Factors Affecting Plant and Machinery Insurance Premiums (CPM)

A lot of industries rely heavily on machinery and equipment for their operations. Given that most of these are capital intensive, businesses should have a contractor's plant and machinery insurance (CPM). While the higher the machinery price, the higher the premium demanded (in most cases), the risk associated can also influence the premium charged.

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Assessing the Risk Associated with the Operational Setting

Locations prone to natural disasters, political unrest, civil conflicts, and high crime rates carry a higher risk of property damage and business interruption. The risk assessment for locations with harsh environmental conditions leads to higher insurance premiums on account of the frequent maintenance and repair costs.

Machinery and equipment are susceptible to wear and tear, mechanical failures, and breakdowns, resulting in production delays, downtime, repair costs, and loss of revenue. Failure to follow proper maintenance and safety protocols can result in workplace accidents and cause occupational health issues for employees.

The probability of accidents is higher because of inadequate training, lack of personal protective equipment (PPE), and non-compliance with safety regulations. All of these can adversely affect the premium demanded by the insurer.

Evaluating Maintenance Practices and Schedules

Machinery and equipment come with guidelines for transport, storage, and use. Safety protocols ensure that machinery is operated per the recommended procedure, thereby minimising risks such as accidents, injuries, and occupational hazards. The plant should implement preventive measures to ensure the machinery and equipment are in good condition during storage or usage.

The insurer sends their representatives to assess the machinery in person. Their assessment can be a major factor in deciding the premium to charge for the insurance. For example, if the machinery is in good condition and taken good care of, the policyholder will have to bear a lower premium as the chances of its breakdown are lower compared to equipment which is not taken proper care of.

Another factor that majorly affects the CPM premiums is claims history. If the business has a history of raising claims, the insurer would be wary of that and naturally demand a higher premium. Similarly, if they find the risk management of the asset to be inappropriate, it would push them to charge more for asset indemnification.

Assessing Security Measures in Place for Machinery Protection

Given the high value of the item involved, the safety measures implemented in the unit also decide the premium. If the insurer is happy with the plant’s safety record, the coverage can be at a lower premium. If the asset has a history of safety violations or frequent accidents, the premium you would pay to cover it would be higher.

Like with most policies, there are a lot of optional coverage options for CPM, too. While these can affect the total premium outflow, these can also contribute to a more complete coverage for your plant and machinery.

Here are some popular add-ons for contractors’ plant and machinery insurance that most owners avail -

Third-party Liability

Owners surrounding policy

Debris clearance and removal

Express freight

Air freight

Dismantling and shifting costs

Escalation of cost

Earthquake

Additional customs duty

If the business opts for more add-ons, it will result in a rise in premium outflow for the CPM policy.

Also, the deductibles and their scope impact the final premium the policy buyer pays for the coverage. The variables depend on the asset size and the risk associated with it. These deductibles refer to an amount decided to be kept aside by the insurer and the insured during policy purchase.

These deductibles help curb the insurer's liability, resulting in lower premium demand from them to cover the asset. Also, when a claim is raised, the insured is liable to clear their side of the pre-decided deductible amount for the insurer to be liable for their part of the share.