Corporate Solutions

Loss of Profits from Machinery Breakdown

Machinery Loss of Profits insurance provides cover for the actual loss of gross profit sustained as a result of a business interruption caused by an accident indemnifiable under machinery insurance.

Machinery Loss of Profits insurance covers:

  • The continuing business expenses (standing charges)
  • The net profit
  • The salaries and wages paid to employees
  • The increase in cost of working i.e. the additional expenditure necessarily and reasonably incurred for avoiding or diminishing a reduction in turnover.

The sum insured is, for all normal cases, made up of the gross profit obtained from the turnover of goods produced or handled in the course of the insured’s business for a period of twelve successive calendar months (i.e. normally for the business year).

Additional costs of working may also be covered under Machinery Loss of Profits insurance, for instance the additional expenditure incurred for the use of an external power supply if the insured’s own power supply breaks down (cost for consumption of Kilowatt hours and maximum demand charges for kilowatts in excess of normal requirements).

The period during which the insurance will make goods losses is defined as the indemnity period. This period – normally 3 to 12 months – is determined by the Insured depending upon the replacement period for the machinery to be insured. Instead of a monetary franchise, this type of insurance is subject to a time excess of normally 12 to 14 days. Losses occurring during the period of time excess are not indemnified under this insurance.

Machinery Loss of Profits insurance is of special interest for “bottle-neck” equipment used in the field of power generation, like boilers, steam turbines, generators, transformers, and for important process machinery, such as paper machines, printing machines, presses, rolling mill equipment, etc, including their devices.

The premium is calculated in consideration of the following factors:

  • The amount of the sum insured
  • The time excess and the indemnity period
  • The number, type and age of the machinery insured
  • The general and the special technical risk of the machinery to the insured
  • The moral and physical hazards relating to each individual user
  • The effect that a breakdown of the machinery insured would have on the gross profit (relative importance)
  • The reserve facilities and spare parts available
  • The effect of local conditions
  • The possibilities of loss minimization
  • The prevailing general economic and political conditions.
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