Machinery Insurance – overview
What can be insured?
All types of machinery, apparatus, electrical equipment and technical plant can be covered under machinery insurance, such as power generating units (boilers, turbines, generators, gas turbines), power distribution plant (transformers, high- and low-voltage switchgear), production machinery and technical plant and equipment (machine tools, weaving looms, paper machines, kneaders, pumps, compressors, heat exchangers, tanks, apparatus, piping, etc.)
Claims under machinery insurance mostly arise from one of the following causes:
Faulty design, calculation, plan, specification, manufacture or workmanship and defects in casting and material
Frequently such faults are only discovered during operation when the manufacturer’s liability has expired and there is no longer any possibility of recourse against the manufacturer. Even if first-class testing methods are used, these faults cannot always be avoided.
Operating error, lack of skill, negligence, malicious acts, faulty maintenance
Despite all precautionary measures, operating and maintenance errors can occur at any time and lead to substantial loss or damage. Losses arising from these causes are steadily increasing.
Tearing apart due to centrifugal forces
Centrifugal forces can cause serious damage to machinery, as well as to buildings and machinery in the immediate vicinity.
Short circuit and other electrical causes
Electrical equipment may suffer serious damage due to short circuit, overvoltage, defective insulation, corona discharge or mechanical stress emanating from the flow of current.
Shortage of water in steam generators
Operating errors, faulty displays on measuring instruments, or failure of the boiler feed system and warning
signals can cause a shortage of water in steam generators. This in turn can result in the overheating and wearing-out of pipes, and even in the destruction of a boiler’s entire piping system.
As gases or vapours tend to expand, the wall of a pressure vessel can be ruptured to such an extent that a sudden pressure release is caused by escaping gas, steam or liquid from the vessel to its surroundings.
An explosion caused by a chemical reaction does not come under this heading. Chemical explosions are usually covered under fire insurance, except for flue-gas explosions in boilers, which may be covered under machinery insurance.
Windstorm, frost, ice motion
Machines located in the open air are, of course, most exposed to the elements. However, even those installed inside a building may be damaged by a windstorm that destroys the roof of the building, or by frost. In this connection, special reference is made to the damage that may be caused by windstorms to loading cranes, overhead lines, cableways and the like. Where a windstorm assumes the magnitude of a natural disaster, it is insurable under a fire policy and is not therefore to be covered under the machinery policy.
What does the insurance not cover?
The causes of non-indemnifiable losses are named in the policy as exclusions. Essentially, these are:
– Perils coverable under another policy, e.g. fire, lightning, chemical explosion, burglary and theft
– Inundation, flood, earthquake, subsidence, landslide and impact of land-, air- and watercraft
– Wear and tear as a result of ordinary use or operation, as well as cavitation, erosion, corrosion (e.g. rust) and boiler scale. These are not fortuitous occurrences. This exclusion relates, however, only to the parts immediately affected, whereas unforeseen, sudden loss or damage to other parts of the machine caused indirectly by wear and tear is covered.
– War or warlike operations, civil commotion of any kind, as well as acts on the part of strikers or locked-out persons
– Wilful acts or gross negligence on the part of the insured or of his responsible representatives
– Faults or defects that already existed at the time the insurance was arranged, and of which the insured was or ought to have been aware
– Faults or defects for which the supplier or manufacturer is contractually or legally liable (losses covered by warranty)
– Loss or damage caused by asbestos contamination or the formation of mould; loss or damage caused by nuclear energy
How are premium rates calculated?
Premium rates are calculated separately for each type of machine, working statistically on the basis of many years’ experience. The rates are applied to the machines’ value when new. In times of high wage and price increases, it is important also to raise premiums in order to ensure that they remain commensurate with the risk. Wage costs account for a high proportion of repair costs but are not taken into account by the adjustment to the sum insured. Experience shows, however, that repair costs, which involve high labour costs, are subject to a higher rate of increase than manufacturing prices, which frequently depend on the market.
Source: copied from Munich Re, Machinery insurance
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