Machinery insurance - Swiss Re

1 Machinery insuranceMachinery insurance_e 8:14 Uhr Seite u3 Machinery insuranceMachinery insurance_e 8:14 Uhr Seite 1 Contents1 Introduction52 Scope of cover73 Insured items84 Insured perils105 General conditions126 Exclusions137 Sum insured178 Property valuation189 Premium calculation2410 Deductible (excess)2511 Risk inspection 2612 Clauses/cover extensions2913 Indirect damage insurance3114 Rating3215 Claims handling3416 Outlook37 Appendix: Index of terms38 Machinery insurance_e 8:14 Uhr Seite 35 Machinery insurance has always been instrumen-tal in promoting the acceptance of new technolo-gies.

2 A direct correlation between the economicclimate and the acceptance of new technologyremains. For instance, nuclear power plant facili-ties and high output thermal and hydroelectricpower plants could have never been built andoperated without the backing of adequate insur-ance protection. Even financially strong enter-prises would have hardly had the means toabsorb potential or even actual losses from surging technological progress, anadverse competitive environment also compelsindustry players to tighten production and test-ing schedules so that new machines and equip-ment are often installed onsite without priorcomprehensive testing.

3 Insurers may also providecover for machines and equipment which, inresponse to greater commercial pressures, featurenovel designs and new, unproven materials andprocesses. Underwriters are advised to exercisecaution when providing cover for this category of risk. This brochure is designed to assist underwritersin this challenging field of insurance by pro-viding sound fundamentals before discussingspecific technical details and typical problemareas of Machinery IntroductionThe origin of boiler and Machinery insurance isinseparably linked with harnessing and utilisingpower. Virtually nothing has changed in everydaylife as radically as power generation.

4 The inven-tion of the steam engine in the early 19th cen-tury launched the industrial revolution, usheringin a new era with decisive, far-reaching advent of the steam engine also creatednovel hazards and prompted the need for anentirely new range of insurance covers. Technicalcovers including boiler and pressure vessel insur-ance and Machinery insurance were designed to protect equipment such as steam boilers,turbines, generators and motors which generateor utilise power. Moreover, changing socio-economic factors, which shifted the workplacefrom the home to the factory floor, promptedthe need for employers liability and workmen scompensation s ever greater power demands for produc-ing capital and consumer goods coupled withincreased urbanisation continues to spur devel-opments toward attaining higher performancemachines and installations of enhanced effi-ciency.

5 Technological advancement has led tonew materials which must withstand more strin-gent design parameters such as higher pressures,temperatures, operating speeds, etc. This, inturn, has led to greater stresses and increasedexposure to both material and operating development of higher performancemachines targets greater capacity and efficiencyas an ongoing objective, and manufacturersvigorously vie with one other to push the limitsof insurance_e 8:14 Uhr Seite 5 Machinery insurance_e 8:14 Uhr Seite 67 Apart from conventional fire and extended perilscoverage, no commercial property risk manage-ment programme is complete without consider-ing mechanical and electrical equipment break-down exposure.

6 Any device that uses, generatesor alters mechanical or electrical power is subjectto break down. Machinery insurance provides cover against a wide range of losses from breakdown of plantproduction equipment, electrical equipment,boilers, pressure vessels, heating and coolingequipment, addition to material damage, equipmentbreakdown frequently results in substantialconsequential loss such as business interruption,extra expenses and ancillary services interruption(eg power generation, refrigeration systems, etc). insurance can be extended to include theseconsequential losses either as stand-alone coversor as endorsements to the direct damage primary focus of engineering insurancecover is not the type of perils insured, sincepolicies, by and large, provide quasi all-riskcover; rather, the special features of the insureditems are the decisive criteria in this , it is evident that a broad spec-trum of items can be insured, eg power plants,printing machines, chemical installations, com-puters etc.

7 The great diversity of insurable itemsnaturally implies an equally wide range of dif-ferent insurance requirements. All engineeringcovers in force today can be subdivided basicallyinto two main categories, ie single project coversand those annually renewable. Boiler andmachinery insurance covers constitute the largestshare of the latter Scope of coverEngineering insuranceSince Machinery covers were first introduced, thescope of cover has changed to optimally complywith client needs and is still subject to ongoingmodification. As will be discussed, the scope of cover may vary from country to country, butthe basic elements of all policies remain insurance (BI)Deterioration of stock(DOS)Extra expensesetcDelay in startup (DSU)Force majeure (FM)Liquidated damages(LD)

8 Third party liabilityBodily injuryMaterialdamage coverConsequentialloss coversCasualtyNon-renewableRenewableBoil er explosionMachinery insuranceContractors plantComputerLow voltage &electronic equipmentetcEARCARD efectsLiabilityTechnically, a break-down is a malfunc-tion, but is insurableonly when it issudden, accidentaland involves physi-cal damage to themachine or equip-ment in whole insurance_e 8:14 Uhr Seite 783 Insured items For insurance purposes, machine items aredescribed according to the following threecategories:Individual listing A specific, detailed list and brief description of each item insured.

9 The list should includespecifications such as rating, continuous workingcapacity (kW), operating speed (rpm), safetyvalue load, etc; year of manufacture, manufac-turer s name and registration number, new replacement value. Blanket groups insurance covers for specific machine and equip-ment categories, eg blanket all inthis category provide cover for all items of thatparticular specification (in our example, boilers).Comprehensive formThis category includes all machines and equip-ment installed at the insured site(s).The comprehensive form of cover is so broadthat it includes many items of low value, whichare hardly worth insuring.

10 However, since thecost of insuring each of these items individuallywould be prohibitive, an adequate deductible ismandatory for this cover to keep insurance costwithin an economically justifiable insurance covers a truly diverse spec-trum of machines and equipment in commercialand production facilities. Cover is granted onlyfor those machines and equipment items whichare cited in the policy schedule and are in use or intended for use at the site indicated in thepolicy. Therefore, the insured items must beaccurately described, particularly in cases wherecover is granted not only for stand-alonemachines but for entire for usePlant facilities and machines are considered ready foruse after successful testing and commissioning and assuch are ready for commercial procedures for equipment acceptance by the buyer(operator) are detailed in the works and/or supplycontract.