Getting to Know Machinery Breakdown Insurance
As the name suggests, Machinery Breakdown (MB) Insurance is an insurance product that covers the risk of loss or physical damage to machines (machinery). This type of insurance product is a derivative of engineering insurance. We all know that all machines have potential damage in their operations so this risk needs to be covered by insurance so as not to financially interfere with the operator or machine owner.
A simple illustration is if we have a photocopy machine, printer, or other production machines. It's called a machine, sometimes various problems appear suddenly which results in us having to spend deeply to fix it. Evenmore if the damage is frequent. You can imagine how much of an impromptu budget must be spent for the emergency fund.
Well, this MB insurance product covers physical loss or damage to machines that are already operational either suddenly or unexpectedly (unforeseen). MB Insurance Policy refers to the Standard Policy issued by Munich Re.
The risks covered in the MB Insurance Policy usually cover loss or physical damage caused by casting errors, defects in materials, planning errors, installation errors, operating errors, lack of expertise, carelessness, lack of water in the boiler, lack or faulty lubrication. , explosion, short circuit, storm, malfunction of security devices, and other causes that are not specifically excluded from the policy.
This MB insurance policy can be extended with risks such as expediting costs, loss of profit, and own surrounding property/own existing property. Expediting costs is to provide a cover for the possibility of other additional costs as a result of loss/damage to insured machine. Loss of profit is to provide a cover for the expected loss of profit as a result of damage/loss to insured machine. Meanwhile, own surrounding property is to cover for the loss/damage to insured's belongings around the insured machines.
Risks that are excluded or not covered in MB Insurance policy are:
- Deductibles stated in policy;
- Loss or damage to equipment that is regularly replaced;
- Loss or damage caused by fire, lightning strike, chemical explosion (except explosion of fuel gas in a boiler), fire fighting or demolition of buildings after fire has been extinguished, aircraft or objects falling from plane crash, theft, burglary, collapsing buildings, floods, puddles, earthquakes, landslides, hurricanes, cyclones, volcanic eruptions or similar catastrophic events;
- Loss or damage that is under the responsibility of supplier, contractor or workshop, whether responsibility is appear by law or appear under a contract;
- Loss or damage caused by defect that existed at time the policy started to take effect and was known to insured or his representative;
- Loss or damage that occurs due to intentional act or negligence of insured or his representative;
- Consequences of wars, invasions, acts of foreign enemies, hostilities, civil wars, rebellions, revolutions, riots, strikes, barriers to entry to work, civil disturbances, takeovers of power, evil acts/deeds with political background, conspiracy, destruction of property at behest of government or at behest of authorities;
- Effects of nuclear reactions, nuclear radiation or radioactive contamination;
- Loss or damage as a direct result of wear (such as wear and tear, cavitation, erosion, corrosion);
- Consequential loss or liability of any kind.
Not only machine owners, parties who can buy MB insurance products are those who have an insurable interest such as tenants and financial institutions (banks, leasing, etc.). Tenant has an interest because they will usually be party responsible for any damage or loss that occurs to machine being rented. Meanwhile, financial institutions have an interest because in a credit contract, usually the machine will be used as collateral for credit.
Meanwhile, the premium rate for MB insurance is usually set in per mile per year, while the premium is calculated on the basis of multiplication between the total sum insured stated in policy summary and premium rate that has been mutually agreed upon between the insurer and the insured.
Claim mechanism is based on indemnity principle where physical loss or damage covered under MB insurance policy is given by the insurer to the insured in three ways, namely payment in cash, replacing with another machine (replacement), and repairing a machine that suffered a loss or damage (repair). Right to choose which method of compensation from 3 (three) methods of compensation above rests with insurer, not insured.
If there is more than one machine that is insured under the policy and for each machine sum insured has been determined separately in policy, then compensation for each machine during insurance period (usually 1 year) will not exceed the sum insured of machine concerned and in total not more than total sum insured stated in policy.
Regarding sum insured value, MB insurance policy requires that sum insured of machine insured or to be insured on MB policy must be determined at an amount equal to total cost of replacing machine insured or to be insured with a new machine of same type and same capacity, including cost of delivery (freight) taxes/import duties (dues and costum duties) if any, and cost of erection of new machine.
However, if sum insured turns out to be less than the amount required to be insured, then the insurer will only pay the claim proportionately according to ratio between sum insured stated in policy and sum insured that should be or is required.
In the event of a claim, the insured is obliged to take the following four steps: firstly, immediately notify the insurer of incident in writing or by telephone, which is then confirmed in writing, by giving an indication of the nature and magnitude of the loss or damage. Notification must be submitted to insurer within time limit specified in policy.
Secondly, take steps that are within its capabilities to minimize loss or damage. Thirdly, maintain and prepare parts that have suffered loss/damage to be inspected by representatives or surveyors appointed by insurer. And fourthly, providing information and evidence documents required by insurer.