Indemnity is available under to heads:

a. Reduction in Turnover / Output.

b. Increase in cost of working.
Reduction in Turnover /Output is the sum produced by
applying the Rate of Gross Profit to the amount by which
the Turnover / Output during the Indemnity Period shall, in
consequence of the damage, fall short of the Standard
Turnover / Output.
Increase in cost working is the additional expenditure
necessarily and reasonably incurred for the sole purpose of
avoiding / diminishing the reduction in turnover / output
which but for that expenditure would have taken place
during the IP in consequence of the damage but not
exceeding the Sum produced by applying the Rate of GP to
the amount of the reduction avoided, less amount of
standing Charges saved / ceased / reduced due to the
damage.
 Willful Act , Negligence/ Gross Negligence
 Spoilage/Damage to raw materials, semi finished, finished
products or operating media
 Govt./Lawful body restrictions
 Extension of repair period for more than 4 weeks due to
◦ Delay in replacement
◦ Inability/ delay in carrying repairs
◦ Custom/Statutory Restrictions
◦ Transportation of parts
 Delay due to insufficient funds
 Alteration/Overhaul/Improvement Expenses
 War, Mutiny etc.
 Nuclear Perils
 Damage to foundations & masonry, exchangeable & replaceable
parts, wear & tear
 Under insurance under MB Policy
 Depreciation of stocks or spoilage of materials
 Fines, damages and/or penalties under contracts arising from
breach of contract in consequence of accident
 Third Party claims
 Loss of goodwill
 Cost of preparation of and litigation costs in connection with
claims
 That at the time of the happening of the damage there
shall be in force an insurance covering the interests of the
insured in the Property at the Premises against such
damage and that payment shall have been made or liability
admitted therefore under such insurance.

Exceptions :

1. Excess
2. Property on which Insured has no direct Insurable
Interest.
 INTERESTS
 BANK CHARGES & GUARANTEE COMMISSION
 WAGES, INCLUDING STATE INSURANCE, CONTRIBUTIONS, EITHER TO
- ALL EMPLOYEES OR
- EMPLOYEES OF SPECIFIED CATEGORIES
- EXTENT OF CERTAIN % OF WAGE ROLL
 SALARIES
 PROVIDENT FUND, BONUS, SUPER ANNUATION, FAMILY PENSION,
GRATUITY, PERKS, OTHER BENEFITS & STAFF WELFARE
 RENT RATES & TAXES
 DUTIES, LICENSES & PATENT FEES
 DIRECTORS’ FEES & REMUNERATION
 PENSIONS
 DEPRECIATION
 ADVERTISEMENT & PUBLICITY
…contd
 REPAIRS & RENEWALS CHARGEABLE TO REVENUE ACCOUNT
 CONVEYANCE, STATIONERY, POSTAGE, TELEX, TELEPHONE,
TELEGRAM, TELEPRINTER & COMPUTER EXPENSES
 INSURANCE PREMIUM
 R&D EXPENSES OF REGULAR NATURE
 HEATING, LIGHTNG & POWER CHARGES OTHER THAN IN
PRODUCTION BLOCKS INCLUDING MINIMUM CHARGES
 BAD DEBT RESERVE
 SUBSCRIPTIONS TO TRADE ASSOCIATIONS, MAGAZINES &
REGULAR DONATIONS TO CHARITIES
 LEGAL, AUDITING & OTHER PROFESSIONAL FEES OF A REGULAR
NATURE
 MISCELLANEOUS EXPENSES UPTO 5% OF INSURED STANDING
CHARGES
 MLOP is subject to minimum time excess of 3 days. In
case of continuous process plants the minimum time
excess is 7 days
 Insured can opt for higher time excess and can avail
discount in premium.
 Machinery whose breakdown can be repaired within the
time excess may be opted out of the MLOP Policy.
1. Mb & MLOP covers with same underwriter
2. Risk situated within the country.
3. Risk Assessment

