Research from insurance giant FM Global has found that the risk of equipment failure has been rising in recent years – and it seems there’s no sign of it stopping in the near future.
According to a new study from the international insurer, equipment failure is a ‘top concern’ for 70% of large organisations and a ‘high concern’ for a further 24%.
The same survey also revealed that 43% of senior leaders believe equipment failure risks have risen over the past five years while only 29% believe the risk has decreased.
In fact, Mick Stuckings (pictured) – operations chief engineer for FM Global’s Australian business – said the risk has grown so significantly it is now one of the biggest threats facing many organisations.
“A recent review of large losses suffered by our clients shows that equipment breakdown now rivals fire in both severity and frequency,” he told Insurance Business.
Stuckings also warned that there are certain sectors at higher risk and businesses could experience devastating consequences if they’re not prepared for equipment failure.
“Any industry that relies on equipment as part of the revenue generation stream is exposed to equipment failure risk – however, the larger and more specialised the equipment, the greater the impact of failure,” he said.
In Australia, industries such as mining, power generation and chemical production are among those at particularly high risk due to the cost, size and complexity of the equipment utilised.
“It could take up to a year or more to source a large power transformer of the size that is often found in these industries,” said Stuckings. “Even a simple package boiler used to generate steam for common manufacturing processes can take four months or more to purchase and commission.”
Even if the failure is repairable, a boiler may still be out of action for several weeks, warned Stuckings, which could easily result in failure to deliver the product to customers.
So, what’s driving the increased risk? In the study, leaders indicated several aggravating factors with more equipment being in use as the most common, cited by 53% of all respondents.
High demand due to a healthy economy was cited by 45% of respondents, while aging equipment was cited by 42% and increased operator turnover by 40%.
However, FM Global’s own data highlighted some disparities between what leaders believe is contributing to increased risk and what’s actually to blame for equipment failure.
“The review revealed that lack of maintenance was a factor in more than 60% of equipment failures and operator training was a factor in 43% of all equipment breakdown losses,” said Stuckings. “We’ve also seen some losses in newer equipment where a focus on cost during the project design phase has resulted in the selection of poor-quality equipment.”
Lack of maintenance was cited by just 39% of leaders in the survey, while lack of training was identified by 37%.
Interestingly, while the survey collated responses from leaders within Fortune 500-sized companies, Stuckings said he expected small businesses would also face similar threats.
“While it obviously depends on the nature of the organisation and the way its revenues are generated, smaller organisations can also be exposed to a major business interruption due to equipment breakdown,” he said. “In some cases, their relative exposure could be even greater as they may have less resources to implement, appropriate asset management practices and a lower ability to recover from a loss.”
