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MAJOR LOSS RISK FOR EQUIPMENT MANUFACTURERS — FIRE, EXPLOSION, BREAKDOWN & DOWNTIME
Why Fire, Explosion & Mechanical Failure Risks Are Underwritten Differently
For industrial equipment manufacturers, the highest-severity losses often come from a small number of events: fire, explosion, or sudden breakdown of critical production plant. These incidents can destroy machinery, stock and work-in-progress, damage buildings, and trigger months of disruption.
Underwriters focus on two things: how likely a major loss event is, and how quickly you can recover. That means practical details: hot works controls, dust and fume management, combustible storage, electrical maintenance, guarding and isolation, machine condition monitoring, and your ability to source replacements quickly.
This guide explains how manufacturers typically structure property, engineering and BI cover to protect against major loss events — and how Insure24 presents your controls so insurers can offer cleaner terms.
Fire & Explosion: What Insurers Typically Focus On
Fire and explosion losses are often preventable when controls are consistent. Insurers want to see that ignition sources, fuel loads, and escalation pathways are understood — and that management systems are actually used on the shop floor.
Common Fire / Explosion Hotspots
- Hot works: welding, cutting, grinding and temporary ignition sources
- Electrical: overloaded circuits, poor housekeeping, ageing distribution boards
- Dust / fume: accumulation, extraction failures, combustible dust risk (where applicable)
- Flammables: solvents, paints, gases, fuel storage and cylinder management
- Charging areas: batteries, forklifts, and controlled charging zones
- Waste: skips close to buildings, packaging, oily rags and poor segregation
Underwriters will typically ask about housekeeping, formal hot works permits, extraction maintenance, and fire detection/suppression.
Controls That Often Improve Fire Terms
- Hot works permit system with fire watch and post-work checks
- Fire risk assessment with documented actions and review frequency
- Electrical inspection regime (fixed wiring and portable equipment)
- Extraction cleaning and maintenance records
- Separation of flammables, waste and high-risk processes
- Alarm / detection appropriate to occupancy and building layout
Evidence matters: insurers price uncertainty. Documented inspections and a consistent system of work reduce uncertainty fast.
Mechanical Failure & Machinery Breakdown: The “Sudden and Unforeseen” Problem
Property insurance is typically triggered by insured perils like fire, flood or storm. But manufacturers also face a different type of loss: a critical machine fails without an external peril — a spindle seizes, a motor burns out, a compressor fails, a gearbox collapses, or a control panel arcs. That’s where engineering / machinery breakdown cover may respond (wording dependent).
Typical Breakdown Scenarios
- Electrical arcing or short circuits damaging production machinery controls
- Hydraulic failure leading to sudden damage and loss of function
- Bearing failure or overheating causing major internal damage
- Compressor/chiller failure impacting process stability or tolerances
- CNC or automation faults causing stoppage and urgent repair response
The underwriting discussion is usually about machine criticality, maintenance discipline, age profile, and parts availability.
Controls That Often Improve Engineering Appetite
- PPM programme with service records and scheduled inspections
- Condition monitoring where relevant (vibration, thermography, oil analysis)
- Critical spares strategy and supplier lead times documented
- Power quality management and protection devices where appropriate
- Operator training and lockout/tagout for isolation
If one machine failure stops everything, it’s worth treating that machine like a business continuity asset — not just a “maintenance item”.
Business Interruption: The Cost of Time
The visible damage is only half the story. The bigger loss is often the period where you can’t produce, can’t ship, or can’t meet contract deadlines. Business interruption insurance is designed to protect gross profit and fund increased cost of working after insured damage — but the wording must match how you recover.
BI Questions Underwriters Ask
- What is the maximum credible downtime after a major loss event?
- How quickly can you replace key machinery and tooling?
- Can you subcontract work or use alternative sites?
- What are your peak seasons and order backlog dynamics?
- Which customers/contracts impose penalties or strict delivery terms?
The indemnity period is one of the most important decisions on a manufacturing programme. Too short can be a false economy.
Recovery Strategies That Often Improve BI Terms
- Documented business continuity plan with priorities and decision owners
- Alternative supplier and parts sourcing options identified
- Agreed rapid-replacement options for critical plant where possible
- Ability to run extra shifts after restart (and the associated labour plan)
- Data-backed restoration timelines (engineering + operations input)
Insurers price your ability to recover. A practical plan often results in better BI confidence and smoother placement.
We had a serious electrical incident that forced a shutdown. The biggest impact wasn’t the damaged panel — it was the missed production and catch-up costs. Insure24 helped us restructure the programme with engineering cover and a BI indemnity period that matched our realistic recovery timeline.
Managing Director, Industrial Equipment ManufacturerFREQUENTLY ASKED QUESTIONS
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Is machinery breakdown covered by standard property insurance?
Not always. Property cover is typically triggered by insured perils like fire or flood. Machinery breakdown (engineering) insurance is designed to cover sudden and unforeseen mechanical/electrical failure, subject to policy terms, definitions and exclusions.
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What fire protections do insurers expect at manufacturing premises?
It depends on the process and building, but insurers commonly look for a suitable fire risk assessment, housekeeping, hot works controls, appropriate detection/alarm, maintained electrics, safe storage of flammables and documented inspection/maintenance records.
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How do insurers assess explosion risk?
Insurers consider fuels and ignition sources, dust/fume controls, extraction systems, storage of gases/solvents, maintenance discipline and any hazardous area management where relevant. Clear process descriptions and controls help secure terms.
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Can business interruption cover losses after a fire or major breakdown?
Often yes, if BI is purchased and the trigger applies. BI is typically linked to insured damage (property) and can also be added to some engineering policies (breakdown BI). Indemnity period, waiting periods and sub-limits need to match realistic recovery time.
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What information helps insurers quote fire and breakdown risk accurately?
Construction and occupancy details, process description, hot works controls, extraction/flammables management, housekeeping, claims history, values (buildings/contents/stock/WIP), critical machinery list, maintenance regime and desired BI indemnity period.
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Can Insure24 combine property, engineering and BI into one programme?
Often yes. Many manufacturers place property/BI under a combined policy and add engineering (machinery breakdown) with or without breakdown BI. We’ll advise on the cleanest structure based on your equipment criticality and recovery profile.