Machinery Breakdown Insurance Policy

Are you looking for an ideal cover for all types of plants and machinery?

Often you are worried about the unexpected breakdown of your machinery?

Then go for Machinery Breakdown Insurance because it covers the cost of repairs and replacements caused by unforeseen physical damage. It even covers damage to the insured machinery whether it is in use or at rest.

What do we mean by machinery breakdown insurance policy (MBD Insurance)?

Coverage: Protection against sudden and accidental physical damage to machinery and equipment.
Types of Machinery Covered: Typically covers various types of machinery including but not limited to generators, boilers, compressors, pumps, and production machinery.
Causes of Damage Covered: Damage caused by mechanical breakdown, electrical breakdown, operator error, and other unforeseen events.
Exclusions: Certain exclusions may apply such as wear and tear, gradual deterioration, and damage due to lack of maintenance.
Loss Assessment: Insurance company evaluates the extent of damage and determines coverage based on policy terms.
Claims Process: Policyholder must report the breakdown promptly, provide necessary documentation, and cooperate with the insurer's investigation.
Premiums: The cost of the policy is determined based on factors such as the type and value of machinery insured, location, and past claims history.
Deductibles: The policy may have a deductible, which is the amount the policyholder must pay out of pocket before the insurance coverage kicks in.
Additional Coverage Options: Some policies offer additional coverage options such as business interruption coverage, which provides compensation for lost income due to machinery breakdown.
Importance: Machinery breakdown insurance is crucial for businesses heavily reliant on machinery for operations, as it helps mitigate financial losses and ensures continuity of operations in case of unexpected breakdowns.

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What are the salient characteristics of machinery breakdown insurance?

Indemnifies the repair or replacement of complex machinery to provide financial protection
Maintain continuity and fulfill commitments by covering the costs of machinery downtime
Coverage is customized to match the types of machinery a business uses and its willingness to accept risk.
Businesses can plan and allocate resources more effectively knowing that a safety net is available in case of unexpected problems

Do you need the industrial machinery policy?

This policy is relevant and beneficial for a wide range of businesses in various industries. Below are some examples of businesses that could benefit from this policy:

Manufacturing companies
Industrial plants
Construction companies
Hotels and hospitality
Retail businesses
Transportation and logistics
Agricultural enterprises
Data centers and IT companies
Hospitals and healthcare facilities
Technology companies
Educational institutions

Why is a machinery breakdown insurance policy good for you?

The backbone of industrial and commercial operations is machinery, and its failure or malfunction can result in substantial financial losses due to repair costs, production delays, or even business interruptions. If you own a business that relies heavily on machines and equipment, machinery breakdown insurance is crucial. It is common for machinery to break down, resulting in disruptions of operations and downtime, which can result in production delays, missed deadlines, and reduced productivity.

A machinery breakdown insurance policy helps mitigate the financial burden on the business in such cases by providing coverage for repair and replacement costs. Having this policy will allow businesses to transfer a portion of the risk referred to above to the insurance provider, allowing them to maintain continuity and meet commitments. It can also cover costs associated with downtime, helping the business maintain continuity and fulfill its commitments. Businesses can thus concentrate on their core operations rather than worrying about machinery and equipment failures constantly.

A business can use this coverage when machinery and equipment malfunction due to human errors. These errors might include incorrect adjustments, improper calibration, or a failure to follow recommended practices.

What is included in the machinery breakdown insurance?

This policy provides the following coverages:-

Machine and equipment breakdowns caused by electricity

An electrical component within a machinery system may malfunction or fail, resulting in a breakdown, and the policy will cover the repair or replacement. It covers damage caused by power surges, short circuits, and burned-out motors. The policy also covers damage caused by control panel failures and circuit breaker failures.

Mechanical breakdown of machinery and equipment

There are many causes of mechanical breakdowns, including broken gears, worn-out bearings, and misaligned parts. If the machinery breaks down due to manufacturing defects, the policy may cover the cost of repairing or replacing the defective parts.

Falling, impact and collision resulting in breakdowns

Machinery or equipment will be covered for damage caused by falling objects, such as debris or tools. This includes situations where objects fall from heights directly into the machinery. If machinery is located near driveways or roads, it may be susceptible to collisions with vehicles. Some machinery breakdowns may be caused by internal components colliding unexpectedly. The policy will cover the repair or replacement costs of machinery in industries with multiple machines operating close together.

Breakdown due to carelessness and lack of operating skills

A breakdown can also be caused by inadequate or substandard maintenance practices. Additionally, breakdowns can occur when machinery is operated by individuals without the necessary skills or training. It is the policy's responsibility to cover any resulting damage and repair costs in such cases.

A turbine bursting, a compressor failing, hydraulic cylinders bursting or other machinery under pressure or centrifugal force

When turbines fail mechanically, they can burst or cause catastrophic damage, whether they are used in power generation or industrial processes. If turbine pressure surges occur due to operational problems or sudden changes in load, they can lead to bursting. Machinery Breakdown Insurance will cover the resulting damage from pressure surges caused by operational issues or sudden changes in load.

Internal component failures can cause compressors to break down and decrease their performance. These components are covered by the policy as well as repair or replacement costs. In addition, cylinders can malfunction as a result of incorrect operation or overloading of hydraulic systems. Rotating equipment, for example, can experience imbalances, leading to breakdowns. Damages resulting from such issues will be covered by the policy.

