Equipment valuations are most often addressed after a loss occurs. During an insurance claim is the wrong time to establish the fair value of lost equipment.
After damage to your facility or equipment, two immediate challenges become apparent.
After significant fire damage to a local manufacturer’s facility, they make an insurance claim to replace their destroyed equipment.
The insurance adjuster does a site inspection, reviews the damaged equipment and compares this against the manufacturer’s insurance policy. After the review, the adjuster sends the business owner their proposed insurance payout.
Much to the surprise of the manufacturer, their insurance company is only willing to pay half of the value of the replaced equipment. Having carried insurance on their equipment since they opened their business, the owner is understandably perplexed.
In this situation, a co-insurance penalty was applied by the insurance company, having the business owner share in payment of the loss along with the insurance company.
Co-insurance clauses are universal in Property insurance policies. Co-insurance requires the insurance buyer to insurer their building, equipment and stock to at least 90% of the cost to replace new. Any shortfall identified by the insurer can have the business owner sharing in any size loss to the percentage they under insured.
Although a co-insurance clause is generally not removable from a Property policy, its affects can be mitigated. Insurers may be agreeable to suspending the co-insurance clause if they believe that both building and equipment have been valued accurately.
Property values can be a moving target with inflation and supply chain issues. What could be insurance to full value today may be deemed inadequate in six months.
A local manufacturer’s facility uses a key piece of machinery in its assembly line. The machinery breaks down due to electrical arcing, forcing them to halt production for several weeks until the replacement parts are received and the machinery is repaired.
Knowing that their equipment was insured under the Property insurance policy, the manufacturer makes a claim with their insurance company. Unfortunately, the claim for damage to their equipment is denied by the insurance company citing that breakdown and damage caused by mechanical malfunction and electrical arcing are not covered losses under a Property insurance policy.
Redundant solutions can help avoid bottlenecks that extend downtime including recommissioning of older equipment and mutual aid agreements where possible with like-minded local competitors.
Although the manufacturer had Property insurance to protect their equipment from fire, flood and other perils, Property insurance policies do not provide protection against electrical arcing or mechanical malfunction.
Making things worse, the downtime and resultant loss of revenue would not be covered by their Business Interruption insurance which only pays out IF the loss is covered under the Property insurance policy.
Had the business owner been aware of Equipment Breakdown insurance, they would not have to had paid out of pocket the cost to repair their equipment, the lost income caused by the halt in production and the extra costs to expedite the delivery of the unique parts from the overseas machinery manufacturer.
A manufacturer’s hydraulic shear machine suffered a mechanical breakdown. As a key piece of equipment in their process, getting this repaired quickly is key. However, they learned from the insurance adjuster that critical elements of their Equipment Breakdown policy are missing and damage from mechanical breakdown to equipment like their sheer is not covered. Although they were able to get up and running again, the significant repairs and downtime had to funded from their cash flow.
Although many manufacturers ensure that their insurance program provides Equipment Breakdown insurance, a key enhancement for production machinery is often missed.
Without this, damage caused specifically by mechanical breakdown and the resulting downtime are not covered. Although many manufacturers ensure that their insurance program provides Equipment Breakdown insurance, a key enhancement for production machinery is often missed. Without this, damage caused specifically by mechanical breakdown and the resulting downtime are not covered. This is critical coverage for any machinery that processes, forms, cuts, shapes, grinds or conveys your product.
Due to unique operations and a tight real estate market, a local manufacturer has their operations spread across a number of facilities. Their raw materials and work in progress move between facilities.
After a fire to one of their buildings, the insurance adjuster questioned the value of the stock insurance they carried. Their insurance policy noted specific stock limits at each location, yet the facility with the claim had double the amount of stock as indicated on their insurance policy.
As a result, the insurance adjuster applied a co-insurance penalty for underinsuring their property and only half of the claim was paid.
It is common for stock values to fluctuate as they move from one facility to another as raw materials progress to finished stock. An Average Distribution Clause signals to the insurance company that your stock value in each facility can swing significantly. This insurance clause ensures that your stock values are taken into account by the insurer holistically rather than facility by facility.
Although an easy solution to ensure full coverage when you need it, not all insurance brokers have the experience and expertise to recognize the need or the solution.