At a Glance
What Is Engineering Insurance?
Engineering insurance is a family of specialised policies covering the physical and financial risks associated with machinery, plant, construction equipment, and electronic systems. Where standard commercial property insurance addresses external perils — fire, theft, natural catastrophe — engineering lines address the risks inherent to the machinery and equipment itself: internal mechanical and electrical failure, accidental damage during operation, and the business interruption consequences that follow when production assets break down.
In Türkiye, engineering lines are regulated by SEDDK (Sigortacılık ve Özel Emeklilik Düzenleme ve Denetleme Kurumu) and placed through specialist engineering underwriters in both the domestic and international markets. The scale and complexity of the risk determines whether domestic market capacity is sufficient or whether Lloyd's of London and international co-insurance arrangements are required. For large industrial assets — power plants, petrochemical facilities, manufacturing complexes — international market involvement is typical.
Engineering insurance is relevant to a broad range of industries: energy generation and transmission, manufacturing and process industries, construction, hospitality, healthcare, and data centres, among others. The common thread is reliance on machinery, plant, or electronic systems whose failure or damage would cause material financial loss. Neolife assesses each client's asset base, operational profile, and financial exposure to structure a programme that addresses the genuine risk rather than simply replicating a standard product.
Policy Types
Engineering insurance encompasses several distinct policy classes, each addressing a specific category of risk. In practice, many clients require a combination of these covers — for example, an industrial manufacturer may need both MB and MLOP; a contractor may need CPM alongside EAR. Neolife structures multi-line engineering programmes where appropriate, ensuring that there are no gaps between policies and that terms are consistent across covers.
Machinery Breakdown (MB)
Covers accidental physical damage to machinery and plant arising from internal causes — mechanical failure, electrical failure, short circuit, operator error, centrifugal force, and similar causes. MB fills the gap in standard property cover: property (fire/FLEXA) policies cover external perils; they specifically exclude internal mechanical and electrical failure. For any organisation that owns or operates machinery on which production or operations depend, MB is the policy that covers the most likely cause of loss.
MB applies to a wide range of assets: industrial machinery, production lines, generators, compressors, turbines, boilers, pumps, electric motors, and process equipment. The sum insured is typically based on replacement value or reinstatement value of the machinery, and the policy covers the cost of repair or replacement following an insured breakdown event.
Electronic Equipment Insurance (EEI)
All-risks cover for electronic systems and equipment: computers and servers, control panels, programmable logic controllers (PLCs), SCADA systems, telecommunications infrastructure, medical equipment, and industrial automation systems. EEI covers accidental damage, theft, power surge, operator error, short circuit, and mechanical failure of electronic components.
A key feature of EEI is the ability to include data restoration costs — the cost of recovering data stored on insured electronic systems that has been lost, corrupted, or destroyed as a result of an insured event. Note that EEI does not typically cover losses arising from cyber attacks, hacking, or malware; those exposures require a standalone cyber policy.
Contractors' Plant & Machinery (CPM)
Covers mobile plant and equipment owned by or in the care of a contractor: excavators, bulldozers, cranes, compressors, generators, concrete pumps, and similar construction plant. CPM provides cover for accidental damage, overturning, collision, fire, and theft, following the equipment from site to site throughout the policy period.
Unlike property policies tied to a fixed location, CPM follows the equipment wherever it operates — on multiple project sites, in transit between sites, and during temporary storage. Contractors with large and diverse plant fleets can insure on an open or blanket basis, declaring the total fleet value and receiving automatic cover for all items within the declared category and value limit.
CAR / EAR (Construction & Erection All Risks)
Construction All Risks (CAR) and Erection All Risks (EAR) provide project-period cover for physical damage to works under construction or erection, as well as third-party liability arising from the project. CAR applies to civil engineering and building projects; EAR applies to mechanical and electrical plant installation and erection projects. These lines are covered in dedicated detail on the Construction & Erection page.
Machinery Loss of Profit (MLOP)
MLOP is a business interruption extension attached to a Machinery Breakdown policy. When a machinery breakdown causes a stoppage in production, the MB policy covers the cost of repairing or replacing the machine — but not the revenue lost during the downtime. MLOP covers the resulting loss of gross profit during the indemnity period, measured from the date of the breakdown to the date production is restored or the indemnity period expires, whichever comes first.
MLOP is particularly critical for manufacturing plants and process industries where a single machine failure can halt an entire production line. The financial exposure from lost production can dwarf the physical cost of repairing the machinery itself. MLOP should be structured with an indemnity period that realistically reflects the time required to source, deliver, install, and commission a replacement machine — which, for specialist plant, can be 12–24 months or longer.
DSU / ALOP (Delay in Start-Up / Advance Loss of Profits)
Delay in Start-Up (DSU) — also known as Advance Loss of Profits (ALOP) — is a business interruption extension attached to an EAR policy. When a project suffers insured physical damage during construction or erection that delays its completion and commercial start-up, DSU covers the loss of anticipated revenue that the insured would have earned during the delay period. DSU is covered in additional detail on the Construction & Erection page.
Serial Loss Cover
Serial loss — known in Turkish insurance practice as seri hasar — arises when a batch of identical components suffers a common manufacturing defect that causes each individual component to fail. Under standard policy wordings, each failure is treated as a separate, independent event, with separate deductibles applying to each claim. When a large number of identical items are affected by the same underlying defect, the cumulative cost of separate deductibles can be substantial.
