Losing access to important equipment can feel like losing a lifeline. It's akin to misplacing a cell phone that contains our entire world within it, or being without a crucial tool that we rely on for our daily work.
Just as we feel lost and vulnerable without these essential items, businesses can find themselves in a similar position when their vital equipment breaks down. Thankfully, there is Equipment Breakdown (EB) insurance, offering a safety net to prevent businesses from being left in the lurch when their indispensable machinery falters, and there are experts like AXA XL’s Cheryl Geidel with more than 30 years of EB underwriting experience helping businesses get back up and running when equipment decides to call it quits. Here Cheryl shares more about the latest developments in the EB market and what’s keeping her team busy.
Why is Equipment Breakdown insurance so essential for businesses?
Cheryl Geidel: Equipment Breakdown insurance, also known as boiler and machinery insurance, is designed to cover the costs associated with the sudden and accidental breakdown of essential equipment in your business. Just think about all the equipment that a business can be reliant on, everything from heating and cooling systems to production machinery and computers. A single equipment failure can lead to significant financial losses, not just in terms of repair costs but also due to downtime, loss of income, and potential damage to the company's reputation.
EB coverage typically includes repair or replacement costs, business interruption losses, and sometimes even spoilage of products. Without Equipment Breakdown insurance, companies might find themselves facing unexpected expenses that could severely impact their financial stability.
Do all businesses buy EB coverage?
CG: Not all businesses buy equipment breakdown insurance, but it can be a valuable investment for those that rely heavily on equipment to operate. The decision to purchase equipment breakdown insurance depends on the nature of the business, the type of equipment used, and the level of risk the business is willing to bear.
Although some policies may include some EB coverage, commercial property insurance typically doesn’t cover EB by default. Many businesses choose to buy monoline coverage. There’s a lot of benefits to monoline coverage. One key benefit is that it provides specialized coverage specifically tailored to protect against the financial losses resulting from the breakdown of machinery and equipment. Another benefit is that monoline equipment breakdown insurance is often customizable to fit the specific needs of the business, allowing for tailored coverage limits and endorsements to address unique equipment and operational requirements. Additionally, having monoline coverage for equipment breakdown can help businesses manage risk more effectively by isolating this particular exposure from other insurance policies, providing clarity and control over the scope of coverage.
What are some common misconceptions businesses have about EB insurance?
CG: A common misconception is that Equipment Breakdown insurance is redundant if a business already has property insurance. However, property insurance typically covers damage from external events like fire or theft but excludes mechanical or electrical breakdowns. EB insurance fills this gap by covering the specific risks associated with the failure of machinery and systems.
Another misconception is that only large manufacturing companies need this type of insurance. In reality, any business that relies on equipment—whether it's a small retail shop with refrigeration units or an office with computers and servers—can benefit from this coverage. As businesses become more dependent on technology, the risk of equipment failure increases, making this insurance relevant across most industries.
There are a variety of very specialized EB insurance programs available on the market today. We work with a program called ChillPro which provides EB tailored for commercial HVAC service contractors. Through various underwriting agreements with specialized program managers, we provide capacity for very specialized equipment risks.
How has the nature of equipment and machinery evolved over the years? What impact does this have on the need for Equipment Breakdown insurance?
CG: Equipment and machinery have evolved significantly. In the past, equipment was often mechanical, with fewer electronic components, making it somewhat easier to repair. However, modern equipment is far more advanced, incorporating sophisticated electronics, computer systems, and automation technologies. While this has improved efficiency and productivity, it has also increased the potential for breakdowns due to the complexity of the systems.
Likewise, the reliance on specialized parts, which are often sourced from various global suppliers, means that even a small failure can lead to lengthy downtimes if replacement parts are not readily available. The complexity and interconnectedness of modern machinery mean that a breakdown in one part of the system can have cascading effects, leading to more extensive damage and higher repair costs. This evolution in equipment technology has made EB insurance more critical than ever before.
Has more complex equipment and machinery made your underwriting more challenging?
CG: Yes and no. We’re fortunate to have dedicated risk engineering resources to help. Our EB risk engineering team, led by Grace Torres-Valtierra, helps our team of underwriters understand the risk’s process flow, critical equipment, the percentage impact failed equipment has on overall production, and the insured’s readiness to recover quickly from a failure.
So back up plans are important?
CG: Having EB insurance is crucial, but it should be part of a broader risk management strategy which should include maintaining spare equipment, parts, components, raw or intermediate supplies, equipment redundancy, familiarity with available equipment suppliers, repair facilities and/or rental equipment vendors including necessary hookups if alternative equipment needs to be procured.
When equipment fails, the downtime can be prolonged if the necessary parts are not readily available. By keeping critical spare parts on hand or having agreements in place with multiple suppliers, a company can reduce the time it takes to get the equipment back up and running. This minimizes business interruption and helps avoid the ripple effects of prolonged downtime, such as losing customers to competitors or missing critical deadlines.
What advice would you give to businesses considering EB insurance for the first time?
CG: My advice would be to thoroughly assess the role of equipment in your operations and understand the potential financial impact of an equipment failure. Work with an insurance broker who understands your industry and can tailor a policy to meet your specific needs. Don’t overlook the importance of combining insurance with a robust risk management strategy, including regular maintenance, employee training, and having backup suppliers in place.
Remember, the goal of EB insurance is not just to protect your assets but to ensure the continuity of your business. In today's fast-paced and technologically driven world, this type of coverage is not just a nice-to-have but a necessity for any business that wants to safeguard its operations and financial well-being.
Learn more about Equipment Breakdown insurance from Cheryl’s team:
Keeping business equipment up and running: A Q&A with Cindy Fernandez
by Charlie Lage
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US- and Canada-Issued 色多多视频 Policies
In the US, the 色多多视频insurance companies are: Catlin 色多多视频 Company, Inc., Greenwich 色多多视频 Company, Indian Harbor 色多多视频 Company, XL 色多多视频 America, Inc., XL Specialty 色多多视频 Company and T.H.E. 色多多视频 Company. In Canada, coverages are underwritten by XL Specialty 色多多视频 Company - Canadian Branch and AXA 色多多视频 Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following 色多多视频surplus lines insurers: XL Catlin 色多多视频 Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor 色多多视频 Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.
