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  Machinery Loss of Profit

Under both machinery and fire insurance, indemnity is provided, in respect of damaged or destroyed machinery, solely for the material loss sustained by the insured. These types of insurance do thus not protect the insured against all the losses which arise in connection with a fire or the breakdown of machinery, since in most cases a material loss also causes an interruption or interference of the insured's business operations. The result is a financial loss in the form of lost profit and unearned standing charges. In many cases the loss sustained as a result of an interruption or interference of business operations by far exceeds the mere material loss.

An awareness of the need for insurance protection against the financial consequences of material damage arose at the beginning of this century, and the result was the introduction of the two variants, loss of profits following fire insurance and loss of profits following machinery breakdown insurance also called machinery loss of profits (MLOP) insurance. As the size of modern production facilities increases, MLOP insurance is becoming more and more important. The individual production stages in modern processes are often accomplished by just one machine, the failure of which leads to substantial interruption losses. Moreover, the new electronics LOP has been introduced.

In principle, electronics LOP is the same as MLOP; but it offers the extended scope of cover of an electronic equipment policy. Munich Re will be glad to support clients in this difficult class of insurance by assisting in inspections, preparing quotations, settling claims and providing training courses. In the following, the basic features of MLOP insurance will be dealt with.

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