Equipment Breakdown Insurance Essential to Every Enterprise
When mission-critical equipment breaks down, production falters, deliveries fall behind, communication suffers, and income is interrupted. In worst-case scenarios, operations stop and clients are lost. Every business and organization is subject to this risk.
Today’s sophisticated technology and interdependent commerce only increase the probability and magnify the problem. Worse, most standard property policies exclude coverage for equipment breakdown.
Once called “Boiler and Machinery” insurance, 21st century Equipment Breakdown insurance is now available as a stand-alone policy or as a covered peril on the property policy. Either way, it is essential to every enterprise.
Five Areas of Risk
One of the pioneers in protecting enterprises from the cost and consequences of equipment breakdown, the Hartford Steam Boiler Inspection and Insurance Company, categorizes this universal business risk into five areas:
- Electrical
- Air conditioning and refrigeration
- Boilers and pressure vessels
- Computers and communications
- Mechanical
A breakdown in any of these essential systems has the potential to bring business to a halt. Increasingly, equipment is manufactured in other countries and replacement components may only be available as imports. Dependence on foreign suppliers extends the down-time and multiplies recovery and restoration costs. For companies that practice just-in-time inventory or rely on fewer pieces of production equipment, the risk of revenue loss can be even greater.
Those who lease or rent business, retail or manufacturing space are just as much at risk as the property owner. When any of the owner’s five risk areas fail, the tenant’s business also fails.
Technology Amplifies Risk
Technology has amplified the risk of equipment breakdown. One or more systems may be threatened by common occurrences, such as power surges, short circuits or changes in electrical current. Every day, electrical equipment vital to most operations — computers, phones, security systems, and more — is subject to this invisible risk. System failure can be especially costly when it is embedded within walls or located on high-rise roof tops — making access for repair more difficult.
The nation’s largest insurer for machinery and equipment reports the leading cause of equipment breakdown they see is line disturbance, such as a power surge.
Power Versus Power Surge
Destructive power surges come from many different forms. Trouble may enter a building through cable or satellite systems, plumbing, local area networks, phone and fax lines.
Most enterprises are dependent on equipment that has the potential to shut them down with a single power surge. Surges can shut down big or small businesses with swift force — even on the smallest scale.
Risk on a Bigger Scale
Real risk lurks not only in small places, but also in the largest. Boilers and pressure vessels — even water heaters — have so much potential destructive power that periodic inspections are required by law in nearly all municipalities and states. Business owners are responsible for certified compliance, and inspection must be conducted by commissioned experts.
Equipment Breakdown insurance programs can be developed to include risk-reducing services for achieving code compliance, such as:
- Identifying inspection requirements
- Scheduling mandated inspections
- Recommending hazard solutions
- Advising on operational improvements
Such services are important because failure to comply with boiler and pressure vessel code can result in fines or businesses being shut down by state or local authorities. Not all insurance carriers or brokers offer these services.
Powerful Protection
Equipment Breakdown insurance provides powerful protection from financial loss when sudden and accidental breakdown of equipment occurs. This line of insurance can also cover income losses from business interruption due to breakdown, spoilage value for perishable products and food, damage to surrounding property, and costs to expedite business recovery.
Equipment Breakdown insurance is not part of standard property policies unless you and your broker add it as a covered peril or buy it as a stand-alone policy.