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Equipment breakdown identified as a leading cause of business disruption

Equipment breakdown now rivals fire loss in both frequency and severity of claims, according to an analysis of large risk losses reported in 2018 to FM Global, one of the world’s largest commercial property insurers. (Large risk losses are those losses greater than US$3 million that do not include natural hazard loss.) Of the company’s 232 large risk losses last year, 65 were the result of equipment breakdown resulting in 28 percent of FM Global losses across all industries in 2018 based on gross loss dollar amount.

“A large number of those equipment breakdown losses last year could have been prevented. 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,” said Brion Callori, FM Global senior vice president of engineering and research. “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.”

Other key findings from the 2018 review of large risk losses include:

  • 62 percent of equipment breakdown losses were due to lack of maintenance, accounting for three-quarters of all equipment loss claims paid;
  • 25 percent of equipment breakdown losses occurred after repairs were made or during startup.
  • Nearly half of all equipment breakdown losses had a significant human element impact or influence - operator training was a factor in 43 percent of equipment losses, highlighting the need for enhanced training and knowledge transfer.

“During the last five years we’ve seen increasing numbers of losses from equipment breakdown, especially in the pulp and paper, chemical, electric utility and mining industries,” said Callori. “Importantly, our analytics tools, based on thousands of location site visits by our loss prevention engineers over many years, continue to accurately predict large losses. While our data also shows those large losses diminish as engineering site visits and client tenure increase, if companies don’t take measures to prevent equipment breakdown, they put their business resilience at risk.”

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