For businesses across many industries, a breakdown of critical machinery can cause havoc. Operations cannot function as normal, contracts cannot be fulfilled and customers are unhappy, potentially leading to a loss of revenue and reputation. Many of these breakdowns even affect critical municipal infrastructure. Recovering from the risks that affect critical machinery (known as boiler and machinery risks) can be very costly in both time and money.
A review of FM Global's 2018 large losses revealed that boiler and machinery breakdown accounted for almost one-third of all losses greater than US$3 million experienced by its clients across all occupancies. The high costs associated with these losses are often a result of the business interruption immediately after a loss event, and from secondary damage to auxiliary equipment at the facility.
The risks are particularly acute in high-hazard industries such as power generation, pulp and paper, chemical, molten material, mining, and semiconductor manufacturing. In these industries, up to 65% of property losses can be attributed to machinery breakdown.
The business interruption suffered by organizations operating in complex, technical industries is often exacerbated by the time required to repair or replace machinery. The intricate and specialized machinery is typically built to order, with limited supplier options. When coupled with the lack of available spare parts, the length of time it takes for machinery to be replaced can be substantial. For example, it could take six months or more for a power plant to be brought back online following a catastrophic power outage due to critical machinery breakdown.
Given the scale of the disruption that boiler and machinery losses can cause for all businesses, it is vital for business leaders to recognize the risks of machinery breakdown and take action to mitigate them.
Appropriate maintenance is, of course, essential in reducing the risk of critical machinery failure. However, maintenance is perhaps not always given the attention it deserves, especially in strong economic times, with businesses wanting to optimize production and having to balance competing risk management priorities, particularly growing intangible risks such as cyber threat.
Data analytics capabilities can offer significant benefit in the prioritization and allocation of resources, especially when combined with a detailed risk management assessment and insight from a knowledgeable insurer. Utilizing these tools and support, businesses can have confidence that their key equipment has been evaluated, and that any hidden exposures that could disrupt the business have been revealed.
Although the exposure that industries such as power generation face from boiler and machinery losses is considerable, it is not insurmountable. With the right knowledge and insight, risk management-focused insurers can provide crucial advice. At-risk businesses can then prioritize the maintenance, upgrading and replacement of machinery more efficiently. Effective and appropriate capital expenditure will reduce boiler and machinery exposure, resulting in a resilient operation for the long term.
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