As machinery has evolved, so too have the risks.
Businesses are becoming more and more reliant on technology. Many organisations rely on equipment to support their operations, with challenging market conditions forcing further reliance on equipment.
Sudden damage to equipment is an unfortunate reality, and can cause downtime and disruption. Specific insurance for these instances is available, and will provide financial cover to offset your business’ losses.
Below we look at what equipment breakdown cover involves, why equipment breakdown insurance is important, and if the cover is work the risk and potential costs.
What is included in Equipment Breakdown insurance?
Equipment breakdown is when an electrical or mechanical machine stops working unexpectedly. Shock, vibrations, condensations, humidity, heat, surges; there’s an endless list of reasons why parts of a machine could break.
However many breakdowns happen as a result of human error, and can be prevented. Whether it’s because of someone deliberately bypassing safety procedures, or operating equipment beyond is capacity, equipment can be over-utilised beyond the normal wear and tear.
Whereas standard commercial property insurance policies cover damages caused by external events like fire or weather-related disasters, an equipment breakdown policy specifically covers losses due to the unforeseen damage and accidental breakdowns.
Failures included in Equipment Breakdown Insurance:
- Electronic equipment
- Heating units, ventilation units, air conditioning units
- Production machinery and processing equipment
- Mechanical equipment including motors, generators, compressors, pumps, engines
- Electrical equipment such as transformers, switchgears, electronics
- Refrigeration equipment
- Boilers
- Security and alarm systems
35% of all electrical system failures can be traced to human error
Equipment breakdown covers includes operator errors. Electrical systems, such as air conditioning units, fans or boilers often feature the same failures and are the most common breakdowns caused by overuse. Mechanical equipment, such as pumps, compressors, blowers, turbines feature a variety of hazards which attract human error. Common causes of failure include lubrication issues, stress, shock, and fatigue.
The implications of equipment breakdown may not always have an obvious monetary value, but its negative impact on businesses and reputations is clear. The costs of repair and cost of business interruption highlight the importance of having adequate equipment insurance in place. Equipment insurance covers unforeseen breakdown offsetting the cost of repairs, replacements and business closures.
11.7% increase in equipment breakdown insurance from 2023 to 2024
The growth in equipment breakdown insurance purchases is driven by a heightened awareness amongst businesses about the consequences of an equipment failure. Repairs are becoming more and more costly, as it the cost of business interruption as business become more reliant on equipment – hence extra auxiliary insurance related to equipment is clearly increasingly necessary and increasingly important.
Why equipment breakdown insurance is important.
Research conducted by HSB also highlights how vulnerable businesses could be to sudden and unforeseen equipment breakdowns. In a survey of 500 UK SMEs, two-thirds said their business would not survive for longer than three months if a catastrophic event, such as a critical piece of equipment breaking down, halted their ability to trade.
The likelihood of SMEs being able absorb the costs of equipment breakdowns, repairs and business closure is low. SMEs make up 99.2% of the UK business composition, showing the importance of breakdown insurance and risk management measures.
Here are some facts showing the reality around equipment breakages and why financial protection is necessary:
- UK manufacturers spend on average 20 hours a week on unscheduled maintenance.
- 82% of companies have experienced unexpected downtime in the past three years.
- An hourly cost of downtime is between £1,700 to £7,500.
- 3,000 hours were reportedly wasted on inefficient processes. Equipment breakdown severely restrict processes, leading to supply line disruption.
Is the cover worth the risk and potential costs?
Whether equipment breakdown insurance is worth it I very much up to you and your business, however as a dedicated insurance broker, we believe equipment breakdown is an important risk that requires cover.
Equipment breakdown insurance will cover repairs and replacement costs as well as labour time and lost income. It will cover deterioration of stock and temporary equipment rental. Equipment breakdown insurance will not cover rust and decay, faulty maintenance, external events such as storms (which would usually be covered by property insurance) or intentional damage. Cyber events such as hacks or attacks are not covered in this specific policy type.
No longer focused on just boilers and heavy-duty machinery, equipment breakdown insurance now provides cover for a multitude of machinery and equipment. It is designed to address gaps not covered by standard commercial property insurance policies.
Key benefits of the equipment breakdown insurance cover include:
- Increase cover across all line of the business and larger portions of the customers risk
- Spare expenses to speed up repairs
- Cover for perishable goods
- Peace of mind around equipment failures
- Improved business continuity
Equipment Breakdown Insurance from Romero Insurance Brokers
Ultimately, as the value of high-tech equipment rises, so too does the cost to fix or replace it. Businesses and organisations could be walking a tightrope, risking a financial crisis were an unexpected instance occur.
Business owners should evaluate their policy limits and coverage. Gaps in cover and risks need to be covered by specific auxiliary policies. Consult with a trusted insurance broker to help identify these gaps in your cover.
Romero Insurance Brokers will stay up-to-date on equipment risks; pass on critical information to their customers, and ensure business owners are adequately protected from all uncertainties.
FAQs
Does equipment breakdown insurance only cover repair costs?
As well as repair costs, breakdown insurance also covers replacements, and financial losses due to business interruption. The policy should also cover any perishable goods lost in the malfunction of the machine.
Are equipment breakdowns covered by a commercial property policy?
Damaged equipment is often not covered by standard commercial property policies. Many electrical and mechanical equipment require specialised insurance, and tailored policy can offer what standard policies often cannot. Repair costs, lost incomes and the financial impact of breakdown are all beyond the scope of typical commercial insurance policies.
Does equipment breakdown insurance apply to physical damage?
Breakdown insurance covers accidental damage, and unforeseen damage. Wear and tear, corrosion, rust, leakage, and other issues which commonly result over time are typically not covered by breakdown insurance. However, if the aforementioned condition was caused by an accident, then the cover would apply.
