A handy reference of insurance coverages under different Engineering Insurance Policies

Please note that CNC machines can be covered under either MB Policy or EEI Policy

 

Comparative Maintenance Cost of Diesel Generators: Why Proactive Strategies Matter

Drawing from my extensive engineering background across diesel power plants, oil and gas infrastructure construction, equipment fabrication, shipbuilding and insurance survey, I’ve found these hands-on experiences to be invaluable in my current specialization—insurance valuation. In the course of valuing industrial assets for insurance purposes, one insight consistently stands out: while insurance is designed to protect against unforeseen risks, a sound maintenance strategy is equally critical. 

Take diesel generators, for example—they're not just essential assets but often form the core of a risk profile in sectors from manufacturing plants, construction projects to marine installations. and even commercial and residential setups. Ensuring these generators run efficiently and reliably isn’t just a technical necessity; it's a major factor in controlling operational costs.

A recent study presented at the International Maritime and Logistics Conference “Marlog 13” (Arab Academy for Science, Technology, and Maritime Transport, March 2024) sheds light on the significant cost benefits of adopting smarter maintenance strategies—particularly proactive maintenance—for diesel-powered equipment.

🔍 Research Overview: Cost Savings Through Predictive Maintenance

The study applied a mathematical model to evaluate the maintenance costs of 500 kV, 600 kV, and 800 kV diesel generators under different maintenance approaches. The results were clear:

• Predictive maintenance saved approximately 9% compared to corrective (reactive) maintenance.
• while implementing predictive maintenance reduced maintenance costs by an average of:
• 47% for 500 kV diesel generators
• 46% for 600 kV diesel generators
• 49% for 800 kV diesel generators

These findings echo broader industry research. For example, Deloitte reports that proactive maintenance can reduce overall maintenance costs by 5–10%, depending on factors like workforce skill, implementation efficiency, and management systems.

For firms operating fleets of heavy machinery, these savings translate into tangible competitive advantages—less downtime, longer equipment life, and more predictable budgets.

Reference Publication:

OPTIMIZING MARINE DIESEL ENGINE MAINTENANCE: A PROACTIVE COST-EFFICIENCY STRATEGY

Arab Academy for Science, Technology, and Maritime Transport 

The International Maritime and Logistics Conference “Marlog 13”

“Towards Smart Green Blue Infrastructure”

3 – 5 March 2024

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🛠 Understanding the Different Maintenance Strategies

To make informed decisions, it’s essential to understand the four primary maintenance strategies used in industrial environments:

1. Corrective Maintenance (Reactive)

• When: Performed after equipment failure.
• Goal: Restore functionality ASAP.
• Approach: Reactive—responding to issues as they happen.
• Example: Fixing a generator after a sudden shutdown.

This method often results in higher costs due to unplanned downtime, emergency repairs, and potential collateral damage.

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2. Preventive Maintenance

• When: Done on a scheduled basis (time or usage-based).
• Goal: Prevent failures and extend equipment life.
• Approach: Planned tasks such as lubrication, cleaning, and inspections.
• Example: Monthly inspection of diesel engine filters and fluids.

While preventive maintenance helps reduce unexpected failures, it can still lead to over-servicing or replacing parts unnecessarily.

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3. Predictive Maintenance

• When: Triggered based on real-time data and condition monitoring.
• Goal: Perform maintenance only when necessary.
• Approach: Uses sensors and analytics (e.g., vibration, temperature monitoring).
• Example: Replacing a generator bearing after data shows it's close to failing.

This strategy minimizes unnecessary downtime and part replacement, making it more cost-effective and efficient.

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4. Proactive Maintenance

• When: Combines predictive and preventive elements with a focus on root cause analysis.
• Goal: Eliminate causes of failure before they occur.
• Approach: Data-driven, continuous improvement-oriented.
• Example: Identifying recurring wear patterns in diesel injectors and redesigning maintenance procedures to address them long-term.

Proactive maintenance represents the future of industrial reliability. It's about fixing the root, not just the symptom.

The above interpretation is absolutely personal in nature and is not binding on any individual or organization in particular.

