Owning and managing any type of commercial property — hotel, office building, shopping mall, bakery — comes with its share of risks. One often overlooked risk is the sudden breakdown of essential equipment and machinery. A power surge, faulty circuit, loose bolt, or simple human error can all result in an equipment breakdown that stalls or completely halts operations.
In some situations, a broken piece of equipment might only mean a minor inconvenience. In other cases, the damage could result in tens of thousands of dollars worth of repairs and lost revenue from significant business operations delays. Equipment breakdown insurance coverage ensures businesses have the financial means to get their services back on track after a mechanical or equipment mishap.
In this blog post, we’ll explore the basics of what equipment breakdown insurance is, what it covers, and why it’s such critical coverage for commercial property owners.
What Is Equipment Breakdown Insurance?
Equipment breakdown insurance (sometimes referred to as “boiler and machinery insurance”) is a specialized form of coverage that safeguards commercial properties from financial losses stemming from unexpected equipment or machinery failures. It’s designed to cover the repair or replacement costs. In addition, it can offer a financial buffer for lost business income while a vital piece of machinery or equipment is offline, as well as cover the cost of inventory that is lost or damaged as a result of the malfunction or failure.
What Does Equipment Breakdown Insurance Cover?
Step inside any commercial property — from manufacturing plants to co-working office spaces — and you’ll come across a broad range of devices, equipment, and machinery. Businesses run on technology, everything from check-in kiosks, computers, and payment processors to escalators, security systems, and heating or air-conditioning systems. All these things are vital to business operations, and they’re all prone to malfunction or failure, usually at the most inconvenient times.
Equipment breakdown insurance helps businesses get up and running again quickly after a piece of equipment fails due to a range of common circumstances:
- Mechanical Breakdowns: Mechanical components in equipment — like the engine of a manufacturing machine or the transmission in an elevator — can break down unexpectedly. If that happens, equipment breakdown insurance would cover the cost to repair or replace parts, ensuring the production process can resume with as little downtime as possible.
- Electrical Failures: Short circuits, overheating, or insulation breakdown can all lead to electrical malfunctions or failures. Whether the issue is in a building’s electrical wiring or the control panels of a production line, equipment breakdown insurance ensures protection against costs resulting from electrical mishaps.
- Power Surges: Power surges, whether from the electrical grid or internal electrical systems, can wreak havoc on electronics and other equipment, like cash registers, computer systems, and refrigeration units. Equipment breakdown insurance offers coverage for damage caused by these sudden spikes in voltage, providing means for repairs or replacements.
- Operator Error: Human error is an inherent part of any operation, and it can occasionally lead to equipment damage. Whether it’s a machine being operated beyond its capacity or a mistake during maintenance, equipment breakdown coverage offers a safety net and financial recourse for getting things back in working order.
What Types of Commercial Properties Should Have Equipment Breakdown Insurance?
Equipment breakdown insurance is essential for a number of commercial property types, such as:
- Manufacturing Facilities: Protecting production machinery is crucial for maintaining workflow and minimizing costly disruptions.
- Restaurants and Hotels: The hospitality industry relies heavily on refrigeration and HVAC systems to store food and provide comfort to guests.
- Hospitals and Healthcare Facilities: Vital medical equipment must be operational at all times to ensure patient care is not compromised.
- Retail Stores: Point-of-sale systems, refrigeration, and climate control are integral to daily operations and customer service.
- Office Buildings: Computers, data centers, and elevators are just a few of the things susceptible to breakdowns that can disrupt business operations.
Why Is Equipment Breakdown Insurance Critical?
Equipment breakdown insurance sits alongside other types of commercial insurance, covering situations they don’t. Commercial property insurance, for instance, covers property damage from external factors like fire, theft and vandalism, storms, etc. However, commercial property insurance policies typically exclude mechanical or equipment malfunctions. Equipment breakdown insurance steps in to bridge this gap.
Common Exclusions in Equipment Breakdown Policies
As with all policies, equipment breakdown coverage can have its limitations. While equipment breakdown insurance is invaluable, there are a few things it typically does not cover. For instance:
- Lack of Maintenance: Equipment that hasn’t been properly maintained may not be covered.
- Normal Wear and Tear: Nothing lasts forever. Gradual wear and tear on machinery or equipment over time is expected and typically excluded.
- Obsolete Equipment: Equipment that has reached the end of its useful life might not be covered.
- Data Breaches or Cyberattacks: Although equipment breakdown coverage extends to computers, it doesn’t cover cyber threats.
Don’t Wait for a Breakdown
For commercial property owners, equipment breakdown insurance is not just an option — it’s a vital part of their risk management plan. By investing in this coverage, commercial properties are safeguarded against financial disaster when critical equipment fails unexpectedly.
According to David Palmer, Jencap Property Specialist, “Equipment breakdown coverage is generally reasonably priced and is a small percentage of the overall property budget. I’ve experienced some sizable equipment breakdown claims, from a malfunctioning chiller system in a beachfront condo to mechanical failures in a manufacturing environment, and the affordability of the product relative to the coverage that was provided makes it something I recommend for every property program.”
The property market is rife with uncertainty, but Jencap’s property insurance specialists can help even the most complex accounts navigate this challenging environment. No matter if your clients work in hospitality, manufacturing, or any other business in between, Jencap will source the right property coverage they need to keep their operations running strong. Contact us today for a quote.
The Jencap Property Insurance Team
Jencap’s property teams have extensive experience with all manner of occupancies and have unparalleled specialization in designing, implementing, and servicing complex
property insurance and reinsurance programs. Our team welcomes the challenges presented by CAT-exposed properties, vacant buildings, offensive claims history, new ventures, and everything in between!
