Industrial machinery insurance in China: How a machinery breakdown insurance can prevent greater damage in case of a machinery breakdown

Is your business reliant on important and expensive machinery to operate? What would your business do if key machinery broke down? These are prime examples of questions to ask when a business considers whether to take out a machinery breakdown insurance. Taking out an insurance for industrial machinery in China should be considered by every business, most importantly manufacturing companies. Such an insurance could determine the survival of a firm after a production downtime resulting from a machinery breakdown.

Market overview: Facts & figures of the industrial machinery insurance market in China

The Chinese market for machinery breakdown insurances has been growing considerably over the last 5 years. Chinese businesses have good reason to mitigate risk by insuring against machinery breakdown. Why? According to Allianz, Business interruptions constitute the number 1 global business risk. In China, the outcome does not differ substantially, as only the pandemic situation has caused more trouble for firms operating in China in 2021 than unexpected business interruptions. Thus, the wish to reduce the risk of machinery downtimes seem logical when one considers the potential financial and reputational harm firms could suffer after a defect in machinery. Having an insurance for industrial machinery in China can become a key determining factor for a company’s performance during critical times.

Source: Allianz Risk Barometer 2021: designed by Asian Risks Management Services: Top business risks within China

Industrial machinery insurance in China covers elements not included in insurances for electronic equipment

It is a frequent misconception that regular insurances for electronic equipment, such as an “All Risk” Insurance, will cover a sudden an unforeseen machinery breakdown. Instead, a separate insurance policy must be signed. A machinery breakdown insurance will cover the loss that the business may face due to the sudden breakdown of the machinery. In other words, the organization facing a machinery breakdown will be reimbursed by the insurance company for the repair or replacement of the machine, depending on the situation. The insured capital will depend on the declared value established by the insured party. Most commonly, this value must be equal to the replacement cost of the insured machinery with a new one (identically in terms of its capacity). Besides, the declared value must include all the taxes that are required to put the new machine in the place of insurance and ready to enter commercial operation.

The scope of machinery breakdowns in China

Insurance for industrial machinery in China is relevant because no one can predict a sudden and unforeseen downtime of machinery. It is certainly true that AI-based technology, including predictive maintenance, have gained momentum in recent years and help mitigate business risk. However, the problem of sudden machinery breakdown persists. Unstable quality of selected Chinese machinery contributes to this challenge. According to FM Global’s 2018 large loss review, almost one-third of all losses greater than $3 million experienced by businesses were due to boiler and machinery breakdown. In high-hazard industries (i.e. mining, chemical, power generation or semiconductor manufacturing), which are of key importance to the Chinese industry, this figure rose to 65% of losses. Frequent reasons for a machinery breakdown include short-circuits, excess voltage, faulty material and many more.

Source: axway: A machinery breakdown – here at an automated car assembly line – could trigger massive delays for car manufacturers

How to (re)act after a machinery breakdown?

Businesses are well-advised to follow a strict procedure in case of a machinery breakdown to ensure coverage by the insurer. First, most insurance companies require firms to notify them immediately after the breakdown, most frequently within a 24-hour period. In addition to an oral damage report, it is common to provide the information in writing. By doing so, much more information can be provided and the exact scope of the damage can be defined by both parties. Besides, firms are well-advised to set up a contingency plan that includes the contact details of nearby qualified repairmen as well as suppliers of spare parts. Next, the organization must take all steps to prevent further damage as well as preserving all defective parts. This procedure allows for a fair claim investigation process.

Key take-aways

• Business interruption constitutes the number 1 global business risk.
• Thus, taking out an insurance for industrial machinery in China is of high importance, especially for manufacturing companies.
• The negative domino effect of an uninsured machinery breakdown must not be underestimated: Production downtime will inevitably harm client relations and jeopardize a company’s brand image.
• To avoid a long and costly production standstill, organizations facing a machinery breakdown should follow a strict procedure to maximize coverage by the insurance company.

To manage your business risks so you can optimize your growth, insure your business today, please contact ARMS.

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