Booming economy and human element behind increase in equipment-related property losses

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. Of the company’s 232 large risk losses last year, 65 were the result of equipment breakdown resulting in 28% of FM Global losses across all industries in 2018.

“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, senior vice president of engineering and research at FM Global. “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.”

“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. 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.”

FM Global is planning to expand its industrial control systems service later this year, broadening loss prevention engineering, including cyber security. This follows a separate announcement in spring relating to its plan to hire 60 additional engineers dedicated to helping clients prevent equipment breakdown-related losses; bringing its total staff of engineers dedicated exclusively to major equipment such as boilers, turbines, generators, transformers, chemical vessels, compressors and pulp and paper processing machines to 250.

Property losses: Large risks (Source: FM Global)

62% of equipment breakdown losses were due to lack of maintenance, accounting for three-quarters of all equipment loss claims paid

25% of equipment breakdown losses occurred after repairs were made or during start-up

Nearly half of all equipment breakdown losses had a significant human element impact or influence

Operator training was a factor in 43% of equipment losses, highlighting the need for enhanced training and knowledge transfer as the industry sees significant turnover due to demographic changes

(Large risk losses are classified as those greater than £2.4m that do not include natural hazard loss.)

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