Fire initiation from within machinery can cause damage or loss

The breakdown of machinery can result from excessive friction and overheating in its components. Short circuits or sparks can initiate fires in machinery. Electrical components can malfunction within the machinery, causing short circuits or sparks. In equipment that uses combustible fluids, such as oils and lubricants, leaks or spills can occur. In such cases, the insurance policy will cover the repair or replacement costs necessary to restore the machinery to its operational state if these fluids come into contact with hot surfaces or sparks within the machinery. Fire suppression-related damages, such as water damage or chemical damage, are also covered by the policy.

What are two Situations Defining the Replacement Cost of Machinery?

Partial Loss: If there's a partial loss to the machinery, coverage will encompass the complete cost of parts, inclusive of labor charges, air-freight charges, customs duty, and expenses for dismantling and re-erecting the machinery.

Total Loss: In the event of a total loss, the sum insured covers the actual value of items just before the incident, minus the applicable depreciation value.

What all Extensions are Available Under this Policy

The MBD Policy offers the following extensions upon payment of an additional premium:

Express freight (excluding air freight), holiday, and overtime rates of wages.
Air Freight Only.
Surrounding Property Coverage.
Third Party Liability.
Custom Duty Coverage.
Escalation Coverage.

What is not covered by machinery breakdown insurance?

The following are some common exclusions in Indian machinery breakdown policies:

Fire and other perils do not initiate damage to machinery or parts of it.
Wars, riots, strikes, and other warlike activities cause loss/damage.
Radioactive contamination or nuclear peril damage.
Machine damage caused by regular wear and tear and crack
Damage caused by overload experiments
A pre-existing fault or defect in the machinery prior to the policy's commencement
Other than pressure explosions, losses or damage resulting from explosions in chemical recovery boilers.
The loss of use of machinery as a result of conditions in the plant/factory, or any other consequential loss incurred by the insured
Due to wilful acts or gross negligence, damage or loss results.
An insured property can be damaged or lost if its manufacturer/supplier/repairer is legally or contractually responsible for it.
Multiple items are damaged in one claim.
There is damage to objects made of glass, chains, cutters, belts, exchangeable tools, parts not made of metal, etc.

Example:

The Incident: In Kolkata, Parag Sarees (imagined). specializes in producing high-quality textiles using advanced machinery. One day, a fire breaks out inside one of their advanced computerized weaving machines as a result of an electrical fault. Due to the fire, not only the weaving machine but also the surrounding equipment and the area where it was installed were damaged. The breakdown halts the production line, causing significant downtime.

The Resolution:

An insurance policy covering machinery breakdowns included fires ignited by machinery, which was wisely purchased by the company. In addition to the weaving machine, the surrounding equipment and the area affected by the fire are covered by the policy for repairs or replacements. The company had wisely invested in a comprehensive Machinery Breakdown Insurance Policy that covered various scenarios, including fires initiated from within machinery. The policy covers the repair or replacement costs for the damaged weaving machine, as well as the surrounding equipment and area affected by the fire. To minimize production downtime, Parag Sarees decided to expedite the repairs and hire temporary machinery to meet their commitments.

A temporary machinery rental fee and expediting the repair are covered by the policy. With the policy in place, the company has peace of mind knowing that even unforeseen incidents such as electrical faults leading to fires are covered. In this way, they don't have to worry about financial consequences and can concentrate on getting their operations back on track.

Sum Insured

The insured is responsible for declaring the Sum Insured (SI), which must reflect the New Replacement Cost for each covered item. To achieve this, it's essential to review the sums insured regularly and, ideally, align values with an accepted index indicating price fluctuations. Additionally, an annual revaluation of plant and machinery items should be conducted to ensure that the sums insured remain up-to-date. This proactive approach helps to maintain accurate coverage levels and mitigate potential underinsurance risks.

Have you asked for the following questions?

What are the usual reasons for a machine breakdown?

There are a number of factors that can contribute to machine breakdowns, ranging from mechanical and electrical problems to human error and external factors. There are several causes of these problems, including friction and heat, corrosion, wear and tear, short circuits, faulty wiring, voltage fluctuations, incorrect use of machinery, such as incorrect settings or control inputs, component failures, and lack of maintenance.

2.How to calculate the premium for machinery breakdown insurance?

A number of factors are considered by insurers when calculating the premium for machinery breakdown insurance, including the value, type, age, and condition of the machinery, usage, and maintenance history. In addition to the industry and the operations of the insured business, the insurer may also consider the location of the business and its risk profile.

3. Is there a difference between a breakdown and a failure of machinery?

An unexpected breakdown of machinery can be caused by mechanical failures, electrical problems, component malfunctions, or external events. It is possible for a machine to fail gradually and not necessarily stop immediately. A breakdown is an abrupt and sudden occurrence that renders the machinery useless immediately. It is possible for a machine to fail gradually with a decrease in efficiency over time.

How do I initiate the claim process for a breakdown of machinery?

Policyholders need to submit ID proof, along with the policy document, invoice of the machinery, and engineer's statement stating the type of breakdown.

Why do machines break down? How can we prevent it?

Maintaining, operating, and managing risks can help prevent machinery breakdowns. The following steps can help you do this -

Establish a comprehensive preventive maintenance program
Identify potential issues before they escalate by using advanced techniques to monitor machinery health
Instructions on proper handling, operation, and maintenance of equipment should be given to operators and maintenance personnel
Maintain regular inspections of key components
Maintain a clean and dust-free environment for machinery
Be sure to operate machinery within its recommended load limits

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