Category: Engineering specialty · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
Loss of profits following machinery breakdown (often shortened to ‘LOP MB’ or ‘MBLOP’) is the business interruption extension to machinery breakdown insurance, covering the lost gross profit and increased costs of working that arise during the downtime caused by a covered breakdown event.
Category: Engineering specialty Also known as: LOP MB, machinery breakdown BI, MBLOP First codified: UK market practice from c.1920s alongside main MB cover Related legislation: Insurance Act 2015 [1]; Pressure Systems Safety Regulations 2000 [2]; Lifting Operations and Lifting Equipment Regulations 1998 [3]
LOP MB is the dedicated business interruption (BI) cover for losses arising from machinery breakdown events. The cover responds for the financial consequences of plant downtime caused by a covered breakdown: lost gross profit during the period of reduced or interrupted operations, increased costs of working incurred to maintain operations (overtime, alternative manufacturing arrangements, expediting of repairs), and (in some structures) additional costs of permanent reinstatement [4][5].
The cover is structurally similar to the wider class of business interruption insurance attached to property insurance — both respond for the consequential losses of an underlying physical damage event. The principal distinction is that LOP MB responds only to MB-covered events (sudden and accidental breakdown of plant and machinery), while property BI responds only to property-insurance-covered events (fire, theft, water damage, accidental damage). The two covers are typically arranged in parallel to provide comprehensive consequential loss protection [4][5].
The cover is typically expressed with an ‘indemnity period’ (the maximum time during which the insurer’s liability for lost gross profit will continue), a ‘time excess’ (the deductible expressed in days of downtime rather than monetary loss), a sum insured (representing the maximum total loss recoverable, typically calculated as expected gross profit for the indemnity period plus expected increased costs of working) and various extensions (denial of access, public utility failure, suppliers’ and customers’ premises) [4][5].
The standard indemnity period for UK MB BI is 12 months, with 18 or 24 months available for plant where repair or replacement could take longer (specialist long-lead-time equipment such as turbines or large process plant). The time excess is typically 24 hours or 72 hours, reflecting the relatively rapid impact of plant downtime on operations [4][5].
LOP MB is governed by the general law of insurance contract in the UK, modified by the Insurance Act 2015 for non-consumer business. There is no specific statutory framework dedicated to MB business interruption, but the cover interacts with several regulatory regimes [1].
The statutory inspection regimes for engineering plant — PSSR 2000 (boilers and pressure vessels), LOLER 1998 (lifting equipment), EAWR 1989 (electrical installations) — provide the operational framework within which MB events occur. