MLOP Insurance Malaysia: Machinery Loss of Profits — Protecting Factory Revenue from Equipment Downtime

Your machinery breakdown insurance covers the repair cost when a critical machine fails. But who covers the revenue you lose while the machine is being repaired? If your main production line is down for 3 months, the repair bill is only part of the problem. The lost output, continuing fixed costs, and customer penalties can exceed the equipment damage by multiples.

This guide explains how MLOP (Machinery Loss of Profits) insurance works as the revenue protection companion to your Machinery Breakdown policy: how gross profit is calculated, how to select the right indemnity period, what triggers a claim, and industry-specific scenarios showing why Malaysian factories need MLOP alongside MB.

This guide covers:

• What MLOP insurance is and how it works
• The mandatory link between MLOP and Machinery Breakdown
• Gross profit calculation methodology
• How to select the right indemnity period
• MLOP vs BI vs BOLOP vs ILOP: which loss-of-profits policy for which scenario
• Industry-specific examples and claims scenarios
• Common mistakes that leave factories underinsured

Disclaimer: This article provides general guidance on insurance coverage available in the Malaysian market as of February 2026. Policy terms, conditions, and availability vary by insurer. Always review your specific policy wording or consult a qualified insurance professional before making coverage decisions.

What Is MLOP Insurance?

Machinery Loss of Profits (MLOP) is an engineering insurance policy that covers the loss of gross profit when machinery breakdown causes production to stop or slow down. It is the revenue protection companion to your Machinery Breakdown (MB) insurance, just as Business Interruption (BI) is the revenue protection companion to Fire/IAR insurance.

The critical rule: MLOP only responds when there is a valid Machinery Breakdown claim. No MB claim means no MLOP claim. The two policies are linked, and MLOP cannot be purchased as a standalone product.

MLOP Element	Description
Policy type	Engineering consequential loss insurance (companion to MB)
Trigger	Valid Machinery Breakdown claim must exist first
What it covers	Loss of gross profit during the period of interruption
Basis	Gross profit (turnover less specified working expenses)
Indemnity period	Maximum coverage period, chosen by policyholder (6 to 24 months typical)
Time excess	Waiting period before MLOP coverage starts (e.g., 7, 14, or 30 days)
Sum insured	Gross profit for the maximum indemnity period selected

Why MLOP Matters: The Real Cost of Machinery Breakdown

When a critical machine fails, the repair or replacement cost (covered by MB) is often the smaller part of the total financial impact. The bigger cost is lost production. For factories running at capacity, every day of downtime means lost revenue, wasted raw materials, missed delivery deadlines, and continuing fixed costs with no income to cover them.

Cost Component	Covered By MB?	Covered By MLOP?
Machine repair/replacement cost	Yes	No
Lost sales revenue during downtime	No	Yes
Staff salaries (continuing fixed cost)	No	Yes (as part of gross profit)
Rent and loan repayments (continuing)	No	Yes (as standing charges)
Cost of temporary replacement machine rental	No	Yes (as increased cost of working)
Outsourcing production to third party	No	Yes (as increased cost of working)
Customer penalty / late delivery charges	No	No (contractual penalties typically excluded)
Loss of future customer contracts	No	Partially (if turnover drops during indemnity period)

The pattern is consistent: MB covers the equipment. MLOP covers the revenue. For any factory where production depends on machinery that cannot be quickly replaced, MLOP is the difference between a manageable equipment claim and a business-threatening shutdown.

How MLOP Works: Step by Step

Step	What Happens	Insurance Response
1	Critical machine suffers sudden and unforeseen breakdown	MB policy responds: covers repair/replacement cost
2	Production stops or is significantly reduced	MLOP time excess period starts counting
3	Time excess expires (e.g., after 14 days of interruption)	MLOP coverage activates; lost gross profit starts being indemnified
4	Factory incurs extra costs to minimise loss (e.g., renting temporary equipment)	Increased cost of working covered (up to the amount of gross profit saved)
5	Machine repaired/replaced; production resumes	MLOP coverage continues until turnover returns to pre-loss levels
6	Production fully restored to pre-loss level	MLOP claim closes (or indemnity period expires, whichever comes first)

The MLOP claim doesn't just cover the repair period. It covers until turnover returns to the level it would have been at had the breakdown not occurred. If customers switch to competitors during the downtime and it takes 3 months after repair to win them back, that recovery period is included within the indemnity period.

