Machinery Breakdown & MLOP Insurance Malaysia

Your fire insurance and IAR policy cover a lot. But neither covers your CNC machine burning out its motor, your compressor seizing from bearing failure, or your generator short-circuiting during a power surge. Those are internal machinery faults, and they're explicitly excluded from every fire and property policy in the Malaysian market.

Machinery breakdown (MB) insurance fills that gap. It covers internal mechanical and electrical faults that destroy or damage your equipment. MLOP (Machinery Loss of Profits) covers the revenue you lose while that equipment is being repaired or replaced.

This guide covers:

• What MB insurance covers (and what it doesn't)
• How MLOP works as the "business interruption" for machinery claims
• MB vs Fire vs IAR vs EEI comparison
• Premium factors and indicative rate ranges
• Standard exclusions and optional extensions
• How MB/MLOP fits your factory's P&E programme
• Claims process and broker submission requirements

Why Machinery Breakdown Insurance Exists

Fire insurance covers named perils: fire, lightning, explosion. IAR extends that to accidental damage, theft, water damage, and impact. But both policies contain a standard exclusion for mechanical and electrical breakdown. This means internal faults originating within the machine itself are not covered under any property policy.

MB insurance is an engineering class policy, not a property class policy. It was designed specifically to cover the perils that property policies exclude. The coverage trigger is an internal fault, not an external event. If a bearing seizes because of metal fatigue, that's MB. If the same machine is damaged by a forklift crashing into it, that's IAR.

For any factory running production machinery, MB and IAR work together. IAR covers external damage. MB covers internal failure. Without both, you have a gap in your equipment protection.

MB vs Fire vs IAR vs EEI: What Covers What

This is the single most important table for factory owners to understand. Each policy class covers different cause-of-loss categories. Overlap is minimal.

Cause of Loss	Fire	IAR	MB	EEI
Fire, lightning, explosion	Yes	Yes	No	No
Flood, storm, tempest	Extension	Yes	No	No
Theft, burglary	No	Yes	No	Yes
Impact, vehicle collision	No	Yes	No	Yes
Water damage (pipe burst, sprinkler)	No	Yes	No	Yes
Mechanical breakdown (bearing, shaft, gear)	No	No	Yes	No
Electrical burnout (motor, winding, insulation)	No	No	Yes	Yes
Overheating, overpressure	No	No	Yes	No
Centrifugal force failure	No	No	Yes	No
Power surge (external)	No	No	Yes	Yes
Operator error / negligence	No	Yes	Yes	Yes
Explosion/collapse of boiler/pressure vessel	No	No	No	No (BPV)
Electronic component failure (PCB, chip)	No	No	No	Yes
Loss of profits from insured event	BI add-on	BI add-on	MLOP	ILOP

The pattern is clear. Fire and IAR cover external events damaging your machines from outside. MB covers internal failures destroying your machines from within. EEI covers electronic and IT equipment specifically. BPV covers boilers and pressure vessels. Each policy has its lane.

What Machinery Breakdown Insurance Covers

MB insurance operates on a sudden and unforeseen basis. The damage must be unexpected, not the result of gradual deterioration you knew about and ignored. Coverage applies to mechanical and electrical plant, machinery, and equipment listed in the policy schedule.

Insured Causes of Damage

Cause Category	Examples	Common Equipment Affected
Mechanical derangement	Broken shafts, stripped gears, bearing seizure, crankshaft fracture	Production lines, compressors, pumps, turbines
Electrical breakdown	Motor burnout, winding failure, insulation breakdown, short circuit	Motors, transformers, switchgear, generators
Overheating / overspeed	Coolant failure, lubrication failure, speed governor malfunction	Engines, turbines, centrifuges, dryers
Centrifugal force	Flywheel disintegration, rotor imbalance, fan blade ejection	Centrifuges, turbines, large fans, flywheels
Physical damage from defects	Material fatigue, casting defects, welding failure (latent defects)	All mechanical equipment
Water ingress / hydraulic lock	Water entering cylinder, hydraulic system contamination	Diesel engines, hydraulic presses, compressors
Operator error	Wrong settings, improper startup, foreign object left in machine	CNC machines, injection moulders, packing lines
External power surge	TNB voltage fluctuation, lightning-induced surge (via power line)	Motors, control panels, variable speed drives

Equipment Types Typically Insured

Equipment Category	Examples	Typical Sum Insured Range
Production machinery	Injection moulders, stamping presses, extrusion lines, CNC machines	RM200,000 - RM5,000,000 per unit
Compressors and pumps	Air compressors, refrigeration compressors, process pumps, vacuum pumps	RM50,000 - RM2,000,000
Generators and engines	Diesel gensets, gas turbines, standby generators	RM300,000 - RM10,000,000
Transformers and switchgear	Power transformers, HV switchgear, MV switchboards	RM100,000 - RM5,000,000
Chillers and cooling systems	Industrial chillers, cooling towers (mechanical parts), HVAC compressors	RM200,000 - RM3,000,000
Conveyors and material handling	Belt conveyors, roller systems, automated storage, robotic arms	RM100,000 - RM2,000,000
Lifts and escalators	Passenger lifts, goods lifts, escalators (mechanical/electrical parts)	RM150,000 - RM1,000,000
Food processing equipment	Mixers, ovens, fryers, freezers (mechanical parts), pasteurisers	RM100,000 - RM3,000,000

The sum insured for MB should reflect the replacement value as new of each item of machinery. Underinsurance on MB works the same way as the average clause on fire and IAR: if you insure a machine worth RM1,000,000 for only RM500,000, the insurer pays only 50% of any claim.

How MLOP Works

MLOP stands for Machinery Loss of Profits. It's the engineering equivalent of business interruption (BI) insurance, but it only triggers when an MB-insured event causes production stoppage. If your production line stops because of a fire, that's a BI claim under your fire or IAR policy. If your production line stops because a motor burned out, that's an MLOP claim.

MLOP cannot exist without MB. It's always written as an add-on to the MB policy, and the triggering event must be one that the MB policy covers. If the MB claim is denied, the MLOP claim is automatically denied too.

MLOP Coverage Structure

MLOP Component	What It Means	Typical Range
Indemnity period	Maximum period the insurer will pay lost profits. Must cover worst-case repair time including spare part procurement.	6 - 24 months
Time excess (deductible period)	Waiting period before MLOP kicks in. Like a time-based deductible. You absorb losses for the first X days.	7 - 30 days
Sum insured basis	Annual gross profit for the entire business or the specific production line. Must reflect actual revenue.	RM1M - RM100M+
Increased cost of working	Extra expenses to maintain production (overtime, outsourcing, equipment rental, expedited shipping of spare parts).	Usually sub-limited
Wages clause	Whether employee wages are included in the gross profit calculation. Dual basis (included for agreed period, excluded after) is most common.	Dual basis or full wages

The most common mistake with MLOP is setting an indemnity period that's too short. If your critical machine breaks down and the spare part has to be shipped from Germany or Japan, lead time alone can be 8-16 weeks. Add installation, testing, and commissioning, and you're looking at 4-6 months easily. A 3-month indemnity period would leave you unprotected for the worst part of the loss.

MLOP vs BI: Which Covers What

Feature	Business Interruption (BI)	MLOP
Trigger event	Fire, flood, or other property-insured peril causing production stoppage	Machinery breakdown (internal fault) causing production stoppage
Attached to	Fire or IAR policy	MB policy
What it covers	Lost gross profit + increased working costs from property damage	Lost gross profit + increased working costs from machinery failure
Typical indemnity period	12 - 24 months	6 - 24 months
Example	Factory fire destroys production hall, 9 months to rebuild	Generator turbine seizes, 4 months to replace from OEM

A factory that has BI but not MLOP is only half-protected. Statistically, machinery breakdown events are far more frequent than fires. The average factory experiences multiple minor breakdowns per year. Most are absorbed within deductibles, but a single major failure can halt production for months.

Get a combined MB + MLOP quotation for your facility

Who Needs Machinery Breakdown Insurance

Any business that depends on mechanical or electrical equipment for revenue generation should carry MB insurance. The question isn't whether equipment will fail; it's when, and whether you can absorb the replacement cost.

Industry	Critical Equipment at Risk	Why MB Is Essential	MLOP Priority
Manufacturing (general)	Production lines, CNC machines, injection moulders, compressors	Single machine failure can halt entire production line	High
Food & beverage	Freezers, cold rooms, pasteurisers, filling lines, ovens	Cold chain failure = stock spoilage + lost contracts	Very high
Semiconductor / E&E	Cleanroom HVAC, process chambers, wafer handling, testing equipment	Equipment costs RM5M-50M per unit. Downtime = contractual penalties.	Very high
Chemical / petrochemical	Reactors, distillation columns, compressors, centrifuges	Continuous process = any stoppage cascades through entire plant	Very high
Power generation	Gas/steam turbines, generators, transformers, boiler auxiliaries	Single turbine replacement can cost RM10M+. OEM lead time 6-12 months.	Critical
Cold storage / logistics	Refrigeration compressors, ammonia systems, conveyor systems	Compressor failure = stock deterioration + third-party liability	High
Data centres	Generators, UPS systems (mechanical parts), cooling compressors	Uptime SLAs mean any mechanical failure triggers penalty clauses	Critical
Palm oil mills	Screw presses, decanters, boiler auxiliaries, turbines	Seasonal processing window. Breakdown during peak = entire season's revenue lost.	Very high
Commercial buildings	Chillers, lifts, escalators, fire pumps, gensets	Chiller failure in Malaysian heat = tenant complaints + lease disputes	Medium

Machinery Breakdown Premium Factors

MB premiums are calculated based on the total sum insured of all scheduled machinery, adjusted for risk factors. Unlike fire insurance (which uses tariff rates in Malaysia), MB rates are non-tariff and negotiable. This means your broker's ability to present your risk effectively directly affects your premium.

What Affects Your MB Premium

Factor	Impact on Premium	What Underwriters Want to See
Machinery age	Older machinery = higher rates. Equipment over 15 years may face loadings or exclusions.	Machinery schedule with age, make, model, year of manufacture
Maintenance programme	Strong maintenance = lower rates. Predictive maintenance can earn discounts of 10-20%.	Maintenance logs, OEM service contracts, CMMS records
Industry / machine type	Turbines and generators attract higher rates than simple mechanical equipment.	Detailed machinery schedule with specifications
Claims history	3-5 year loss record. Frequent small claims can be worse than one large claim.	Loss summary by year, type, and cause
Spare parts availability	Custom/obsolete equipment = higher MLOP risk (longer repair time).	Critical spare parts inventory, OEM support status
Deductible level	Higher deductible = lower premium. Standard deductibles range from RM5,000 to RM50,000.	Preferred deductible level per equipment category
Operating environment	Dusty, humid, corrosive environments increase failure rates.	Environmental controls, air filtration, temperature monitoring
Operator training	Certified operators reduce human-error claims.	Training records, SKM certifications, OEM operator training

Indicative Premium Ranges

These are approximate ranges for the Malaysian market. Actual premiums depend on the specific risk profile.

Facility Type	Total MB Sum Insured	Indicative MB Rate	MLOP Add-on Rate
General manufacturing	RM5M - RM30M	0.15% - 0.35%	0.08% - 0.20% of GP
Food & beverage processing	RM3M - RM20M	0.18% - 0.40%	0.10% - 0.25% of GP
Semiconductor / E&E	RM50M - RM500M	0.10% - 0.25%	0.06% - 0.15% of GP
Power generation	RM20M - RM200M	0.20% - 0.50%	0.15% - 0.35% of GP
Cold storage / logistics	RM2M - RM15M	0.20% - 0.45%	0.12% - 0.25% of GP
Data centres	RM10M - RM100M	0.12% - 0.30%	0.08% - 0.20% of GP
Palm oil mills	RM5M - RM25M	0.25% - 0.50%	0.15% - 0.30% of GP
Commercial buildings	RM2M - RM10M	0.15% - 0.30%	0.08% - 0.18% of GP

GP = Gross Profit. MLOP sum insured is calculated based on the annual gross profit of the business or production line.

Standard MB Exclusions

Understanding what MB does NOT cover is just as important as knowing what it covers. Most exclusions exist because another policy class handles that peril.

Exclusion	Why It's Excluded	Covered By
Fire, lightning, explosion	Property class peril, not engineering class	Fire insurance / IAR
Flood, storm, natural catastrophe	External natural peril, not internal fault	IAR or Fire + Special Perils extension
Theft / burglary	Criminal peril, not mechanical failure	IAR or standalone theft policy
Boiler/pressure vessel explosion	Separate engineering class with regulatory requirements	BPV insurance
Electronic equipment internal failure	Electronic component failure (PCB, chip, circuit) requires specialist policy	EEI insurance
Gradual deterioration / wear and tear	Maintenance responsibility, not insurable risk	Maintenance budget / service contracts
Aesthetic defects (scratching, denting)	No functional impairment to machinery	Not typically insured
Consequential loss (without MLOP)	MB only covers physical damage. Lost profits require MLOP add-on.	MLOP (must be purchased)
War, nuclear, terrorism	Standard market-wide exclusion	Specialist terrorism pools

The key takeaway: MB handles internal faults. Everything external (fire, flood, theft, impact) belongs to your property policy. And specialist equipment (boilers, pressure vessels, electronic equipment) has dedicated engineering policies. A complete factory programme needs all of them working together.

Optional Extensions

Extension	What It Adds	When to Consider
Surrounding property	Damage to nearby equipment, structures, or stock caused by the machinery failure	Tightly packed production floors where one machine failure can damage adjacent equipment
Foundations	Damage to machinery foundations, plinths, and bedplates	Heavy rotating equipment (turbines, large compressors) where vibration damage is a concern
Expediting expenses	Air freight, overtime, and express charges to speed up repair/replacement	When spare parts must be sourced internationally or downtime cost exceeds freight cost
Third-party liability	Injury or property damage to third parties caused by machinery failure	Equipment near public areas or tenant-occupied spaces
Debris removal	Cost of clearing wreckage from catastrophic machinery failure	Large plant equipment (turbines, boiler auxiliaries) where cleanup is significant
Overtime and night work	Additional labour costs for after-hours repair work	24/7 operations where repairs must happen during off-peak hours

Talk to our engineering insurance specialists about the right MB/MLOP structure

Machinery Breakdown Claim Scenarios

These scenarios illustrate how MB and MLOP claims work in practice for Malaysian industrial operations.

Scenario 1: Injection Moulder Motor Burnout

A plastics factory in Shah Alam runs 12 injection moulding machines on a 24/7 schedule. One machine's main drive motor suffers insulation breakdown during a shift change. The motor seizes, damaging the gearbox and cracking the barrel.

Claim Component	Detail	Amount
MB claim: Motor replacement	New motor sourced from Taiwan, 6-week lead time	RM85,000
MB claim: Gearbox repair	Local repair shop, stripped gears replaced	RM32,000
MB claim: Barrel replacement	OEM replacement barrel, shipped from Japan	RM120,000
MLOP claim: Lost production	8 weeks downtime, machine produces RM150,000/month revenue	RM300,000
Less: MB deductible	Policy deductible	(RM10,000)
Less: MLOP time excess	14-day waiting period absorbed by insured	(RM75,000)
Total claim payout		RM452,000

Without MB: the factory absorbs RM237,000 in repair costs. Without MLOP: they also absorb RM300,000 in lost revenue. Total uninsured loss: RM537,000.

Scenario 2: Cold Room Compressor Seizure

A frozen food distributor in Johor operates three large ammonia compressors. One compressor's main bearing seizes due to metal fatigue, destroying the crankshaft and connecting rods. The remaining two compressors can't maintain temperature across the entire facility.

Claim Component	Amount
MB: Compressor overhaul (crankshaft, bearings, connecting rods)	RM180,000
MLOP: 10 weeks reduced capacity, lost contracts with retailers	RM420,000
Increased working costs: temporary rental compressor to prevent stock loss	RM65,000

The rental compressor expense shows why MLOP's "increased cost of working" provision matters. Without it, the distributor would have to choose between renting emergency equipment out of pocket or losing RM2M+ in frozen stock.

Scenario 3: Power Transformer Failure

A manufacturing facility in Penang's Bayan Lepas Free Trade Zone loses its 11kV/415V power transformer to an internal winding fault. The transformer serves the entire production floor. Lead time for a replacement transformer from the OEM: 16 weeks.

Claim Component	Amount
MB: New transformer supply and installation	RM650,000
MB: Expediting costs (air freight from manufacturer)	RM120,000
MLOP: 16 weeks production shutdown, gross profit RM500,000/month	RM2,000,000

This is the type of scenario where the MLOP claim dwarfs the MB claim. The physical damage is RM770,000. The lost revenue is RM2,000,000. Factories that skip MLOP to save on premium are betting that their most critical equipment won't fail.

Scenario 4: CNC Machine Bearing Failure

A precision parts manufacturer in Rawang operates a fleet of 5-axis CNC machining centres. One machine's spindle bearing fails during high-speed cutting, destroying the spindle assembly. The spindle is a proprietary component from the German OEM.

Claim Component	Amount
MB: Spindle assembly replacement (OEM part + installation)	RM280,000
MB: Calibration and alignment after installation	RM15,000
MLOP: 12 weeks downtime, subcontracted work to meet delivery commitments	RM180,000

MB/MLOP in Your Factory's P&E Programme

MB and MLOP don't work in isolation. They're part of a layered engineering insurance programme that covers different aspects of your physical risk. Here's how the pieces fit together for a typical Malaysian factory.

Policy	What It Protects	Trigger	Loss of Profits Cover
Fire Insurance	Building, stock, contents against named perils	Fire, lightning, explosion	BI (add-on)
IAR	All property against all risks (excl. engineering perils)	Any accidental external damage	BI (add-on)
MB	Machinery against internal faults	Mechanical/electrical breakdown	MLOP
BPV	Boilers and pressure vessels against explosion/collapse	Explosion, collapse, overheating	BOLOP (add-on)
EEI	Electronic/IT equipment against all risks	Any damage incl. electronic faults	ILOP (add-on)
CGL	Third-party injury/damage from operations	Third-party claim	N/A
WC	Worker injury/death compensation	Workplace accident	N/A

A factory with IAR but no MB has a coverage gap for the most common equipment failure mode: internal breakdown. A factory with MB but no MLOP has the machine repaired but absorbs the revenue loss during downtime. The complete programme covers both.

The Claims Process for MB/MLOP

Immediate Steps After Machinery Failure

Step	Action	Timeline
1	Isolate the machine. Prevent further damage. Do not dismantle anything.	Immediately
2	Document the damage with photographs, video, and written description of what happened.	Same day
3	Notify your broker (Foundation) by phone or email with incident details.	Within 24 hours
4	Preserve damaged parts. The loss adjuster will need to inspect them.	Until inspection
5	Obtain repair quotations from OEM or authorised service providers.	Within 1 week
6	Take reasonable steps to mitigate the loss (temporary measures, alternative arrangements).	Ongoing

Critical point: Do not dismantle the machine before the loss adjuster inspects it, unless safety requires immediate action. Dismantling destroys evidence of the cause of failure, which can jeopardise your claim. If emergency repair is needed, photograph everything before starting work.

Documentation Required

MB claims are technical. The insurer will appoint an engineering loss adjuster (not a general adjuster) who understands machinery. Having these documents ready speeds up the process significantly.

• Machine purchase invoice (original cost, date, supplier)
• Maintenance records for the failed equipment (last 12-24 months)
• OEM service reports and inspection records
• Photographs and video of the damage before dismantling
• Root cause analysis or preliminary diagnosis from your maintenance team
• Repair quotations (minimum 2, preferably including OEM)
• For MLOP: production records, revenue data, and evidence of lost orders/contracts

Broker Submission Requirements

When Foundation places your MB/MLOP programme with underwriters, we need the following information to get the best terms.

