Equipment breakdown behind almost a third of property losses

Businesses tend to become more haphazard in taking advantage of booming economy, says insurer

Equipment breakdown behind almost a third of property losses

Insurance News

By Gabriel Olano

Equipment breakdown has been identified as a top risk in commercial property insurance, rivalling fire loss in both frequency and severity of claims.

That was the conclusion of FM Global, following an analysis of large risk losses reported in 2018. Large risk losses were defined as losses exceeding US$3 million, excluding those caused by natural hazards.

Of FM Global’s 232 large risk losses last year, 65 were caused by equipment breakdown, resulting in 28% of the property insurer’s losses in terms of monetary value.

“A large number of those equipment breakdown losses last year could have been prevented,” said Brion Callori, FM Global senior vice president of engineering and research. “However, in a booming economy, many companies aren’t necessarily taking their facilities offline for preventive maintenance, often choosing instead an expensive roll of the dice rather than a more conservative bet.

“Unfortunately, that strategy only works for so long before problems arise that can lead to expensive repairs, decreased revenue and potential market-share loss for companies that can’t fill orders when their equipment breaks.”

The data showed that 62% of equipment breakdown losses were due to lack of maintenance, while 25% of losses occurred following repairs or during start-up. The human element also factored greatly into equipment breakdowns, with 43% of losses involving operator training. According to FM Global, this highlights the need for enhanced training and knowledge transfer as the industry sees significant turnover due to demographic changes.

In light of these findings, FM Global said that it will expand its industrial controls systems service later this year, which will broaden loss prevention engineering, including cyber security, to encompass the software and hardware that controls clients’ industrial systems.

In April 2019, the company announced its plan to hire 60 seasoned engineers dedicated to helping clients prevent equipment breakdown-related losses. Once these additional engineers are hired, it will have more than 250 engineers dedicated exclusively to major equipment such as boilers, turbines, generators, transformers, chemical vessels, compressors and pulp and paper processing machines.

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