 

ASSET MANAGEMENTWITH LIFE CYCLE COSTING

 

Life cycle costing is much useful for equipment replacement decisions because LCC provides the total cost of owning and operating equipment over its entire lifespan, which is crucial for informed replacement decisions. By considering all costs associated with an asset, from initial purchase to disposal, LCC helps determine the most cost-effective time to replace equipment. 

Here's a detailed look on the subject:

1.  LCC considers all costs related to equipment, including:

• Initial purchase price: The cost of acquiring the new equipment. 
• Operating costs: Expenses like fuel, electricity, and other inputs. 
• Maintenance costs: Costs associated with repairs, inspections, and preventative maintenance. 
• Replacement costs: Expenses incurred when the equipment needs to be replaced. 
• Residual value: The estimated value of the equipment at the end of its useful life. 

2. By analyzing LCC, organizations can make more informed decisions about equipment replacement, including:

• Determining the optimal replacement timing:

LCC helps identify the point where the cost of maintaining an older piece of equipment exceeds the cost of replacing it with a newer, more efficient model. 

• Comparing different replacement options:

LCC allows for a comparison of different equipment options, considering factors like initial cost, efficiency, and maintenance requirements. 

• Choosing the right maintenance strategy:

LCC can help determine the most cost-effective maintenance strategy to prolong the life of equipment, such as predictive or preventive maintenance. 

• Evaluating repair vs. replacement:

LCC can help determine whether it's more cost-effective to repair an existing piece of equipment or replace it with a new one. 

3. Examples:

• Refrigeration equipment:

LCC can reveal that a cheaper, less efficient refrigeration unit may have higher operating costs (energy consumption) over its lifespan, making a more expensive, efficient unit a better long-term investment. 

• Boilers and air-conditioning units:

LCC can help determine the optimal time to replace these items based on their overall operating costs and energy consumption. 

4. Benefits of Using LCC for Equipment Replacement:

• Reduced long-term costs:

By making informed decisions based on LCC, organizations can minimize overall operating expenses and maximize the value of their equipment. 

• Improved decision-making:

LCC provides a comprehensive and objective basis for making equipment replacement decisions, reducing the risk of costly errors. 

The above points have been collected from various web pages, hoping that busy small industry owners may find the topic useful.  

Interpretation is absolutely personal in nature and is not binding on any individual or organization in particular.

Fire Insurance vs. Machinery Insurance:  Gap in Coverage 

Introduction

In the world of industrial and commercial operations, insurance plays a vital role in safeguarding expensive assets and ensuring business continuity. Two commonly held policies—Fire Insurance and Machinery Insurance—are often considered complementary. However, many policyholders are left surprised, even aggrieved, when their fire damage claims are rejected because the origin of the fire lies within the machinery.

This article explores the distinction between fire and machinery insurance, clarifies the types of perils each covers, and explains why claims often fall into a grey area—leaving businesses vulnerable despite having insurance.

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Distinction between fire insurance and machinery insurance 

In fire insurance, fire is generally understood as hostile fire. 

Furnace heat damage is not regarded as fire damage. Damage due to glowing embers or heated objects not in flame which scorch or burn holes without igniting a fire is not regarded as fire damage. 

A friendly impellent fire is one which remains within a specific confinement area, eg the combustion chamber of a furnace or a gas turbine. Essentially, fire is required to generate heat by means of combustible media (oil, gas or other fuel). Damage does not occur as long as the combustion process remains under control. However, process irregularities may lead to damage such as local overheating in the combustion chamber. Such damage would be excluded from fire policies and falls within the scope of the machinery insurance.

A short circuit can often result in fire and, conversely, a fire can cause a short circuit. The fire policy excludes loss or damage to machines, equipment, electrical conductors resulting from the direct effect of electrical power itself, eg overvoltage, surge voltages, increasing temperatures due to overloading as well as loss or damage to protective devices (safety gear, fuses, etc) occurring during the normal operation of such devices.

Loss or damage due to lightning, however, is covered within the scope of the fire policy.

Fire policy excludes the machine or equipment if it is considered as the source of fire. 

