Australia’s defence build-up has an insurance problem

If your business is operating in or moving into Australia’s defence industrial base, there is a good chance your insurance was not written to cover what your contracts actually require. Most businesses only find that out when it is too late to do anything about it.

A $425 billion opportunity with a risk problem attached

$425 billion. That is what Australia has committed to defence capability investment over the next decade under the 2026 National Defence Strategy and Integrated Investment Program, rising to $560 billion under the higher-investment scenario. ^[1] To put the full picture in context: the $425 billion figure covers new capability spend; the $765 billion total includes all defence expenditure across the period, from operations and personnel to the programme itself. ^[2] The higher-investment scenario refers to an accelerated funding commitment tied to specific capability milestones, most notably AUKUS. Either way, the number is not a projection. It is a commitment with contracts already flowing.

The centrepiece is AUKUS, the trilateral partnership with the United States and United Kingdom. Under a revised pathway confirmed in May 2026, Australia will acquire three second-hand Virginia-class submarines from the US Navy before transitioning to the SSN-AUKUS design built jointly with the UK. The programme extends well beyond submarines: surface combatants, long-range strike, guided weapons manufacturing and advanced technology development are all part of the industrial build-up. But the real story for Australian industry is what sits beneath the headline numbers: 20,000 direct jobs projected over 30 years under the submarine industrial programme alone, ^[3] contract pipelines already live, and hundreds of businesses in manufacturing, engineering, technology and professional services entering a sector most have never worked in before.

Australian defence industries already employed over 69,000 people in 2024–25, a 9.1 per cent increase on the prior year. ^[4] The commercial opportunity is real. The risk exposure that comes with it is equally real and far less well understood. For businesses operating in this sector, the gap between the contractual obligations they are accepting and the insurance cover they actually hold is where this story gets uncomfortable.

What standard insurance doesn’t cover in a defence contract

If your business is operating in or moving into the defence sector, the instinct is to treat it as an extension of your existing commercial operations and assume your existing insurance arrangements will follow. In the majority of cases that assumption is wrong.

Defence contracts carry obligations that simply do not appear in commercial work. Security classifications, export control regimes, mandatory incident reporting requirements, technology transfer restrictions and government-directed subcontracting chains all create liability exposures that standard commercial policies were not written to address.

If you are supplying components into an AUKUS supply chain, you may face contractual indemnity obligations, classified information handling requirements and potential liability under Australian and United States law simultaneously. Your public liability and professional indemnity policies almost certainly contain exclusions (often buried in war, government contract or sovereign immunity clauses) that would respond to those exposures unpredictably at best and not at all at worst.

Technology and software businesses face the most acute version of this problem. For a company supplying software platforms, data systems or cybersecurity services into an AUKUS programme, the exposure stacks quickly: ITAR liability on any technology with a US defence application, classified data handling obligations that standard cyber policies were not written to accommodate, and trilateral supply chain liability that can simultaneously engage Australian, UK and US jurisdiction. This cohort is entering the defence sector faster than almost any other and is, on average, the least prepared from an insurance standpoint.

The problem is compounded as businesses scale. Rapid growth into an unfamiliar operating environment elevates management liability and professional indemnity exposure at exactly the moment most businesses are focused on winning contracts rather than reviewing their insurance. ^[5] Rarely does an insurance programme get updated to reflect the change in risk profile that follows.

By the time most businesses find out, it’s too late

Defence contracts frequently require evidence of appropriate insurance at the point of tender. ASDEFCON, the Australian Standard for Defence Contracting, includes core indemnity and insurance clauses that tenderers must satisfy before a contract is awarded. ^[6] For many businesses that means the first time they engage seriously with their insurance programme is when they are already mid-procurement with a deadline in front of them.

A programme properly structured for defence work takes time to place correctly. It needs appropriate endorsements covering government contract indemnity, classified information handling, export control liability and the specific cyber notification requirements that defence contracts impose. It also requires access to specialist underwriters with genuine appetite for this class of risk and a broker who can present the exposure in a way that achieves adequate cover at a competitive premium. That is not a standard commercial placement.

“Defence contracts are written with sovereign indemnity standards in mind. Most commercial insurance policies were not. That gap is wider than most businesses realise.”

The consequence of getting it wrong is not just a coverage gap on an individual claim. It is a business that has signed contractual indemnity obligations it cannot back up with insurance, exposing directors, management and the business itself to liability with no transfer mechanism. For any business new to this sector, that is an existential risk dressed up as a procurement formality.

What to do before the contract is on the table

Whether your business is already operating in Australia’s defence industrial base or preparing to move into it, insurance programme review should be part of your commercial due diligence. Not an afterthought once a tender is in progress. That means getting a specialist assessment of your existing coverage against the specific obligations that defence contracts create before those obligations are accepted.

The questions worth asking are not complicated: do your policies cover the indemnity obligations you have accepted, the export control exposure you have taken on and the notification requirements your contracts impose? They are specific, answerable questions. The problem is that most businesses operating in this sector have never been asked them by their broker.

Australia’s sovereign defence industrial base is being built at pace and the government has made clear it wants industry to move with it. The businesses that participate most successfully will be those that have resolved their risk transfer position before the opportunity arrives. Not those scrambling to patch their insurance programme while a contract sits unsigned on the desk.