Machinery Breakdown Insurance

What is Machinery Breakdown Insurance?

Machinery breakdown insurance protects industrial and factory machines. This insurance covers the costs associated with unintentional mechanical failures and physical damages. It also addresses the expenses for repairing or replacing damaged machine components. Commonly insured machinery under this policy includes generators, compressors, industrial ovens, printing presses, boilers, and various other mechanical and electrical equipment utilized in industries. Some insurers offer additional coverage options or riders to further protect against potential risks or unforeseen expenses such as price fluctuations, air freight, machinery foundation, and customs duties.

When determining the replacement cost of damaged machinery, a machinery breakdown insurance policy typically examines two situations:

1. Partial Loss: Should there be a partial loss to the machinery, the policy covers the entire cost of the replacement parts. This includes labor charges, air freight fees, customs duties, and expenses related to dismantling and re-erecting the machinery.

2. Total Loss: In this scenario, the insured amount is based on the machinery's actual value prior to the damaging event, subtracting any relevant depreciation.

For an added premium, policyholders can avail of expanded coverage options. These can encompass express freight, customs duty, air freight, and third-party liability, among other provisions.

Why do you need a Machinery Breakdown Insurance?

In commercial and industrial realms, machinery is pivotal for operations. A breakdown or malfunction can instigate considerable financial setbacks due to repair expenses, production halts, and even potential operational interruptions. Securing machinery breakdown insurance becomes vital for enterprises that are significantly dependent on machinery and equipment.

When machinery encounters issues, it often triggers operational hindrances and downtime, leading to postponed production, unmet timelines, and compromised efficiency.

In such circumstances, machinery breakdown insurance steps in, offering coverage for indispensable repair or replacement costs. This helps alleviate the monetary strain on the organization. In essence, with machinery breakdown insurance, firms can delegate a segment of the aforementioned risks to the insurance company. This empowers businesses to hone in on their principal activities, freeing them from perpetual apprehension over machinery and equipment mishaps.

What will a Machinery Breakdown Insurance Policy cover?

The coverages provided by this policy may be categorized as mentioned below :

Mechanical Breakdown of Machinery and Equipment

Mechanical breakdowns often involve the failure of essential components within machinery or equipment. This includes problems like broken gears, worn-out bearings, and misaligned parts. The policy covers the repair or replacement of these components. If a machinery breakdown is due to manufacturing defects, the policy will also cover the costs of repairing or replacing the faulty parts.

Electrical Breakdown of Machinery and Equipment

The policy provides coverage if an electrical component within a machinery system malfunctions or fails, resulting in a breakdown. This encompasses issues like short circuits, electrical surges, and burned-out motors. Additionally, damages caused by control panel failures, circuit breaker failures, and other such fluctuations are covered.

Internal Fire-Related Damage

Breakdowns can sometimes be caused by friction and overheating within the machinery's components, initiating a fire. Electrical components within machinery might malfunction, causing short circuits or sparks that can start fires. If machinery that utilizes combustible fluids, like oils and lubricants, experiences leaks or spills, a fire can start upon contact with hot machinery parts or sparks. In such cases, the policy covers the repair or replacement costs to bring the machinery back to working condition. It's important to note that damages resulting from fire-fighting efforts, such as those caused by water or chemicals, are also covered. This coverage is distinct from standard fire protection policies, making the machinery breakdown policy invaluable for businesses affected by such incidents.

Falling, Impact, and Collision Resulting in Breakdowns

Coverage is provided if machinery or equipment gets damaged due to the falling of external objects, such as debris or tools. This includes situations where objects accidentally fall from heights, directly impacting the machinery. Additionally, machinery and equipment located near driveways or roads may be at risk of vehicle collisions. Breakdowns may also happen due to internal components colliding or impacting each other unexpectedly, especially in industries where many machines operate closely together. For these types of machinery breakdowns, the policy covers repair or replacement costs.

Breakdown Due to Carelessness and Lack of Operating Skills

This coverage is designed for when machinery and equipment malfunction due to human errors. Errors might include incorrect adjustments, improper calibration, or not following recommended procedures. Insufficient maintenance practices or machinery being operated by individuals without the necessary skills or training can also result in breakdowns. In all such scenarios, the policy will cover the damage and the repair costs.

What's not covered?

Here are some common exclusions typically found in machinery breakdown policies in India :

Damage or loss caused to the machinery or its parts due to fire and related perils, unless the fire originates within the machinery itself.
Damage or loss resulting from war-related activities, riots, and strikes.
Damage caused by nuclear perils or radioactive contamination.
Regular and gradual wear and tear, or machine cracking.
Damage from overload experiments.
Pre-existing faults or defects in the machinery before the policy starts.
Explosions in chemical recovery boilers, unless caused by pressure explosions.
Consequential losses due to conditions in the plant or factory.
Damage or loss resulting from intentional acts or gross negligence.
Issues for which the manufacturer, supplier, or repairer of the machinery is responsible, either legally or under contract.
Claims where multiple items are damaged in a single incident.
Damage to components like chains, cutters, belts, glass objects, exchangeable tools, or parts not made of metal.
Issues typically covered by other insurance types, such as fire or burglary insurance, to avoid overlap in coverage.

Who needs a Machinery Breakdown Insurance Policy?

Machinery breakdown insurance is apt for a vast array of businesses spanning different sectors. Below are some business types that stand to gain from such a policy :

Heavy engineering firms
Industrial plants and facilities
Construction companies
Transportation and logistics companies
Power plants and water treatment centers
Enterprises in the textile sector

FAQs

What leads to machinery breakdown?

Machinery breakdowns can stem from multiple causes, encompassing both internal and external factors. Common culprits include mechanical and electrical faults, human errors, wear and tear, friction-induced heat, corrosion, short circuits, and voltage fluctuations. Mistakes in machinery operation, such as inaccurate settings or control inputs, component malfunctions, and inadequate maintenance, also contribute to breakdowns.

How is the premium for machinery breakdown insurance determined?

The calculation of a machinery breakdown insurance premium is influenced by several criteria. Insurers typically evaluate the machinery's value, type, age, condition, usage, and maintenance record. Additionally, the nature and specific operations of the business, its location, and the overall risk profile of the enterprise also play crucial roles in determining the premium.

How do machinery breakdown and failure differ?

"Machinery breakdown" denotes a sudden, unforeseen cessation of a machine's functioning caused by reasons like mechanical glitches, electrical anomalies, component malfunctions, or unexpected external events. Such breakdowns usually lead to an immediate halt in operation. In contrast, "machinery failure" is a more expansive term, signifying various malfunctions or a decline in machinery performance over time. While breakdowns are abrupt, incapacitating the machinery instantly, failures can manifest gradually, eroding machine efficiency or performance incrementally.

What documentation is needed to initiate a machinery breakdown insurance claim?

To kickstart a claim under machinery breakdown insurance, the policyholder is typically required to furnish identification proofs, the machinery invoice, the policy document, and a diagnostic statement from a qualified engineer delineating the nature and extent of the breakdown.

How can machinery breakdowns be prevented?

Averting machinery breakdowns mandates a forward-looking stance towards maintenance, operation, and risk containment. Effective preventive measures include :

Instituting a rigorous preventive maintenance regimen.
Utilizing sophisticated monitoring tools to gauge machinery health, pinpointing looming issues before they escalate.
Ensuring operators and maintenance staff are well-trained in equipment operation, upkeep, and safe handling.
Conducting regular inspections of pivotal components.
Maintaining the cleanliness of machinery, keeping it devoid of dust, debris, and other contaminants.
Always operating machinery within its stipulated load confines.