At a glance
- Standard property policies rarely provide adequate cover for electrical or mechanical breakdown of machinery
- Many customers do not realise they could be left exposed without bespoke machinery breakdown policies
- Here, we discuss the benefits of this type of cover
Machinery breakdown cover is a good example of how customers’ insurance budgets can be influenced by economic factors.
A machinery breakdown scenario
- A business suffers a breakdown of its £250,000, state-of-the-art printing machine
- The company that manufactures this printer is based in Japan, and delivering a replacement will take 12 weeks
- Fortunately, a broker has already helped the business to identify that a significant portion of its value is linked to this machine
- The business is able to survive the loss because it had taken out £250,000 worth of Machinery Breakdown (Sudden and Unforeseen Damage) cover and £750,000 of Machinery Loss of Profits Cover
When a business is achieving growth in a sector that is performing well, it is more likely to invest in machinery breakdown and loss of profits cover.
However, says Ian Hutchinson, Engineering Governance Manager, Zurich: “When times are hard, some companies may choose to cancel their breakdown cover and rely on their Property Insurance portfolio which generally does not include breakdown as a peril for manufacturing equipment.
There can be a misconception that where breakdown cover is included in the Property policy, the customer’s production plant will be covered. Routinely such breakdown cover only attaches to building services such as passenger lifts and air conditioning systems and not to process plant.”
Customers may not realise that without a bespoke machinery breakdown or machinery loss of profits policy, they may not have protection if a key piece of equipment fails.
Why do businesses need machinery breakdown cover?
While every business is reliant on machinery and equipment to some extent, for certain businesses and industry sectors, such as manufacturing, the loss of a particular piece of equipment can have almost as much of an impact as the loss of an entire factory or warehouse.
Many businesses operate machines that can fail, so the exposures are definitely there.”
Ian Hutchinson, Engineering Governance Manager, Zurich
Material Damage and Business Interruption (MDBI) policies typically exclude cover for damage resulting from a mechanical or electrical breakdown, as well as consequential losses, and that only bespoke machinery breakdown policies would provide adequate protection in such circumstances.
Every business is different, but consequential losses could include:
- Loss of profits, due to extended periods of downtime or limited production
- Increased costs of working, for example employee overtime, outsourcing work to other companies or temporary equipment replacement.
Ian says: “Many businesses operate machines that can fail, so the exposures are definitely there.”
Flexing to business needs
One of the key selling points of machinery breakdown cover is its flexibility. While a standard property policy will require a business to insure all of its property and contents, under a machinery breakdown policy, customers can choose which items of machinery to insure.
By understanding which machinery brings the greatest value to your businesses, you can target your insurance spend more effectively (see boxout).
Machinery – points to consider:
- The importance of lead times i.e. how long it would take to replace a particular piece of machinery, or a particular component
- Common causes of breakdowns and the importance of risk management
- The range of additional costs that could be incurred following a breakdown
- Contingency plans in the event of a catastrophic failure
- Whether existing insurance policies provide adequate cover
Unique Engineering Combined solution
Our Engineering Combined product offers inspections and seven insurance covers under a single policy.
“The combined policy is aimed at the manufacturing sector,” says Ian.
“It is hugely beneficial having multiple covers available through a single policy in this way. Our policy schedule helps to eliminate gaps in cover by explaining clearly which risks are covered and which are not.
“It is really important that customers understand the importance of machinery breakdown cover. While the claims frequency on these policies is low, the size of these claims tends to be huge.
For more information please speak with you usual Zurich contact.