How Serial Loss Clauses Work
A serial loss clause aggregates all losses arising from the same identified manufacturing or design defect into a single occurrence for policy purposes. A single deductible applies to the aggregate loss, and a serial loss sub-limit — agreed at inception — caps the policy's exposure to any one serial loss event. The clause typically requires that the common defect be identified and confirmed before aggregation applies.
Serial loss cover is particularly relevant for operators of standardised equipment produced in large batches: wind turbine operators (identical gearbox or blade models), electricity distribution networks (identical transformer batches), manufacturers relying on standardised electronic components, and data centre operators with identical server configurations.
The interaction between serial loss clauses and manufacturers' warranties should also be considered. A manufacturer may argue that a defect is covered under warranty rather than under the insurance policy. Neolife advises clients on the appropriate policy structure and wording to ensure that serial loss exposures are addressed, and that policy terms are consistent with contractual warranty arrangements.
What Is Not Covered — Common Exclusions
Engineering insurance policies are subject to standard exclusions that define the boundary between insurable risk and normal operational costs. Understanding these exclusions is as important as understanding the cover itself. The most common exclusions across MB, EEI, and CPM policies are:
- Wear and tear / gradual deterioration: Progressive deterioration over time — including corrosion, erosion, cavitation, scaling, and fatigue — is not an insurable event. Insurance covers sudden, fortuitous physical damage; routine degradation is an operational and maintenance matter.
- Wilful damage / deliberate acts: Intentional damage by the insured, their employees, or agents is excluded. Malicious damage by third parties may be covered under extended policy terms.
- War, nuclear, and terrorism: Standard exclusions consistent with all engineering policies. Specialist terrorism cover can be arranged separately where required.
- Shortage of operational inputs: Loss or damage resulting from shortage of water, fuel, feedstock, or other operational inputs is not covered. The policy covers physical damage to the machinery; it does not cover losses caused by inability to operate.
- Failure of external electrical supply grids: Power surges or failures originating in the external supply grid are excluded unless specifically extended. Fluctuation cover and surge protection extensions are available for EEI policies.
- Manufacturer's recall / warranty: Costs incurred in rectifying a manufacturer's defect under a recall programme, or repair costs that fall within a manufacturer's or supplier's warranty obligation, are excluded. The existence of a warranty does not transfer the risk to the insurer — it transfers it to the manufacturer.
- Consequential loss not expressly covered: Loss of production, revenue, or profit is not covered under an MB, EEI, or CPM policy unless a specific MLOP or BI extension has been added. This is the purpose of MLOP — to expressly bring consequential loss within the programme.
Frequently Asked Questions
Does standard fire/property insurance cover machinery breakdown? ▾
No. Standard property policies cover fire, theft, natural catastrophe and similar external perils. Machinery breakdown — internal mechanical or electrical failure — is specifically excluded from property policies and requires a dedicated MB policy. The distinction is between external cause (property) and internal cause (engineering). Property policies are designed for the consequences of external events acting on assets; MB policies are designed for the consequences of the assets themselves failing from within. A manufacturer whose production machinery fails due to a mechanical fault will find no cover under their property policy; their MB policy responds instead.
Is MB insurance compulsory in Türkiye? ▾
MB is not legally mandatory in Türkiye, but lenders (banks, leasing companies) typically require it when financing machinery-intensive assets. Energy sector projects may also require MB as a condition of feed-in tariff agreements. In practice, for any significant machinery investment financed through a Turkish bank or international lender, MB insurance is a standard lender requirement under the credit agreement. Even where not contractually required, the financial exposure from an uninsured machinery breakdown — repair costs plus lost production — makes MB commercially essential for manufacturing, energy, and process industry operators.
Does EEI cover software restoration? ▾
EEI can include cover for data restoration costs following an insured event. However, EEI does not typically cover losses arising from cyber attacks, hacking, or malware — these require a standalone cyber policy. EEI is designed for physical damage to electronic equipment and its consequences; it was not designed to address deliberate, targeted cyber intrusions. An organisation with significant reliance on electronic systems and data should consider both EEI (for physical damage and accidental data loss) and a standalone cyber policy (for malicious intrusion, ransomware, and data breach) as complementary rather than alternative covers.
Can CPM be insured on a fleet basis? ▾
Yes. Contractors with multiple items of plant can place a CPM policy on an open or blanket basis, declaring total plant values and receiving automatic coverage for items within the declared category. Under an open CPM policy, the contractor declares the total insured value by plant category (e.g., total excavators, total cranes, total generators) and individual items within those categories are automatically covered up to the declared value limit per item. New acquisitions can typically be added mid-term. This approach is administratively simpler and more cost-effective than individual policies for each item, and ensures that coverage keeps pace with fleet changes without requiring constant policy amendments.
What is an indemnity period in MLOP? ▾
The indemnity period is the maximum duration over which MLOP will pay loss of gross profit following a machinery breakdown — typically 6, 12, or 24 months. It should reflect the time needed to repair or replace the critical machine, including procurement and recommissioning. Setting the indemnity period too short is a common error: for specialist or custom-manufactured plant, the lead time from ordering a replacement to full commissioning can easily exceed 12 months. If the machinery is still out of service when the indemnity period expires, further losses are uninsured. Neolife advises clients on appropriate indemnity period selection based on the replacement lead times for their most critical assets.