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Top Reasons Why Equipment Breakdown Insurance is So Important for Manufacturers

Think about the impact on your business if your production machinery fails. It’s the lifeblood of your manufacturing company. Without it, your operations are halted. How will you deliver on jobs? What if you don’t duplicate capability or extra capacity on other machines and your customers can’t wait? Will you lose out on job orders, end up suffering a loss of revenue, and possibly damage your reputation? Whether you’re a plastics goods manufacturer dependent on injection mold machines, thermoforming, or a metalworking shop relying on machining centers, EDM, waterjet, stamping or welding machines, Equipment Breakdown insurance is a must to keep your shop operating at optimum performance and help minimize losses.

There are many reasons why Equipment Breakdown insurance for manufacturers is critical, including:

  1. The policy covers exposures typically excluded in property insurance policies.
  2. Insurance company inspections (which are not obligatory) may help reduce the likelihood of accidents involving insured equipment.
  3. Insurance company inspections of pressure vessels satisfy state and local municipalities’ inspection requirements.

Let’s look at the principal reason why you should have a comprehensive Equipment Breakdown insurance policy as part of your manufacturer’s insurance program. The type of accidents that happen to machinery, electrical infrastructure, and pressure vessels are typically not covered by a Commercial Property policy. Electrical arcing, mechanical breakdown and explosion of pressure vessels are not covered, for example, putting a manufacturing shop at tremendous risk.

An Equipment Breakdown policy provides coverage for mechanical breakdown, short circuits/electrical arcing, power surges, motor burnout and operator error. This coverage will step in and pay for losses to your covered equipment, which may include mechanical equipment, much of which is computer-generated today; electrical distribution systems; and heating and cooling systems. Think about it: Electrical systems represent up to 15% of a building’s value. Components include transformers, panels and cables, and because these are interconnected, excessive voltage in one component can lead to significant damage to others. For example, arcing can cause damage to a panel, as well as completely shut down an operation. In addition, fragile technologies today make computer-generated machinery susceptible to electronic damage due to electrical surges, sags, etc. The cost to replace these machines can be significant…and even if the equipment may not cost a lot to repair, the cost in terms of lost production adds up quickly.

Moreover, many close-tolerance manufacturing processes require stringent temperature-control systems. In fact, air conditioning (and refrigeration) represents the number-one source of breakdown claims, as it contains a variety of equipment such as pressure vessels, mechanical, electrical and electronic components. And, because many air conditioning units are located on the roof, a crane or helicopter may be required to remove or replace a unit. If the equipment is damaged, you can end up spending thousands of dollars for repairs or to purchase a new unit. As a manufacturer, you simply cannot afford to take these risks.

Equipment Breakdown insurance will cover the costs for:

  • Direct physical property loss, which is the cost to repair or replace your damaged equipment
  • Costs associated with the time and labor to repair or replace your equipment
  • Other expenses incurred to limit the loss or speed the business restoration
  • The loss value of materials
  • Business recovery expenses

Another benefit of Equipment Breakdown insurance is that your insurance company may provide  inspections of insured equipment to help reduce the frequency and severity of an accident. The insurance company inspector looks at not only the condition of equipment in service, but also at such factors as plant maintenance philosophy, operator training, production flow and exposure to business interruption. In physically inspecting the equipment, he will also help to detect dangerous conditions before potential trouble. The inspector will oversee the testing of controls and safety devices, check equipment maintenance and review operators’ “logs,” for example. Often an inspector may be able to offer suggestions that can help reduce operating costs or lengthen the usable life of equipment.

In addition, California, like most states, and local municipalities require periodic inspection of boilers pressure vessels. If your Equipment Breakdown insurance policy also provides these inspections, you don’t have to pay for location inspection fees in the majority of jurisdictions; the only cost is the certificate fee.

Equipment exposures have changed considerably in recent years because the equipment itself has changed. In future articles we will go over some of the equipment hazards manufacturers face today and how to minimize potential exposures. Precision Manufacturing Insurance Services (PMIS) exclusively serves the insurance needs of manufacturers in California. Our mission is to help you prevent and mitigate losses and make sure you are covered in the event of an accident, injury or loss. To find out more about our Equipment Breakdown insurance and all of our products and services, please contact us at 855.910.5788.

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