Efficacy or "failure to perform" cover is insurance against legal liability for injury to third parties or damage to third party property caused by a product or service failing to perform its intended function. Within the insurance world, efficacy is often described as a policy extension or exclusion, depending on whether it is or isn't covered.

For the Fire, Security, and Electrical sectors, the efficacy risk is considered too great to insure and so an exclusion is applied to the policy.

An efficacy exclusion is usually applied where the product or service can cause loss or damage even if there is no fault with the product itself. In essence the purchase of efficacy insurance is tantamount to providing a partial guarantee that the product will perform as intended. The Fire, Security, and Electrical sectors generally all suffer from having efficacy exclusions applied. Some insurers even have a standard efficacy exclusion applied to all their policies. This means alarm installers, cctv installers, electricians, electrical contractors, and fire extinguisher engineers all need to be specially aware that any insurance bought is fit for purpose.

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