By Daniel Maskell, Head of Sales and Development, HSB Partnerships
Technology moves at a relentlessly fast pace and is influencing the way businesses service their customers. Artificial intelligence, robotics and the Internet of Things are delivering huge efficiencies, yet in doing so have placed a greater reliance on integral machinery and equipment which is more complex and specialised than ever.
High-tech equipment can be more prone and susceptible to damage. Furthermore, it can also be difficult to repair quickly, often requiring specialists to fix, along with a longer lead time and potentially considerable costs to do so. As a consequence, the value of equipment continues to rise right alongside the cost of repair it.
Given that risk exposures have changed significantly in recent years, is it time for insurance buying habits to change, too?
HSB will be discussing this topic in an exclusive webinar for MGAA members on 25th February, entitled ‘The true cost of equipment failure – why equipment breakdown insurance is essential for businesses?’ To register, click here.
A growing need for equipment breakdown insurance?
Without adequate insurance cover in place, businesses could be walking a financial tightrope in the event of their essential equipment failing.
Equipment breakdown insurance is often misunderstood and overlooked. MGAs can play a crucial role in supporting their clients by addressing the misconceptions surrounding this insurance, as its absence can potentially leave businesses exposed to operational disruption and unexpected costs.
Equipment breakdown insurance covers the sudden and unexpected breakdown of machinery and electrical equipment. This can include anything from boilers, refrigeration equipment and air conditioning units, to high-tech electronic systems, robotics and Computer Numerically Controlled (CNC) machinery. The coverage typically includes the cost of repairing or replacing the damaged equipment, as well as any associated business interruption losses.
So, what are the misconceptions and how can businesses determine whether they are protected from uncertainties?
“It doesn’t provide additional value.”
Equipment breakdown insurance is sometimes seen as an unnecessary, additional expense. In reality, industries undergoing rapid technological advancements increasingly depend on intricate machinery and equipment which can fail at any time, leading to costly repairs and replacements as well as disruption of business operations. Taking out a specialist equipment breakdown policy could prove to be a wise investment in the long-run.
“Modern equipment doesn’t fail.”
As machinery has evolved, so too have the risks, meaning that trusting new, high-tech equipment not to fail is a risky gamble. Modern technology is susceptible to power surges, operator errors, and other unforeseen equipment hazards. Disregarding this commercial reality could lead to unexpected and costly downtime, disrupting business operations.
“It’s only for manufacturers.”
Historically, equipment breakdown coverage has been regarded as only necessary for large manufacturers, but that is far from the norm, and this belief could expose some businesses to risk. Equipment breakdown insurance isn’t just limited to production and processing equipment. Any business relying on machinery and technology, from warehousing and logistics to hospitality and leisure, can benefit from this insurance.
“Standard commercial property policies provide cover for equipment breakdown.”
A widespread assumption is that standard property insurance policies cover equipment breakdowns. However, these policies typically exclude mechanical and electrical failures, but also the financial impact of business interruption losses leaving a critical gap in protection. When considering whether they have adequate coverage in place, businesses should assess their specific equipment risks, the nature and intensity of their equipment use, and the potential impacts of a breakdown on their operations.
The cost of doing nothing
Equipment breakdown insurance was born out of necessity during the industrial revolution in the 1800s to offer protection for cutting-edge steam technology, such as boilers and pressure vessels, which were susceptible to explosions. As technology continues to develop at an exponential pace, arguably this coverage is even more relevant in the modern era.
However, some businesses are still taking out equipment breakdown insurance just for items requiring statutory inspections, as they always have done. If a forklift truck or passenger lift breaks down, whilst inconvenient, it’s unlikely to grind a business to halt. In contrast, downtime caused by a high-tech electrical system failure could adversely affect a business’s bottom line and compromise relationships with its customers.
The role of MGAs
By addressing misconceptions and the associated risks, MGAs can highlight the relevance of equipment breakdown insurance to ensure their clients have peace of mind today and in the future. In doing so, they can also enhance their value proposition by safeguarding their clients’ operational and financial stability.
To register for HSB’s webinar on 25th February, ‘The true cost of equipment failure – why equipment breakdown insurance is essential for businesses?’, click here.
