It’s a facility you hope you won’t need to use… but when you do; you want it to support you. Yes, it’s insurance we are talking about – specifically machinery insurance.
As a business we have had our fair share of claims to settle from unforeseen occurrences. One of these such claims involved a 34-ton Jaw crusher that was being transported back to the Equip2 yard from the coast after completing a rental contract. The driver from the transport company made an error in accounting for the crusher weight distribution which ended in the Crusher being thrown off the trailer onto the roadside with a very high water table. He had failed to widen his trailer which would have prevented the accident.
We’ve learnt from scenarios like this and would like to share some of these lessons with you.
1. Don’t undervalue your plant
Insure your plant for replacement value – not current market value. CMV being a common way to lower premiums but this can potentially hurt in the future. If your machine gets written off; understanding the “basis of settlement” can make a difference of hundreds of thousands of dollars.
For Example an Impact Crusher's purchase price on a low hour second hand machine can be between $650-$750k. Setting an agreed value is simple if you purchased the machine for $700k; You can set the value as the purchase price (or a recent market evaluation). A low agreed replacement value may mean lower premiums but, it might be harder to find a replacement machine at the time of loss, which could be dearer than the original purchase price for whatever market reasons, like seasonal demand and currency value as machines are imported from overseas.
Impact Crusher original cost and agreed replacement value: $700,000
Potential replacement cost: $850,000
The difference in cost would have to be assumed by the business. Check your plants valuation often to ensure equipment is properly insured.
2. Insurance for Transportation
Make sure your insurance covers transportation as well.
Did you know that a transport provider normally only covers up to $2,000 worth of damages? That means on a $500,000 machine the transport company only covers 0.5% of the machines value. This is a considerable risk to be ignorant of. As machine contractors, mobile operations or companies that transport often are exposed to increased risk and potential irreversible financial loss. As seen through media coverage recently; heavy machinery transport is not without risk, it happens with reports on trucks tipping over with machines.
3. Lost income and lost use (Rental Reimbursement)
This type of cover can become important to protect your income stream and the bottom line of the business. Here's two real-life examples of why.
12-ton Excavator rolled by Operator.
In this claim; recovery consisted of using a 100-ton crane to lift out the machine for transport to a repair facility and an 8-week turnaround on parts to fix the damage. Total incident to restoration time was 3 months. Fortunately, the Hire Company had this loss of use clause, another machine was sourced for Hire and was fully paid for while the other machine was repaired. The job continued as scheduled and revenue was not disrupted.
Mobile Crusher flood damaged.
Specialist machinery and plant when written off can result in a considerable drop in revenue while not operating. This can be due to the long-time frame it takes to source a replacement, especially when you factor in Tip 1 (replacement value). Your valuation will determine what you will be able to replace it with and potentially how soon. With a low chance of sourcing a rental machine in these circumstances, lost production may be around 300-450 tonnes per hour. A 2-month loss of productivity is a drain big enough to bankrupt any business. This crushing operation had income protection, and while their machines were repaired to pre-flood condition they had continued income.
4. Liability insurance
When an incident happens, it may involve a third party’s property, equipment or even a person. It's important to have an appropriate liability programme that covers the breadth of your business accurately. For example, cover can be extended for underground services (important for civil and drainage contractors) and for goods on hook (important for crane operators). It's important that you then get the right liability insurance that will cover any possible foreseeable incidents in your operation.
5. Mechanical Breakdown Insurance
While on large fleets it may not be necessary, disruption on operations due to machine downtime and repairs, can cause costs to spiral. Smaller fleets will find this beneficial to cover the cost of repairs and machine downtime saving them substantial loss.
Mechanical breakdown is essentially cover for unforeseen breakdowns, there is no replacement to a good service and maintenance programme which will save more money and give better productivity than relying on insurance.
What to Look for in Picking an Insurance Broker
Choosing to work with a broker can help ensure you’re getting the right advice for your business. They’re your key point of contact and help select the insurer and coverage for your equipment. To select a broker to work with look at:
- Claims experience – the proof is in the pudding; ask for references and examples.
- Insurer access – select a partner that works with more than one insurer. Preferably select a broker with access to specialist insurers that understand your business and work in your industry.
- Broker knowledge – not having to teach your broker to understand your business model will mean they know how to insure you correctly. Though let them know all the important points about your business.
This Article is a guide only and should not be a replacement to professional advice from a qualified professional. Equip2 takes no responsibility for the accuracy of this article or actions arising from its use.