Document / Information	Why Underwriters Need It
Complete machinery schedule (item, make, model, year, replacement value)	Determines total sum insured and identifies high-value/high-risk items
Maintenance programme documentation	Demonstrates risk management; can reduce premium by 10-20%
3-5 year claims history	Loss ratio assessment; clean history earns better rates
Annual gross profit figures (for MLOP)	Determines MLOP sum insured and validates indemnity period adequacy
Critical spare parts inventory	Affects MLOP risk; on-site spares reduce downtime and MLOP exposure
OEM service contracts and warranties	Active OEM support indicates lower breakdown frequency
Process flow and critical path analysis	Identifies single points of failure where one machine stops the entire line

Submit your machinery schedule for a competitive MB/MLOP quotation

FAQ

Does my fire insurance or IAR cover machinery breakdown?

No. Both fire and IAR policies explicitly exclude internal mechanical and electrical breakdown. Fire covers external fire damage to your machine. IAR covers accidental external damage (impact, water, theft). Neither covers a motor burning out, a bearing seizing, or a shaft breaking from metal fatigue. That's what MB insurance is for.

Is machinery breakdown insurance mandatory in Malaysia?

MB insurance is not legally mandatory. But many bank financing agreements require it when machinery is financed or leased. Some multinational companies also require MB coverage as a condition of supply chain qualification. For factories where equipment is the primary revenue-generating asset, it's a financial necessity even without a mandate.

What's the difference between MB and EEI insurance?

MB covers mechanical and electrical plant: motors, compressors, generators, production machinery. EEI covers electronic equipment: servers, PLCs, CNC controllers (the electronic part), UPS systems, data centre equipment. The distinction matters because electronic equipment fails differently (component-level failure, static discharge, data corruption) and requires different underwriting.

How is the MB sum insured calculated?

The sum insured should be the replacement value as new of each item of machinery. This means the cost to replace the machine with a new equivalent model, including freight, customs duty, and installation. Do not use book value or market value, as these will leave you underinsured and trigger the average clause.

Can I buy MLOP without MB?

No. MLOP is always written as an add-on to the MB policy. The MLOP trigger event must be an MB-insured loss. You cannot buy standalone MLOP coverage. Similarly, if your MB claim is denied (for example, due to gradual deterioration), the corresponding MLOP claim is also denied.

How long does a typical MB claim take to settle?

Most MB claims settle within 4-8 weeks of the loss adjuster's final report. The timeline depends on the complexity of the failure, the availability of repair quotations, and whether the cause of loss is disputed. Simple motor burnout claims with clear documentation can settle in 3-4 weeks. Complex failures involving root cause analysis may take 8-12 weeks.

What if my machinery is more than 20 years old?

Older machinery can still be insured, but underwriters may apply age-related conditions. These include higher deductibles, betterment clauses (where you pay the improvement component if old parts are replaced with newer technology), or exclusion of specific high-wear components. A strong maintenance record helps overcome age concerns.

Does MB cover the cost of upgrading to a newer model?

MB covers repair or replacement on a like-for-like basis. If the exact model is no longer available and you must upgrade, the insurer pays the cost of the nearest equivalent replacement. Any additional cost for upgrading beyond equivalent specification is your responsibility. The betterment clause addresses this.

What is the typical deductible for MB claims?

Standard MB deductibles in the Malaysian market range from RM5,000 to RM50,000 per occurrence, depending on the total sum insured and risk profile. Power generation equipment typically has higher deductibles (RM25,000-100,000). Choosing a higher deductible reduces your premium but means you absorb more of each loss.

How does MB insurance work with manufacturer warranties?

MB insurance is not a substitute for warranties, and warranties are not a substitute for MB. Warranties typically cover defects for 1-2 years after purchase. MB covers sudden and unforeseen breakdown throughout the policy period, including operator error and external power surges that warranties don't cover. After the warranty expires, MB becomes your only protection against internal equipment failure.

Foundation Conclusion

Your fire and IAR policies protect your factory against external events. But the most frequent and often most expensive equipment losses come from within: a motor burning out, a bearing seizing, a turbine blade failing. MB insurance covers those internal faults. MLOP covers the revenue you lose during repair.

Together, MB and MLOP complete your factory's engineering insurance programme. Without them, you're carrying the full cost of your most likely equipment failure scenario.

Talk to Foundation's engineering insurance specialists about your MB/MLOP programme

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