Gross Profit: The Core of MLOP Calculation

MLOP insurance uses "gross profit" as its basis of coverage. But gross profit in insurance terms is not the same as the accounting definition. Understanding this distinction is essential for setting your sum insured correctly.

Insurance Gross Profit vs Accounting Gross Profit

Term	Definition	What It Includes
Accounting gross profit	Revenue minus cost of goods sold (COGS)	Relatively straightforward; COGS = direct materials + direct labour + manufacturing overhead
Insurance gross profit	Turnover minus specified working expenses (variable costs that stop when production stops)	Net profit + all fixed costs (insured standing charges) that continue during shutdown

How Insurance Gross Profit Is Calculated

Component	Included or Deducted	Explanation
Annual turnover	Starting point	Total sales revenue for the year
Raw material costs	Deducted (specified working expense)	Variable cost that stops when production stops
Packaging materials	Deducted (specified working expense)	Variable cost directly linked to production
Freight/carriage (outward)	Deducted (specified working expense)	Delivery costs that stop when there's nothing to deliver
Utilities (variable portion)	Partially deducted	Production-related electricity/gas that reduces when machines stop
Staff salaries	Included (standing charge)	Permanent staff paid even when production is stopped
Rent, rates, taxes	Included (standing charge)	Continue regardless of production
Loan repayments / interest	Included (standing charge)	Bank doesn't pause your loan because your machine broke
Insurance premiums	Included (standing charge)	Annual premiums continue regardless
Net profit	Included	The actual profit you lose when production stops

Insurance gross profit = Turnover - Specified working expenses

Or equivalently: Insurance gross profit = Net profit + All insured standing charges

The sum insured for MLOP should be the insurance gross profit for the full indemnity period you've selected. If your annual insurance gross profit is RM10 million and your indemnity period is 12 months, your MLOP sum insured should be RM10 million.

Selecting the Right Indemnity Period

The indemnity period is the maximum time your MLOP policy will cover lost profits after a breakdown. Choosing too short a period means you run out of coverage before production fully recovers. Choosing too long increases your premium unnecessarily.

What the Indemnity Period Must Cover

Component	Description	Typical Duration
Damage assessment	Inspection, loss adjusting, root cause analysis	1-4 weeks
Spare parts procurement	Ordering, manufacturing, and shipping replacement parts	2-26 weeks (varies dramatically by equipment type)
Repair / replacement	Physical repair work or installation of replacement equipment	1-12 weeks
Testing and recommissioning	Ensuring repaired equipment operates correctly before full production	1-4 weeks
Production ramp-up	Gradually returning to full production capacity	2-8 weeks
Customer recovery	Time to win back customers who switched to competitors during downtime	1-6 months

Indemnity Period by Equipment Type

Equipment Type	Suggested Minimum Indemnity Period	Why
Standard production machinery (pumps, conveyors, packaging)	6-12 months	Spare parts generally available; shorter repair times
CNC machining centres, injection moulding machines	12-18 months	Specialised parts; may need manufacturer involvement for repair
Turbines, generators, large compressors	18-24 months	Long lead time for major components; OEM repair required
Custom-built process equipment	18-24 months	No off-the-shelf replacement; must be remanufactured
Semiconductor fab equipment	18-24 months	Extremely specialised; limited global suppliers; cleanroom reinstallation required

The most common mistake is choosing the minimum indemnity period to save premium. If your machine takes 9 months to repair and 3 months to recover customers, a 6-month indemnity period leaves you uncovered for the final 6 months of lost revenue.

Increased Cost of Working

MLOP doesn't just cover lost revenue. It also covers extra costs you incur to reduce the loss. If renting a temporary machine, outsourcing production, or paying overtime can keep some production running, MLOP pays for those extra costs, but only up to the amount of gross profit those measures save.