Any resulting fire, loss or damage to other machines or equipment, however, falls within the scope of the fire policy. Fire policy excludes the source of fire.

Loss or damage caused by explosion is covered by the fire policy. Explosion is understood as an instantaneous manifestation of fire, triggered by expanding gases or vapours. 

With respect to pressure vessels (eg steam boilers, cylinders, or vessels for vapour, gas or liquid, or boiling units, steam pipes), explosion damage is deemed to have occurred only if the walls of the receptacle are damaged to such extent that the pressures inside and outside the receptacle are instantaneously equalized. In fire insurance, however, explosion peril does not include distortion, whether or not accompanied by the rupture of any part of the pressure plant caused by crushing stress through forces related to steam or other fluid pressure (apart from the pressure associated with ignited flue gases). 

Furthermore, it does not encompass the destruction of rotating machines caused by centrifugal forces nor loss or damage caused by implosion (instantaneous deformation of a vacuum receptacle caused by external overpressure). Consequently, this loss or damage is not considered to be an explosion in the sense of fire insurance and thus falls within the scope of the machinery insurance. Machinery insurance also provides cover for loss or damage in the case of sudden and violent bursting of pressure plants by internal steam force or other fluid pressure (except pressure of chemical action or of flue gas ignition) causing structural physical displacement of any part of the pressure plant together with forcible ejection of its contents. 

Damage caused by fire preceding or following such events, however, is excluded from machinery cover. 

Understanding the Distinction Between Fire and Machinery Insurance

While both types of insurance protect valuable equipment, they do so under different premises and conditions:

• In Machinery Breakdown (MBD) Insurance, fire or explosion originating internally within the insured machinery is generally covered, while standard fire insurance policies typically exclude such incidents. 
  However, the standard fire policy would cover the resulting spread of fire from the machinery to surrounding property. 
  In simpler terms:
  • MBD policies cover damage to the machine itself from internal fire or explosions.
  • Standard Fire & Special Perils Policies cover damage to surrounding property if the fire started inside a machine and spread outwards. 

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Real-World Example: A Common Source of Grievance

A production machine overheats due to an electrical fault, leading to an internal fire that destroys part of the equipment. The claim is denied under:

• Fire Insurance, because the fire was a result of internal malfunction, not a hostile external fire.

Result: The policyholder is left with an uncovered loss, despite having fire insurance.

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Conclusion

Fire and machinery insurance serve different but complementary purposes. Unfortunately, gaps in understanding—and in coverage—can leave even the most diligent policyholders exposed to costly claims denials.

Reference Publication:© 2000 Swiss Reinsurance Company Zurich Title: Machinery insurance Author: Max Bommeli RE, Reinsurance & Risk division

The above interpretation is absolutely personal in nature and is not binding on any individual or organization in particular.

 

 Machinery Insurance on a Reinstatement Value Basis !

Machinery Breakdown (MBD) insurance covers unforeseen and sudden physical damage to machinery, including mechanical and electrical breakdowns, due to various causes like short circuits, faulty materials, and operator negligence. However, it typically excludes damage from events like fire, natural disasters, war, wear and tear, and pre-existing defects. 

Modern machinery is an essential asset in many industries — but it's also a significant investment. A common question from business owners and asset managers is:

"When is the right time to insure machinery for breakdown risk — and for how long — especially if it's under warranty?"

This post dives into that question using insights from engineering reliability (specifically the bathtub curve), warranty timelines, and insurance strategies — all aimed at helping you make informed, cost-effective decisions.

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🔍 Understanding the Machinery Lifecycle: The Bathtub Curve

The bathtub curve is a well-known model used to describe the failure rate of machines over their lifetime:

1. Infant Mortality Phase (0–3 years): Higher failure rates due to early-use issues, manufacturing defects, or installation errors.
2. Useful Life Phase (3–10 years): Lower, stable failure rates — the most reliable period.
3. Wear-Out Phase (10–15 years): Increasing failure rates as components age and wear down.

Understanding this curve is key to aligning your insurance coverage with the machine’s actual risk exposure.

