacement, and cost of rehab
• Vital for engineers working in high-risk environments

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Beyond the essentials, certain policies offer additional peace of mind and financial protection. These options are especially valuable for firms operating complex or high-value projects.

1. Cyber Liability Insurance

With the increasing digitisation of engineering processes, cyber threats are a growing concern. In FY2023-24, over 11% of cybersecurity incidents in Australia involved critical infrastructure sectors.

Why Your Business Can Use Cyber Liability Insurance:

• Protects against costs from ransomware, phishing, or malware attacks
• Covers data recovery, legal obligations, and crisis communication
• Important as engineering files (e.g., CAD, schematics) are increasingly digitised
• Often required for tenders involving sensitive infrastructure

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2. Business Interruption Insurance

An increasingly critical coverage, Business Interruption Insurance guards companies against loss of income due to unforeseen events that disrupt business operations. This coverage is especially important for engineering firms reliant on continuous project timelines and supply chains.

Why Your Business Can Use Business Interruption Insurance:

• Covers lost revenue due to unexpected business shutdowns
• May cover relocation costs, rent, and fixed operating expenses
• Triggered by insured events such as fire, storm, or prevention of access to your property from an insured eventin the vicinity.
• Essential for firms with fixed project timelines and contractual milestones

Learn about Business Interruption Insurance

3. Machinery Breakdown Insurance

Covers repair and replacement costs of core machinery and equipment due to sudden and unforeseen breakdowns. This is vital for maintaining operational stability in engineering firms.

Why Your Business Can Use Machinery Breakdown Insurance:

• Covers repair or replacement costs of critical engineering equipment
• Includes motors, pumps, generators, compressors, and production machinery
• Applies to owned, rented, or leased equipment
• Helps reduce project delays due to equipment failure

As we noted earlier, insurance is one piece of a strong risk strategy. Forward-thinking engineering firms also consider broader factors like how policies interact, risk transfer methods, and global coverage issues. Engineering businesses should work with brokers that offer an expanded selection of services beyond policy procurement, including: 

1. Claims Advocacy

Navigating insurance claims can be intricate, to put it mildly. Having a broker who not only understands the pitfalls of claims but who also advocates on your behalf ensures that claims are handled efficiently and fairly, minimising downtime and financial strain.

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2. Global Insurance Placements

For engineering firms operating internationally, coordinating insurance across multiple jurisdictions is essential, but can likewise prove to be a tangled web of policies. Global insurance placements untangle jurisdictional challenges and provide consistent coverage and compliance with local regulations.

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3. Risk Management Strategies

Fundamental for engineering projects, proactive risk management identifies potential exposures and implements measures to mitigate them. This includes regular risk assessments, safety protocols, and employee training programs that ensure high standards of risk mitigation from project to project.

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4. Managing Multiple Subsidiaries

Engineering firms with multiple subsidiaries face unique challenges in aligning insurance coverage and risk management practices. Working with a broker experienced in subsidiary risk management ensures consistency and efficiency across all entities.

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5. Alternative Risk Transfer

Traditional insurance solutions may not always address the unique cost structures and risk considerations of large-scale infrastructure or international projects, or those managing multiple subsidiaries. Alternative risk solutions, like captives, risk pools, and parametric insurance, are strategic options worth considering when looking to stabilize coverage in unpredictable market conditions. 

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Emerging risks—from cyberattacks to climate change—are reshaping how engineering businesses operate. Here’s what to watch for and how to prepare accordingly.

Cybersecurity Threats

The engineering sector is increasingly targeted by cybercriminals. In the first half of 2024, Australia experienced527 data breaches, the highest in over three years. Implementing robust cybersecurity measures and insurance is critical.

Climate Uncertainty and Environmental Risks

Climate change poses significant risks to infrastructure and operations. Australia has already warmed by more than 1.5°C since the mid-19th century, increasing the frequency and severity of extreme weather events (aicd.com.au). Engineering firms must adapt to these challenges through resilient design and insurance coverage.

Business Interruption Due to Supply Chain Disruptions

Global events have highlighted the vulnerability of supply chains. Engineering firms must consider the impact of material shortages and delays on project timelines and financial stability.

In an industry where precision and reliability are paramount, engineering firms cannot afford to overlook comprehensive risk management and the insurance programs that undergird it. Knightcorp Insurance Brokers offer tailored solutions that address the unique challenges of the engineering sector. Our expertise ensures that your firm is protected against current risks and prepared for future uncertainties.

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DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.

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