No rate shall be quoted without fulfilling following

requirements
o completion of questionnaires, declaration of relevant details
along with proposal form
o Site inspection
o Attitude of Management
o Technical Experience/Expertise
o Standard of maintenance & housekeeping
o Claims records
o Exposure to external perils
o Availability of spare parts, especially for aged machines
4. Factors to be assessed during a Risk Inspection
 Whether machines to be operated are in good and safe
working condition or not
 Whether legal safety requirements are complied with or not
 Control and safety devices are set according to manufacturer’s
and supervising authorities specifications or not, e.g.
Trips/Alarms
 Maintenance and housekeeping are of good standard
 Periodic Inspections/Preventive maintenance, measures are
carried out in accordance with the manufacturers
recommendations.
 Rough working conditions
5. Equipment to be generally excluded
 Furnaces
 Brick & Ceramic kilns, Melting Pots, Ovens
 Contractor’s machinery
 Drilling & underground mining equipment
 Scrap shredders and presses
 Mobile equipment
6. Equipment considered Uninsurable

 Prototype Machinery
 Machines older than 30 years
 Machines with a service life shorter than 5 years
 New machinery and equipment unless testing,
commissioning and start up periods after installation have
been completed satisfactorily.

7. Inspection during period of cover

 Normal
 On account of Important Material changes in the risk
RATING FACTORS
Basic rate for each type of machine
B.R. = Fav. x Pav. x fc
Where
B.R. = Basic Rate
Fav. = Average annual Loss Frequency
= No. of all indemnifiable losses
Years of operation of the plant
Pav. = Interruption periods of all machines
- No. of indemnifiable losses of above –mentioned
machines
Fc. = Insurer’s cost factor.
Since the elements constituting basic rate are on ‘year
basis’, they are to be applied on ‘Annual Sum Insured
only’.
Pav. = Average interruption period (in years).
1. Relative Importance
% effect which a complete standstill of an individual
machine, set of machines, production line or plant
would have on the gross profit insured during the
entire period of insurance disregarding any loss
minimisation measures.
To be reviewed from the questionaire or flow sheet.
Most essential factor for realistic premium
calculations.
33-1/3

I 100% 33-1/3
100%(Parallel)

R.L. = 3 x 33-1/3% = 100%

or 1 x 100% = 100%
100% 100% 100%
Any one interruption will stop production.
 Ifcomplete or partial stand by capacity is available
within a group of insured machines installed in
parallel, the overall loss probability is considerably
reduced
 Existing spare capacities are to be taken into
account.
 Will be always less than one.
 Depends upon type and number of machines
available.
 Will be a function of ratio between the total
capacity available and the load requirement.
 As the number of identical units increase, reserve
factor favourably goes on reducing.
 Estimated graphically.
Major spares (excluding regular wear and tear items).
To he held in stock on the premises.
Ready for installation.
May reduce the interruption substantially on account of
reduction in the repair period.
Spares such as complete turbine rotor, gear box, pump motor
can have similar effect as reserve capacity/stand by machine.
For turbo generators, overall spare parts factor should be
calculated wherein premium contribution of turbine and
generator is divided into 55% and 45% respectively.
The qualitative analysis for spares parts for steam turbine can
be typically as follows:
Partial blading – 0.9
Complete set of Stator/Rotor Blades-0.8
The analysis will vary from M/c to M/c.
Following types of industries are excluded:
Power generation.
Transmission or conversion.
Continuous or Semi-continuous chemical processing.
Pump and paper mills.
Furnaces.
Prime movers.
Some electrical and electronic equipment.

In general, shift operation constitutes an aggravated risk.

Typical Surcharge are
Textile : 2 shifts 15%
Industry : (16 hrs/day)
3 shifts (24 hrs/day) 25%
 For every year exceeding the maximum age, the
age factor increases by 0.05.

Thus the age factor is calculted as

fage = 1 + (0.05 n)

Where n = number of years subject to surcharge for

great age.

 Maximum age at basic rate is specified.

Thus, for 25 years old transformer whose maximum
age of basic rate is specified to be 15 years, the age
factor fage = 1 + 0.05 x (25-15)=1.5
The basic rates are supposed to be applied on current
models of machines and their normal operations.
However, in practice, it may not be so.
Typical examples are:

In case of particular plant items, there may be variation

in
(a) technical data
(b) construction type
(c) operation of the machinery.
For example

Lower or higher speed than coverage.