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🔧 The Role of Manufacturer’s Warranty

Most modern machines come with a 1–3 year warranty covering defects, breakdowns, and performance issues. During this period, insurance may overlap with warranty coverage and therefore add unnecessary cost.

That’s why many risk managers choose to delay insurance coverage until after the warranty expires.

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📅 When to Start Machinery Breakdown (MBD) Insurance?

Here’s the practical breakdown:

✅ Start MBD Insurance from Year 3 or on expiry of Warranty period

• This is typically when the warranty ends.
• Failures still occur — and can be costly to repair or replace.
• Machines still hold significant value and are not obsolete.
• Reinstatement value insurance (i.e., new-for-old replacement) is viable and cost-effective.

✅ Insure from Year 3 to Year 10 – The Prime Window

This is the most cost-efficient and operationally relevant window for insurance:

• Breakdown risk is present, even if infrequent.
• Premiums are generally reasonable.
• You can recover full replacement value under reinstatement terms.

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⚠️ What About Year 10–15?

In this phase:

• Machines may be approaching obsolescence.
• Insurers may tighten coverage (e.g., condition surveys, exclusions).
• Premiums increase, but payout terms might change.

Recommendation:
 Continue coverage if the machine is mission-critical or difficult to replace. Consider:

• Switching to indemnity-based cover (market value).
• Building a self-insurance reserve for predictable wear-and-tear failures.

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📊 Summary Table – Insurance Timing Strategy

Machine Age (Years)	Recommended Action	Why?
0–3	❌ No insurance	Covered under warranty; avoid double coverage.
3–10	✅ Insure (Reinstatement Basis)	Prime period for cost-effective protection.
10–13	⚠️ Optional – Case by case	Depends on criticality, condition, and premium cost.
13–15	❌ Consider ending cover or switch to market value	Reinstatement basis often no longer viable.

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🧭 Final Thoughts

Machinery Breakdown Insurance on a Reinstatement Value basis makes the most sense from Year 3 to Year 10 — when breakdowns can still be financially disruptive, and the machines are worth replacing like-for-like.

After Year 10, decisions should be based on operational importance, replacement planning, and insurer terms. Aligning insurance with your asset’s lifecycle ensures you’re not overspending on unnecessary cover — or leaving your operations exposed.

The above interpretation is absolutely personal in nature and is not binding on any individual or organisation in particular.

 Important Role of Insurance Valuation in Assessing Business Health

During assignment for Insurance valuations of fixed assets on re-instatement basis, usually clients ask for report on market valuation basis as well to know the current worth of their business.

In addition, the periodical market value/depreciated replacement cost valuation may be helpful in understanding a company’s overall financial health also for the business owners.

During preparation for ‘Plant and Machinery Valuation certification’, came across the following very important publication, which in my view will be very helpful in understanding the concept presented here:

 STANDARDS ON VALUATION OF PLANT, MACHINERY AND EQUIPMENT, Prepared by CVSRTA Registered Valuers Association & Centre for Valuation Studies, Research & Training Association

In the practical world of business operations—: comprehensive valuations are time-consuming, costly, and require complex inputs that may not be readily available or justifiable outside of key strategic events such as mergers, acquisitions, or financing rounds.

In this context, insurance valuation may offer a more practical and cost-effective alternative that can still serve as a meaningful indicator of business health.

Unlike full enterprise valuation, which attempts to capture the total worth of a business based on future cash flows, market comparables, insurance indemnity valuation focuses on the market (DCR) value of physical and tangible assets. While more limited in scope, this approach may provide insights into the present economic condition of the business, especially when done periodically.

One of the significant advantages of insurance valuation (Depreciated Replacement Cost basis) is that it can be utilized for finding economic obsolescence—a critical element in asset-heavy businesses.

“Economic obsolescence exists, if the economic support for fixed and intangible assets is less than the fractional values of the identified assets, as individually estimated by the depreciated replacement cost or sales comparison methods, as the case may be.

Business enterprise value less net working capital represents the economic support for fixed and intangible assets.

