Machinery Insurance

How to Protect Your Business Machinery from Breakdown, Loss, or Damage.

Business owners can protect their businesses from the financial implications of machinery breakdown by purchasing machinery insurance. In South Africa, you can purchase machinery insurance from business insurance providers that offer specialised cover options.

What is Machinery Insurance?

Sometimes referred to as machinery breakdown insurance, specialised machinery insurance is specifically designed to cover risks related to valuable and specialised machinery that your business depends on. The risks included could be a breakdown of the insured equipment, the cost of business interruption due to the breakdown, and loss of the equipment.

Machines covered could be as small as office printers and computers or as vast as specialised industrial units used for the production of retail items and household goods. The range of machinery a business can cover with a machinery insurance policy can be vast and could include items such as boilers, air conditioning, refrigeration, communication networks, electrical systems, and more.

Who Needs Machinery Insurance?

Any business or organisation that relies on equipment and machinery to operate and generate an income will need machinery insurance. Whether you run a large industrial operation or a small to medium size enterprise, any unexpected accident or breakdown could bring your operations to a standstill and raise unexpected costs for the repair or replacement of the machinery. Consider how your business would fare should your machinery or equipment suddenly break down. If it would impact your income or ability to operate, that is a risk that should be insured with this type of policy.

How Does Machinery Insurance Work in South Africa?

Each insurance provider will have different cover options, but there are a few things that remain constant in the way machinery insurance works. If the machinery is in use, actual physical loss or damage should usually occur before it can be covered. The loss or damage should not be related to maintenance but should be sudden and unexpected. Insurers usually also expect the damage or loss event to be of a mechanical or electrical nature.

Sometimes insurance providers will also cover non-working risk, meaning cover for equipment that gets damaged or lost while not in use, being reassembled on your business premises, or while at rest. Think about the collapse of boilers, the puncture or breakdown of insulation, defective material, incorrect assembly, inadequate lubrication and breakage of parts such as gearing, transformers, and shafts.

The insurance provider can choose whether to replace, repair, or reinstate the insured machinery. The common practice is to calculate the pay-out based on the value of replacement at the time the damage or loss occurs. The cover amount can sometimes include the cost of importing machinery, installation, customs and duty, and the cost of labour involved.

What Does Machinery Insurance Cover?

Machinery Breakdown Insurance covers sudden and unforeseen damages arising from mechanical and electrical breakdowns and accidental external means to the insured’s plant and machinery. If the equipment is not active or being reassembled, you may still enjoy cover at the premises. Sometimes breakdowns start small but cascade to causing extensive damage. A compressor’s bearing may fail, in itself an event of little consequence, but the bearing may cause further damage to the crankshaft, pistons, and conrods. The breakdown could then become a much larger problem. 

Some insurance providers offer the option to extend your cover to include deterioration of stock. This option is ideal for companies that rely on a controlled temperature for the preservation of the condition of stock. Other optional additions can include an increase in the amount covered, third party liability, holiday and overtime wages, and additional customs duty. Machinery insurance policies can sometimes exclude certain kinds of events. It is important to read through the policy before you sign to ensure you understand which insurable events are and aren’t covered. Machinery insurance policies can exclude cover for pre-existing defects, regular wear and tear, and deterioration of parts due to natural cause or due to regular use. Contractual liabilities are often excluded, along with overload, tests, abnormal operating conditions, and experiments. Sometimes fire may be excluded.

Often machinery breakdown insurance is considered a specialised form of business insurance. As such, only a few insurance providers offer this kind of insurance in South Africa. Sometimes you can purchase machinery breakdown insurance as part of a combined business insurance offering or as a sole product. Purchasing insurance to cover the machinery and equipment integral to your operations is important because it mitigates risks to ensure your business moves forward. Your business could then be protected against the heavy expenses necessitated by replacing and repairing broken down machinery, ensuring business continuity. 

DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.

Sources: dbsolutions; brokerdirectory; chadwicks;