News Machinery breakdown claims

Three common machinery breakdown claims issues

Nov 23, 2023
Sriram Natesan, Loss Adjuster with Advanta Global has extensive experience adjusting machinery breakdown claims. He identifies three steps that Insureds could take to improve claims outcomes.

1. Business interruption period

Electrical short circuits, mechanical forces, overload, control failures are just a few of the causes of equipment breakdowns. Often these events can put key production machinery out of action. This has an immediate, and sometimes severe, impact on revenue and profitability so it is important to minimise the period of the interruption.

This means sourcing repair parts as quickly as possible, but that is not always as simple as it sounds. Supply chains that were affected by the global Covid pandemic have still not fully recovered and it means that parts are taking longer to obtain. For example, we’ve recently experienced lift parts taking up to 18 months and parts for extrusion machines taking up to 10 weeks.

The result is that many firms have inadequate machinery breakdown business interruption indemnity periods, which means that their insurance policy is not covering the full period of the interruption. Whilst losses can often be mitigated by extending the working hours of undamaged machinery this can itself invite other consequences and additional costs.

2. Machinery sums insured

Machinery breakdown policies cover the cost of repair or replacement of insured machinery and plant. The sum insured for each item covered should equal the replacement value. We often find that firms instead use their depreciated book value and that leaves them considerably underinsured. Average is then applied to claims reducing the settlement by the proportion of underinsurance.

Even where firms have provided replacement costs when taking out the insurance, they have failed to regularly review the adequacy of the sums insured. For well documented reasons the world has recently been suffering from high levels of inflation. The cost of replacement machinery, spare parts, labour, and transportation have in many instances increased significantly and by rates far in excess of reported inflation indices.

3. Maintenance records

When dealing with a machinery breakdown claim one of the first steps of the loss adjuster will be to check the machine’s maintenance records as Insurers will want to see a copy with our report. We’re trying to establish whether the machine has been maintained in accordance with the OEM guidelines and where faults have been identified what action has been taken to resolve the issue. All too often we find incomplete maintenance records or it’s obvious they have been brought up-to-date post event.

It is a policy condition that the machinery is maintained to the OEM’s guidelines, and if it’s discovered that this has not happened then the claim can be rejected as Insurers will consider the loss to result from the negligence of the Insured.

Sriram Natesan

Sriram Natesan is a loss adjuster in the Dubai office of Advanta Global. An electrical engineer, he specialises in adjusting construction and engineering claims.