Increased Cost of Working	Example	Covered?
Renting temporary replacement equipment	Renting a generator while yours is repaired	Yes, if the rental cost is less than the gross profit saved
Outsourcing production to third party	Sending work to another factory while your line is down	Yes, up to the gross profit preserved by maintaining output
Overtime for workers on remaining machines	Running other production lines 24/7 to compensate	Yes, additional overtime cost (not standard wages)
Express shipping for replacement parts	Air-freighting a gearbox from Europe instead of sea freight	Yes, if faster repair reduces the interruption period

The economic test: the insurer will pay for increased costs of working only if those costs are economically justified. Spending RM100,000 on a temporary machine to save RM500,000 in lost gross profit is justified. Spending RM100,000 to save RM50,000 is not, and only RM50,000 would be covered.

MLOP vs BI vs BOLOP vs ILOP: Five Loss-of-Profits Policies

Malaysian P&E insurance has five distinct loss-of-profits policies, each attached to a different parent policy. They cover different perils and cannot substitute for each other. A factory that has only BI but not MLOP is not covered for production losses from machinery breakdown.

Policy	Parent Policy	Triggers When	Typical Buyer
BI (Business Interruption)	Fire / IAR	Fire, flood, natural perils, or all-risks damage to property	All factories with IAR/Fire
MLOP (Machinery Loss of Profits)	Machinery Breakdown	Mechanical/electrical breakdown of insured machinery	Factories with critical production machinery
BOLOP (Boiler Loss of Profits)	BPV	Explosion, collapse, or failure of boiler/pressure vessel	Factories dependent on steam boilers
ILOP (IT/Electronic Loss of Profits)	EEI	Electronic equipment failure (servers, control systems, data systems)	Data centres, tech companies
DSU (Delay in Start-Up)	CAR / EAR	Construction/erection damage delays project handover	Project owners building new facilities

The Critical Gap: BI Without MLOP

This is the most common coverage gap in Malaysian factory insurance. A factory buys IAR (property insurance) with BI extension. They also buy MB (machinery breakdown). But they don't buy MLOP.

Result: if fire damages the factory, BI covers the lost profits. But if a critical machine breaks down (a far more frequent event than fire), there's no revenue protection at all. The MB policy pays to repair the machine, but the months of lost production while waiting for parts and repair come entirely out of the factory's pocket.

If you have MB insurance, you should have MLOP. The two are designed to work together. Buying MB without MLOP is like buying a car without engine insurance, then wondering why your policy doesn't cover engine repairs.

MLOP Exclusions

MLOP exclusions mirror the MB policy exclusions because MLOP is dependent on MB. If MB doesn't cover a particular cause of loss, MLOP won't cover the resulting revenue loss either.

Exclusion	Explanation
Loss not consequent upon a valid MB claim	MLOP only responds when MB pays; if MB claim is declined, MLOP is also declined
Fire, lightning, external explosion	These are MB exclusions (covered by Fire/IAR + BI instead)
Flood, storm, natural perils	These are MB exclusions (covered by Fire/IAR + BI instead)
Wear and tear, gradual deterioration	Not sudden and unforeseen; a maintenance issue
Consequential loss from other insured policies	If the loss is covered by another policy (e.g., BI), MLOP doesn't duplicate payment
Loss avoidable by use of other machinery	If you have standby equipment that could reduce the interruption, insurer expects you to use it
Contractual penalties, fines	Contractual liabilities are not gross profit losses

The "loss avoidable by use of other machinery" exclusion is important. If you have two identical production lines and one breaks down, the insurer expects you to shift production to the operational line (even if it means overtime). MLOP would only cover the portion of lost production that the remaining line cannot handle.