Generator with fly wheel.
Changeable pole motors.
Intermittent load.
Multistage type
Heavy/low duty application.
Items with supplementary equipments.
Influence of shock, humidity or dust
N.B.: These factors may not be normally reflected in the basis rate.
Factor may be > or < 1.
Under following circumstances surcharge is not necessary:

If supplier’s premises are situated in a neighbouring

country. (The relationship between the two countries
must be cordial).
If border/customs proceedings are liberal.
Air transport of damaged items or spares is possible.
Air Freight/Express Freight is covered under MB policy.
In other situations, surcharge can be as high as 40%
Since, delay, more than 4 weeks, in procurement of
spares/machine may not be covered, a surcharge of 10%
may, normally be applicable-for ‘Foreign Machinery.’
Normal loss minimisation steps are expected as per the
policy condition wherein insured should behave, as if,
uninsured.
Hire of similar production facilities elsewhere.
Hire of particulars machines (e.g. boilers) for temporary
installation.
Reactivation of obsolete or old production units/lines
and/or output capacity.
Each case should be scrutinised on individual basis
The factory is very sensitive and hence should be reviewed
annually very carefully.
Increased cost of working shall be the governing factor.
Normally the exclusion of loss of profits following machinery loss or
damage for
which a supplier or contractor is responsible either by law or under
contract is
excluded from the policy.

However, it may be possible to cover such machines by means of

endorsements
and charging 15% to 30% surcharge depending upon whether the
guarantee
Period is not more than 6 months.
10. Quantity Adjustment Factor
The total technical rate is the algebriac sum of individual risk rates
with 7 days
time excess and individual indemnity periods.
Thechnical Risk Rate
Quantity Factor =
Highest Single Rate
Higher the factor, lesser is the effect of the possible simultaneous
breakdown of
more than one covered item.
 Each individual machine rate is decided for its individual
indemnity period based on 7 days time excess.

 For time excess > 7 days, these rates are adjusted and
grouped as per
indemnity periods.

 This adjustment leads to adjusted technical risk rate. If the

time excess is less than 7 days, technical risk rate is
surcharged accordingly.

 ATRR is then subjected to positive and negative features

applicable based on general natural of the risk.
[a] Discount factor for above-average quality of plant (10%)

o Effective and competent management /organisation.

o Excellent supervision and maintenance.
o Highly qualalified staff.
o Extensive repair facilities belonging to the plant.
o The probability of a loss event is below average.
o The interruption period could be kept in minimum, should a
loss occur.

[b] Discount factor for General Loss Minimisation ( <10% )

o Due to its reputation, size of general importance, the insured

would enjoy priority for repairs or replacements
[c] Surcharge Factor for Generally Aggravated Risk Conditions

o Dry/Wet Production Process

o Remote location.
o Difficult or temporarily impossible access.
o Unavailability of local repair facilities.
o Necessity for repair assistance by foreign experts.
o Other circumstances which might have a considerable
negative influence on the risk and have not been taken into
account so far in the rating
o The factor may be applied to individual machine, if necessary
 The insurance covers fixed cost amount per time unit of
interruption. Shortensing the interruption period may enhance
the expenses under increased cost of working. Hence, a
surcharge ranging from 40% to 80% may be necessary.
 The rate thus arrived is applied on the annual Sum Insured if
Indemnity Periods are less than or equal to 12 months
 The IPL>12 months, the multiplying factor will be IPL
12
 Since, the rate arrived at is a function of various parameters
which are of fluctuating nature, annual review of the rates is a
must.
 The rate may need loading on account of adverse claims
experience
 It may be discounted once in three years, if claims experience
is consistently satisfactory for a period of three years.
 All the MLOP rating proposals shall be referred to the
committee for rating purpose.
1.
I) Intimation.
II) All steps to mitigate the interruption.
N.B. Additional expenses within the time excess or
beyond indemnity period are not payable.
III) Discontinue the use of damaged machinery.
IV) Preservation of claim evidence factors.
V) Preservation of claim documents.
VI) Preservation of complete records.

Falling above :-
a) Claim may not be payable.
b) Whatever payment made by the Insurance Company
shall be refunded.
II. Company has the right to take over and control all
necessary repairs.
 Fraud
 Contribution
 Arbitration
 Termination of Insurance
 Except in case of arbitration the claim shall be payable.

A) Within 12 months or after the expiry of indemnity

period

OR

B) Within 3 months of payment of claim amount falling which

liability may be repudiable.
MACHINERY IS MADE B/D PROOF BY MACHINERY
BREAKDOWN INSURANCE.

BALANCE SHEET IS MADE BREAKDOWN PROOF BY

MLOP INSURANCE