INDUSTRY INSIGHTS
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If your business relies on high value or specialist machinery in its daily operations and service/ product delivery, the breakdown of such machinery can incur significant losses - not only from a repair or replacement perspective, but also in terms of business interruption losses and reputational damage incurred during down time. Garth Rowe, principal claims officer at Aon South Africa, explains the concept of machinery breakdown insurance cover.
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achinery breakdown insurance cover is designed to provide indemnity for sudden and unforeseen physical loss or damage to insured machinery. Whilst a standard assets policy provides cover for damage to property arising from perils such as fire, storm, flood, theft or malicious damage, machinery breakdown insurance is intended to cover the risk of damage to machinery arising from its own mechanical breakdown. It is critical, therefore, for any business that relies on specialist machinery to have adequate machinery breakdown insurance in place. An assets policy may be structured as a composite policy with separate sections that provides for specific machinery breakdown and electronic equipment breakdown sections in addition to the standard property damage section. The business interruption section of such a policy would usually be triggered in the event of damage to property whether arising in terms of the general property damage section, the machinery breakdown section or the electronic equipment breakdown section of the policy. The adequacy of the sums insured in respect of each section of the policy is important, as the severity of business interruption losses following a machinery breakdown event can be just as devastating as the losses following an event such as a fire.
WHAT IS MEANT BY SUDDEN AND UNFORESEEN PHYSICAL LOSS OR DAMAGE? The “sudden and unforeseen” requirement in a typical machinery breakdown policy often
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INDUSTRIAL BUYER MAY/JUNE 2021
poses challenges in circumstances where a post-loss investigation reveals that even though the breakdown event itself may have occurred suddenly and was unforeseen from the insured’s point of view, the breakdown was due to a gradually developing process or deterioration that the insured may not even have been aware of until the actual breakdown occurred.
‘Whilst a standard assets policy provides cover for damage to property arising from perils such as fire, storm, flood, theft or malicious damage, machinery breakdown insurance is intended to cover the risk of damage to machinery arising from its own mechanical breakdown’ There are many other examples of machinery breakdown failures where the manifestation of the damage may have been sudden but when the cause was investigated it turned out that the
damage was caused by a gradually developing condition that inevitably led to a mechanical failure. Metal fatigue failure, for example, is sometimes associated with the formation and propagation of cracks due to a repetitive or cyclic load placed on a structure over time.
MANAGING THE RISKS ASSOCIATED WITH MACHINERY BREAKDOWN The implementation of a sound engineering risk management program that can anticipate and mitigate the risk of machinery breakdowns, compliments your machinery breakdown insurance and will address the challenges identified above. Depending on the circumstances, the various risk management strategies and techniques could range from simple visual inspection programs to more sophisticated pre-emptive analysis, for example, using thermographic testing or ultrasonic/X-ray inspections. Such programmes could assist in predicting machinery breakdown failures and allow businesses to take the necessary steps to avoid or reduce the risks associated with gradually developing mechanical failures. The value that an expert broker brings in the field of business insurance comes to the fore when addressing the risks faced by your business from every possible angle. The long-term sustainability and protection of a business enterprise is critical, making it important to understand exactly what your insurance and risk management programme covers.
