Why Equipment Breakdown Cover Matters

Mackenzie Ross Insurance broking & risk management

Equipment breakdown is one of the most chronically under-insured items in the Australian insurance market with fewer than 20% of at-risk Australian businesses purchasing cover for equipment breakdown.

It’s a sobering statistic for SMEs, especially given the devastating effect equipment breakdown can have on a business. The shortfall can lead to the failure of a business within two years.

SURA Engineering have provide the following key stats on equipment breakdown.[/vc_column][/vc_row][/vc_column][/vc_row]Why it’s overlooked[/vc_column][/vc_row][vc_row][vc_column width=”1/3″][vc_column_text]Low priority – Property and liability insurance are perceived as higher priorities for SME operators.


But…
The frequency of equipment breakdown claims in the Australian market shows it’s a contingency that’s virtually certain to happen. When it does, it can be crippling.

[/vc_column][vc_column width=”1/3″][vc_column_text]Prices – The current hardening market has increased Property and Liability premiums resulting in Equipment Breakdown being omitted.

But…The cost to the insured’s bottom line will be even greater in the long run and can result in the business folding within two years.[/vc_column][vc_column width=”1/3″][vc_column_text]Reliance on warranty – Many insureds rely on their equipment warranty for breakdown contingencies.

 

But…Warranty covers only apply to the piece of equipment. Interim costs for replacement machinery and business interruption aren’t passed on from a manufacturer[/vc_column][/vc_row]The Real Cost of Equipment Breakdown

Take the example of a suburban coffee shop where the average price for a cup of coffee is $3.50. The operator’s coffee machine breaks down one day and needs to be replaced. To maintain productivity, the operator needs to purchase a new coffee machine priced at $15,000 straight away.

If the coffee shop owner has no cover, they’ll have to sell approximately 30,000 cups of coffee to cover the shortfall before clearing any profit. Adding in the costs of doing business such as rent, inventory, staff wages and other ancillary costs and the owner is facing a significant amount of time before their books are balanced.

The situation can be dire for operators who are less financially sound. The August 2019 report from the Australian Banking Association* showed the top three reasons for SMEs seeking finance were:

1. Maintain short term liquidity
2. Replacement Of Equipment Or Machinery
3. Ensure the survival of the business

Make sure you are protected!

If your cover is currently under an ISR program or written as a section of the Business Pack, you may be able to upgrade the cover to a better protection for a similar price. Additionally lower premiums are available for a higher excess.

Want to discuss equipment breakdown cover? Contact McKenzie Ross today on (03) 9691 2222.[/vc_column][/vc_row]*https://www.ausbanking.org.au/sme-lending-in-australia/[/vc_column][/vc_row]

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