Machinery Loss of Profits Insurance in the UAE

Machinery Loss of Profits Insurance, commonly called MLOP Insurance, helps businesses manage eligible financial losses when an insured machinery breakdown interrupts normal operations.

It is a form of business-interruption insurance. Machinery Breakdown Insurance generally addresses eligible physical loss or damage to the machinery, while MLOP Insurance addresses the resulting reduction in gross profit and specified additional operating expenses.

How Does MLOP Insurance Work?

An MLOP claim normally requires physical machinery damage that is covered under the related Machinery Breakdown policy. The interruption must result directly from that insured damage and continue beyond any time excess or waiting period stated in the policy.

A typical claim involves the following:

1. Covered Machinery Damage: An insured machine suffers sudden and accidental physical damage covered under the underlying Machinery Breakdown policy.
2. Business Interruption: The damage stops or reduces production while the machine is inspected, repaired, replaced or returned to operation.
3. Financial Loss: The interruption causes a reduction in turnover, loss of gross profit or necessary additional expenditure.
4. Indemnity Assessment: The eligible loss is assessed according to the financial records, policy formula, sum insured, indemnity period and applicable excess.

What May MLOP Insurance Cover?

Depending on the issued policy, coverage may include:

1. Loss of Gross Profit: Eligible loss resulting from a reduction in turnover during the indemnity period following covered machinery damage.
2. Standing Charges: Specified continuing business expenses that remain payable even when production is interrupted.
3. Increased Cost of Working: Necessary and reasonable additional expenses incurred to avoid or reduce the interruption loss.
4. Temporary Operating Arrangements: Eligible costs of temporary equipment, alternative production or additional shifts when accepted under the policy.
5. Professional Claim-Preparation Fees: Certain policies may cover approved fees for preparing and documenting a complex business-interruption claim when expressly included.

What Is the Indemnity Period?

The indemnity period is the maximum period during which eligible interruption losses may be considered following insured machinery damage. It should reflect the realistic time required to repair or replace the machinery and restore the business to its expected operating level.

When selecting the period, consider:

1. Repair and replacement lead times
2. Availability of specialist engineers and spare parts
3. International shipping and customs requirements
4. Installation, testing and commissioning time
5. Time required to restore normal production and sales

Who May Need MLOP Insurance?

The policy may be relevant for businesses such as:

1. Manufacturing and industrial plants
2. Power-generation and utility companies
3. Food-processing and packaging facilities
4. Water and sewage-treatment plants
5. Chemical and metal-production businesses
6. Businesses dependent on specialised production machinery

The need for cover depends on how seriously a machinery breakdown could affect production, revenue, contractual commitments and continuing operating expenses.

What Is Commonly Not Covered?

Depending on the policy, exclusions may include:

1. Uninsured Machinery Damage: Interruption arising from damage that is not covered under the underlying Machinery Breakdown policy.
2. Time Excess: Loss occurring during the waiting period stated in the policy.
3. Wear and Tear: Loss arising solely from gradual deterioration, corrosion, erosion or inadequate maintenance.
4. Non-Damage Delays: Delays caused only by lack of funds, licensing issues, import restrictions or other events unrelated to the insured damage.
5. Improvements and Alterations: Additional time or cost resulting from upgrading, improving or modifying the damaged machinery.
6. Fines and Contractual Penalties: Penalties, liquidated damages and other contractual liabilities unless expressly included.

What Affects the Premium?

The quotation may depend on:

1. Machinery Type and Criticality: The function, age, condition and importance of each insured machine.
2. Financial Exposure: The declared gross profit, continuing expenses and requested sum insured.
3. Indemnity Period: The maximum period selected for eligible interruption losses.
4. Repair Lead Times: Availability of replacement machinery, specialist engineers and critical spare parts.
5. Maintenance Standards: Preventive-maintenance programmes, inspections, monitoring systems and equipment-protection measures.
6. Claims History: Previous machinery damage and business-interruption incidents.

What to Do After a Machinery Breakdown:

The insured business should:

1. Prevent Further Damage: Safely stop the affected equipment and take reasonable measures to reduce additional loss.
2. Notify the Insurer: Report the machinery damage and potential interruption claim as soon as possible.
3. Preserve the Damaged Parts: Do not dispose of damaged components before inspection unless required for safety.
4. Document the Interruption: Record downtime, reduced output, cancelled orders, additional expenses and production transferred elsewhere.
5. Maintain Financial Records: Keep sales, production, payroll, expense and accounting records needed to assess the interruption loss.

Documents Required:

The insurer may request:

1. Completed proposal or quotation form
2. Trade licence and company information
3. Schedule and value of critical machinery
4. Machinery Breakdown Insurance details
5. Audited financial statements
6. Gross-profit and standing-charge calculations
7. Production, turnover and budget information
8. Required indemnity period
9. Maintenance and inspection records
10. Claims history and business-continuity information

Why Choose Al Buhaira Insurance?

Eligible businesses can access:

1. Machinery Breakdown and MLOP Enquiries: Businesses can request information about physical machinery cover and related loss-of-profit protection.
2. Engineering Risk Assessment: The quotation can consider the machinery, operations, financial exposure, maintenance arrangements and requested indemnity period.
3. Business-Interruption Assessment: Coverage can be reviewed using the applicant’s gross-profit figures, standing charges and expected recovery period.
4. Online Quotation Request: Applicants can submit their contact and business details through the dedicated Machinery Loss of Profits quotation page.

Frequently Asked Questions: