Demont Insurance Agency Blog

Equipment Breakdown – Coverage Insights

Practically every business depends on equipment to keep their operations running and revenues flowing. Equipment breakdown coverage insures all kinds of equipment types. Most common breakdown exposures include air conditioning systems, elevators, point of sale equipment, and more. Coverage can also be purchased for more complex machinery such green energy and telecommunications equipment to generators and even robots.

In today’s digital world, equipment breakdowns are more common and have a higher risk. Equipment now contains fragile and delicate computer components which can easily get damaged. More equipment is also now more critical to operations and income, meaning a breakdown and bring an entire company to a standstill.

Claim Examples

Equipment breakdown losses are not limited to manufacturers. Electrical shortages, mechanical forces, overload, or control failures are just a few of the causes of breakdowns. Even in the most common of equipment, tremendous financial harm can be done to an organization.

Consider an office building which suffered an electrical arc. One claim paid out more than $1.5 million when three main electrical panels left a building without power. In addition to paying for the cost of repairs, the insurance company took temporary measures to restore power to the building tenants. In particular, power was needed for the accounting firm who was in the height of their tax season.

A food processor experienced a breakdown which could’ve threatened their very existence. An ammonia line ruptured when a compressor crankshaft and the connecting rod broke. The result was pounds of contaminated scallops. Fortunately, the company’s equipment breakdown policy provided enough coverage to rent nearby units, while the new compressor was installed. This allowed the company to continue operations and full fill their delivery requirements of seafood.

More Exposure in Today’s Equipment

Equipment today is more advanced than ever. Advances in technology have brought increased functionality and usefulness in the machines we use. This same technology has also brought increased exposures to breakdown. When elevators were operated solely by mechanical means, a breakdown could be easily identified and repaired. But add in control panels, circuit boards, and auxiliary systems, even simple equipment is reliant on fragile computer technology.

Integration among systems has also amplified the potential to exponentially increase breakdown losses. A power surge may not only take down computer systems, but phone systems, security cameras and alarms, and other electronic business equipment. Together, a previously minor event could be catastrophic in today’s connected world.

Lastly, much of today’s equipment has been tucked away or otherwise hidden to keep our work spaces aesthetically pleasing. This means electrical distribution systems are buried within the walls of our buildings with equipment placed in depths of basements or on the roof. Just attempting to access equipment and supporting systems increases labor costs and the possibility of lost production and revenue.

Coverage Considerations

More often than not, the most expensive costs related to an equipment breakdown loss is not the equipment itself. Equipment has a finite cost associated with it. However, lost income, spoiled goods, and the release of hazardous substances are just a few examples of how an equipment breakdown loss can become extraordinarily expensive.

Fortunately, today’s best insurance companies offer additional coverages within their policy form. Although there can upwards of twenty extensions of coverage available, there are a few which every organization should be aware of including:

  • Business income – covers the loss of business due to an interruption caused by a covered accident under the policy.
  • Contingent business income – if one of your customers or vendors suffers an equipment breakdown loss by a covered accident, loss of business income would be covered.
  • Data restoration – pays to restore the data and computer programs lost due to a covered equipment breakdown accident.
  • Extra expense – pays for additional costs such as equipment rental you incur after a covered accident, so you can maintain normal operations.
  • Expediting expense – pays for temporary repairs or the cost to expedite permanent repairs.
  • Service interruption – provides both business income and extra expense coverage resulting from a covered equipment breakdown accident by a provider supplying services such as electrical power, communications, heating, and other operating services.

Every business considering equipment breakdown insurance needs to carefully consider the additional coverage extensions available. Failure to include even one optional coverage could result in financial losses greater than the cost of the breakdown itself.

Protecting Your Business

Many property insurance policies are broad enough and may include basic equipment breakdown coverage. But hardly any property policies provide for the specific and unique exposures that accompany a breakdown. There are many loss prevention techniques that can be implemented to reduce the potential risk, however, breakdowns can and do still occur, even with the most robust prevention plan.

To review your coverage needs and find the right insurance solutions for your business, contact our office at (850) 942-7760.

Demont Insurance Agency, Inc. The Insurance You Need. The Assurance You Deserve.

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