MLOP Premium Factors

Factor	Impact on Premium	Why
Sum insured (gross profit)	Primary factor; higher gross profit = higher premium	More revenue at risk means more potential claim
Indemnity period	Longer period = higher premium	More months of coverage means more exposure
Time excess (deductible)	Longer time excess = lower premium	You absorb short interruptions; insurer only covers extended shutdowns
Single-machine dependency	Higher if production depends on one critical machine	No redundancy means any failure halts entire production
Spare parts availability	Equipment with long lead times rated higher	Longer repair time = longer production interruption = larger potential claim
Maintenance programme	Strong preventive maintenance may reduce premium	Well-maintained machines break down less frequently
Industry type	Continuous process industries rated higher than batch	Continuous production (24/7) loses more revenue per day of downtime
MB claims history	Previous MB claims increase MLOP premium	Past breakdowns indicate higher risk of future MLOP claims

Industry-Specific MLOP Scenarios

Scenario 1: Injection Moulding Machine Failure (Plastics Factory)

Detail	Value
Industry	Plastics parts manufacturer, Johor
Equipment	800-tonne injection moulding machine (hydraulic drive)
Cause	Hydraulic pump failure; metal fragments contaminate entire hydraulic system
MB claim	Hydraulic system flush, pump replacement, valve replacements
Repair timeline	10 weeks (pump from Japan, 6-week lead time; 4 weeks to strip, flush, reassemble)
MLOP claim	Lost output from dedicated automotive parts line; cannot shift to other machines (mould specific)
Key lesson	Large moulding machines with specific tooling have no quick substitute; 10 weeks of lost production adds up fast

Scenario 2: Compressor Failure (Chemical Plant)

Detail	Value
Industry	Chemical processing plant, Gebeng
Equipment	Main process gas compressor
Cause	Impeller blade fracture due to material fatigue; fragments damage casing and internals
MB claim	Complete compressor overhaul; new rotor assembly; casing repair
Repair timeline	5 months (new rotor: 14-week manufacture; 4 weeks installation and alignment; 2 weeks recommissioning)
MLOP claim	Entire production train shut down (single compressor, no standby); 5 months lost output
Key lesson	Process plants with no redundancy in critical rotating equipment face catastrophic MLOP exposure

Scenario 3: Chiller System Breakdown (Food Factory)

Detail	Value
Industry	Frozen food processor, Selangor
Equipment	Central ammonia chiller system (compressor + evaporator)
Cause	Motor winding failure causes compressor seizure; ammonia leak requires decontamination
MB claim	Compressor motor rewind; ammonia system recharge; evaporator inspection and repair
Repair timeline	8 weeks (including decontamination, food safety clearance, and system recommissioning)
MLOP claim	All frozen/chilled production halted; existing cold chain inventory at risk of spoilage
Increased cost of working	Emergency rental chillers deployed; temporary cold storage for existing stock
Key lesson	Food factories face double loss: production stoppage plus stock spoilage; increased cost of working (rental chillers) can significantly reduce total MLOP claim

Common Mistakes in MLOP Insurance

Mistake	Consequence	How to Avoid
Buying MB without MLOP	Equipment repair covered but revenue loss during repair period is entirely self-funded	Always consider MLOP when buying MB; the revenue loss usually exceeds the repair cost
Confusing BI with MLOP	Assuming BI (attached to IAR/Fire) covers machinery breakdown losses; it doesn't	BI covers property damage perils; MLOP covers machinery breakdown perils; both are needed
Using accounting gross profit for sum insured	Underinsurance if accounting GP is lower than insurance GP	Calculate insurance gross profit: turnover minus specified working expenses only
Indemnity period too short	Coverage expires before production fully recovers; remaining months of loss are self-funded	Include spare parts lead time + repair + testing + customer recovery in your calculation
Not updating sum insured for business growth	Factory revenue grows but MLOP sum insured stays at original level; underinsured	Review MLOP sum insured annually; it should track your actual gross profit
MLOP scope narrower than MB scope	MB covers machines not listed in MLOP; breakdown of unlisted machine has no revenue protection	Ensure all revenue-critical machines in MB schedule are also covered under MLOP
Ignoring interdependencies between machines	One machine failure stops entire production line; MLOP doesn't account for cascade effect	Map production dependencies; identify single points of failure; ensure adequate MLOP for bottleneck machines

MLOP Self-Assessment Checklist

Item	Status
MLOP purchased alongside MB insurance	☐
Sum insured based on insurance gross profit (not accounting gross profit)	☐
Indemnity period accounts for: parts lead time + repair + testing + customer recovery	☐
All revenue-critical machines in MB schedule are also covered under MLOP	☐
Time excess is affordable (you can fund 14 or 30 days of lost production)	☐
Sum insured reviewed and updated annually for business growth	☐
Production interdependencies mapped (know which machine failure stops entire line)	☐
Both MLOP and BI in place (MLOP for machinery breakdown + BI for fire/flood)	☐
Spare parts availability assessed for critical machines (affect indemnity period choice)	☐

FAQ

What is the difference between MLOP and Business Interruption (BI) insurance?

