Loss trends and emerging risks: Equipment Breakdown

As part of a year-end Q&A series, Razvan Ionescu, Underwriting Specialist, Equipment Breakdown at Sovereign Insurance, shares his thoughts on a key equipment breakdown loss trend from 2021, and what to watch out for in 2022.

What are the loss trends/key exposures you’ve seen in the past year?
One loss trend is power fluctuations that cause damage to equipment, especially electronic equipment. There are several causes for a power surge, including electrical overload, faulty wiring, lightning strikes, and the restoration of power by an electric company following an outage. Voltage spikes can degrade cable insulation and destroy electronic components such as motherboards, which can result in downtime, lost income, and replacement costs for businesses. 

What are some of the emerging risks to keep an eye out for in 2022?
One emerging risk that increases the downtime in a loss situation, is supply chain disruption. In early 2020 we saw non-essential industries shut down or reduce capacity due to the pandemic. The shutdowns created shortages of raw materials, key components, and subsequently a shortage of finished products. Later in 2020, demand for new products increased to pre-pandemic levels, however the shortage in raw material and key components made deliveries of finished products difficult. The increase in demand also created a disruption in logistics, including port of entry backlogs, warehouse availability and a shortage of truck drivers. As the supply chain continues to be disrupted, key questions arise for businesses that may need to replace equipment: Is the product available? And if it is available, how long will it take to receive it? 

See: Where is your supply chain most vulnerable?

How can organizations mitigate these risks? 
When it comes to power fluctuations, organizations should identify locations or equipment critical to operations that could be affected by voltage spikes. There are a number of surge protectors on the market that prevent power surges from damaging electronics. Some considerations include: an upstream overload protection, surge protection on secondary panels, and an overload protection for each piece of electronic equipment. 

In the face of supply chain disruption, preventative maintenance is key. This will keep the equipment running and prevent costly downtime. In the event of a loss, organizations can reduce downtime by having the following: spare parts for key components in stock; a local supply of equipment and parts; a spare contract with the supplier to guarantee the availability of the part for the time of the contract; and a reciprocal agreement for spare parts and/or services with a similar company.