Why Equipment Breakdown Insurance is essential to your business
Few types of coverage are quite as misunderstood as Equipment Breakdown insurance. Though brokers and buyers are becoming more informed, there remains a common misconception that Equipment Breakdown only provides coverage for conventional equipment such as pressure vessels and mechanical machines. But this is not your father’s (or your grandfather’s) Boiler and Machinery insurance.
Equipment Breakdown is an essential coverage for almost any business. While many owners and operators think losses related to equipment breakdown are covered under their Property policy, there are exclusions that Equipment Breakdown insurance is designed to fill. Not only does Equipment Breakdown insurance cover equipment that needs to be repaired or replaced, it also covers losses due to business interruption. For example, if key equipment is damaged, a company may not be able to continue their operations right away, which could have big financial and reputational impacts. Or, if a company has a refrigeration breakdown, it would be very costly to throw out spoiled product. Equipment Breakdown coverage helps companies mitigate revenue losses and get back in business as quickly as possible.
So why has Equipment Breakdown coverage been widely misunderstood? A quick history lesson: Boiler and Machinery insurance was created during the Industrial Revolution to protect companies with steam boilers from the risk of explosion or other major breakdown. Over the ensuing decades, the coverage evolved to include a broader range of equipment and electronics, including computers, copiers and phone systems. Understandably, the Boiler and Machinery moniker led many people to believe that if their business didn’t have a boiler or machinery risk, they didn’t need the coverage. That necessitated new terminology—Equipment Breakdown insurance—which came about in the late 1990s.
Today, Equipment Breakdown insurance is all-encompassing, ranging from HVAC equipment, to production machinery equipment (Computer Numerical Control – CNC - machines), to all types of electrical and technology equipment. However, there’s still a lack of understanding about how essential this coverage is for just about every business.
“Many people who have been in the insurance industry for a long time still refer to it as Boiler insurance, but it’s important to steer away from that language,” says Natasha Blackbird, Portfolio Specialist, Equipment Breakdown, at Sovereign Insurance. “If the insured doesn’t have a boiler, they’ll automatically think they don’t need Equipment Breakdown insurance. But with all the new types of equipment—particularly electrical and electronics—there’s more exposure, or failures that could temporarily shut down a company’s operations.”
What about cost? “Most of the time, Equipment Breakdown insurance is complementary and usually packaged with the Property policy,” says Natasha. “Whether Equipment Breakdown coverage is attached to a Property policy or Standalone, we work with brokers and clients to develop a tailored solution for their business.”
To keep Equipment Breakdown insurance top of mind among brokers and insureds, education is key. With the constant influx of new technologies and cutting-edge equipment, brokers need to stay up to date on the trends and have the tools and resources to provide information to clients. For Sovereign Insurance’s part, Natasha says, “we counsel our brokers, partners and underwriters on understanding the coverage and what questions to ask to match the insured’s needs with the benefits of Equipment Breakdown insurance.”