MLOP covers lost profits from machinery breakdown (attached to your MB policy). BI covers lost profits from fire, flood, and property damage perils (attached to your Fire/IAR policy). They cover different causes of production loss. A factory needs both for comprehensive revenue protection.

Can I buy MLOP without Machinery Breakdown insurance?

No. MLOP is a companion policy to Machinery Breakdown. It can only be triggered by a valid MB claim. You must have MB insurance as the parent policy before MLOP can be added. The two policies work together: MB covers the equipment repair, MLOP covers the revenue loss.

How is the MLOP sum insured calculated?

The sum insured is your insurance gross profit for the full indemnity period. Insurance gross profit = turnover minus specified working expenses (raw materials, packaging, variable utilities, outward freight). This is typically higher than accounting gross profit because it includes all fixed costs. Work with your accountant and broker to get this right.

What happens if my sum insured is too low?

If your MLOP sum insured is less than your actual insurance gross profit for the indemnity period, the average clause applies. The insurer pays a proportionate share of the claim. For example, if your sum insured is RM5 million but your actual insurance gross profit is RM10 million, the insurer pays only 50% of your claim. This underinsurance penalty can dramatically reduce your claim payout.

How long should my MLOP indemnity period be?

Long enough to cover: spare parts procurement + repair/replacement + testing + production ramp-up + customer recovery. For standard machinery, 12 months is often sufficient. For specialised equipment (turbines, custom process machinery, semiconductor tools), 18-24 months may be necessary. The most common mistake is choosing too short a period to save on premium.

What is the time excess in MLOP?

The time excess is a waiting period (deductible) before MLOP coverage starts. If your time excess is 14 days, you bear the first 14 days of lost production yourself. Longer time excess periods reduce your premium but increase your out-of-pocket exposure. Choose a time excess that your business can absorb without significant strain.

Does MLOP cover maintenance-related downtime?

No. MLOP only covers unplanned, sudden, and unforeseen machinery breakdown. Planned maintenance shutdowns, routine overhauls, and scheduled downtime are not covered. The breakdown must trigger a valid MB claim, which requires the damage to be sudden and unforeseen.

What are "specified working expenses" in MLOP?

Specified working expenses are variable costs that stop when production stops: raw materials, packaging, outward freight, production-related utilities, and similar costs directly tied to output. These are deducted from turnover to arrive at insurance gross profit. All costs that continue regardless of production (salaries, rent, insurance premiums, loan payments) are included in the gross profit and are therefore covered by MLOP.

Does MLOP cover stock spoilage from machinery failure?

MLOP covers lost gross profit and increased cost of working. Spoiled stock is a material damage issue, not a profit loss. The MB policy may cover spoilage if it results directly from the machinery breakdown (check your MB policy wording). MLOP would then cover the ongoing revenue loss from being unable to produce while the system is being repaired.

Can MLOP cover losses from a machine that isn't in the MB schedule?

No. MLOP coverage is directly linked to the MB policy schedule. If a machine isn't listed in your MB policy, any breakdown of that machine cannot trigger an MLOP claim. Ensure all production-critical machines are included in both your MB and MLOP policies.

Foundation Conclusion

Machinery breakdown is the most frequent cause of unplanned production shutdown in Malaysian factories. The repair cost is one thing. The revenue lost during weeks or months of downtime is often several times larger. MLOP exists specifically to cover that revenue gap, but only if it's in place before the breakdown occurs.

Every factory with Machinery Breakdown insurance should evaluate MLOP. The calculation is straightforward: what is your gross profit, how long could a major breakdown shut you down, and can your business survive that duration without income? For most Malaysian manufacturers, the answer points clearly toward having MLOP in your programme.

Talk to our risk specialists about structuring your MLOP coverage