Share Holder’s Equity + Long Term Debt = Net Working Capital (Current Assets - Current Liabilities) + Fixed Assets + Intangible Assets

Followings are readily available from company’s financial reports for the necessary deduction

CA = Current assets

FA = Fixed Assets

IA = Intangible Assets

CL = Current liabilities

 LTD = Long-term debt

SE = Stockholders’ equity

If there is excess economic support for the underlying identified assets, it is concluded that unidentified intangible value exists, which is generally considered to be goodwill or going concern value. 

Once economic obsolescence is suspected, a full business valuation may be initiated with the help of specialist Chartered Accountants and remedial measures undertaken.

In essence, while insurance valuation is not a replacement for full enterprise appraisal, it offers a fair and objective framework for monitoring key indicators of business health. Its periodic execution aligns better with operational realities and can serve as a proactive tool for risk management, strategic planning, and resource optimization.

Important Caveat: It's an Indicator, Not a Substitute

Of course, a DRC-based valuation is not a replacement for a Sales Comparison or full-blown income approach. It doesn’t factor in future cash flows, competitive dynamics, or goodwill. But as a practical, cost-effective tool for interim business checks at the time of insurance policy renewals, it may offer additional utility.

In summary: Think of DRC-based insurance valuations not just as a risk management necessity, but also as a financial wellness tool. When interpreted smartly, they can spotlight trends in obsolescence, underline capital misallocations, and even hint at business’s ability to generate value in today’s economy.

Reference Publication:

STANDARDS ON VALUATION OF PLANT, MACHINERY AND EQUIPMENT, Prepared by CVSRTA Registered Valuers Association & Centre for Valuation Studies, Research & Training Association.

The above interpretation is absolutely personal in nature and is not binding on any individual or organization in particular.

 Title: Predicting Equipment Resale Value: A Handy Guide for Indian Contractors

When it comes to heavy construction machinery, knowing when to sell can be just as important as knowing what to buy. For many contractors, this boils down to one key question: “How much will my machine be worth after a few years of use?”

Drawing inspiration from a publication by Dr. Gunnar Lucko at Virginia Tech, here's how Indian contractors can make smarter decisions using data, not guesswork.

🏗️ Case in Point: JCB 3DX Backhoe Loader

A regional road contractor in Maharashtra purchased a JCB 3DX backhoe loader in 2018 for ₹32 lakhs. After 7 years of operation, here's the financial picture:

• Fuel cost: ~₹34 lakhs (based on 1,200 hrs/year @ ₹90/litre)

• Maintenance cost: ~₹6.5 lakhs

• Estimated resale value (2025): ₹18.5 lakhs (58% of purchase price)

• Projected value in 2028: ₹11.2 lakhs (35% of purchase price)

Net cost of ownership (7 years): ₹54 lakhs

🧮 Dr. Lucko used statistical modeling to calculate optimal resale timing by factoring in:

• Age and condition of the machine

• Manufacturer brand perception

• Regional auction trends

• Macroeconomic indicators (like inflation and GDP growth)

🔄 Smart Decision: Sell Now or Wait?

For this contractor, selling now brings a better return, avoids rapid depreciation, and allows investment in an upgraded model like the JCB 3DX Super or CAT 424 4WD, both offering better fuel efficiency and higher resale value down the line.

💡 Final Thoughts

Most site managers don’t have time for spreadsheets and regression curves. But even a simple understanding of how resale values behave can:

• Strengthen your bids

• Reduce total owning cost

• Improve fleet planning

If you're interested in a free Residual Value Estimator sheet tailored to Indian machines, drop a comment below or reach out!

Author’s Reflection > > During my years on construction sites, I often saw valuable machines—graders, backhoe loaders, dumpers—left idle in the yard for weeks, sometimes months. Repairs delayed. Spare parts unavailable. Maintenance teams scrambling, sometimes forced to cannibalize components from older machines just to keep newer ones running. > > These hard-earned observations shaped my perspective on how critical equipment lifecycle planning really is. > > This article was created with the support of Microsoft Copilot—helping translate complex financial models into practical insights for those who keep our infrastructure moving, often against all odds.

The above is my personal interpretation on the subject and has been composed with help of Google Copilot.