As a manufacturer, your equipment is the backbone of your business. A single breakdown or an unexpected failure — whether from a power surge, severe weather, or mechanical failure — can disrupt operations, impact revenue, and harm your reputation.
Many businesses assume that standard commercial property insurance is enough, but it may not fully cover the costs associated with damaged or malfunctioning equipment. To ensure your business is adequately protected, it’s important to understand the difference between equipment insurance and equipment breakdown insurance, and whether your operations may require both.
The risk of equipment failure
Consider what would happen if your production system came to a halt. Do you have a backup system? How quickly could you rent, repair, or replace the necessary machinery or equipment? In the meantime, how would your operations be disrupted? Will you have to delay orders? If customers can’t wait, how much revenue could you lose? And how could that damage your company’s reputation?
Every minute of downtime equates to lost productivity and revenue. Repairing or replacing equipment can be costly, and delays may extend from hours to weeks if specialized technicians or parts are required.
At the same time, manufacturing equipment is becoming increasingly more sophisticated, with more complex components, sensors, robotics and even Internet connectivity. While these innovations enhance efficiency, they also introduce vulnerabilities. For example, a power surge can damage multiple interconnected parts on your production line. This makes it crucial to have the right insurance coverage.
Understanding equipment insurance
Commercial property insurance is designed to protect your business premises and its contents, from furniture and inventory to tools and equipment. This coverage provides protection for losses or damage to your property by external sources, such as fire, hail, windstorms, theft, or vandalism. However, standard property insurance often doesn’t cover the specific risks associated with industrial or manufacturing equipment.
Manufacturer’s insurance or equipment insurance (sometimes called an equipment floater) provides additional coverage for essential machinery used in your operations. However, this coverage is related to loss or damage from external causes like severe weather or a fire, rather than internal causes, such as mechanical or electrical breakdown.
What is equipment breakdown insurance?
Equipment breakdown insurance goes above and beyond manufacturer’s insurance or equipment insurance to include internal causes of loss and damage. This includes the sudden, accidental breakdown of your machinery and equipment, such as electrical short circuits, motor burnouts or mechanical breakdowns. It can even help cover negative publicity costs stemming from equipment-related product failures or delivery delays, offering peace of mind in the age of online reviews and real-time feedback.
While some equipment may be under warranty from the manufacturer, these warranties often come with limitations and exclusions like loss of productivity, product impairment, or temporary relocation. Once the equipment is no longer under warranty, the responsibility to repair or replace it falls on the owner.
Equipment breakdown coverage not only helps to cover the costs of repairing or replacing damaged equipment, but it can also include costs related to diagnosis fees, labour, lost income, spoiled inventory, as well as costs to expedite parts.
With equipment breakdown coverage, you have the option to cover specialized equipment, such as production machines. There are also two types of coverages to consider:
- Including production machines: Coverage is provided for key equipment used in processing and manufacturing.
- Excluding production machines: Coverage is excluded for processing and manufacturing equipment, as they may not be used by the client.
It is important to keep in mind that equipment breakdown insurance doesn’t cover normal wear and tear or issues that arise due to poor maintenance or age.
Northbridge coverage
To further strengthen your protection, Northbridge provides:
- Risk engineering and jurisdictional services for clients requiring certification of their equipment.
- Coverage as part of a package with our property form or standalone policy
- Coverage forms in both English and French
Do you need both coverages?
It’s worth reviewing your commercial property policy to see if there are exclusions for equipment coverage (and there typically are), in which case you can add on an extended equipment insurance floater or equipment breakdown coverage. If your business relies on specific equipment to carry out your daily operations, you may want to consider both equipment insurance and equipment breakdown insurance.
Even if you lease your facility, you are still responsible for repairing or replacing equipment, not your landlord. Also, even if your equipment is still under warranty from the manufacturer, the warranty won’t cover additional costs such as lost income or spoiled inventory.
Protect your business by choosing the right insurance
To ensure full protection, consider working with your insurer to tailor a policy that meets your needs. You may also want to add an installer floater to cover damage during equipment installation or upgrades. The right insurance policy, tailored to your specific business, can help cover the costs of renting, repairing, or replacing your essential equipment to minimize downtime. To safeguard your business against both external threats (such as severe weather) and internal causes (such as a mechanical breakdown), ensuring minimal downtime and maximum productivity, visit our Machinery and Equipment Manufacturers’ Insurance page today!
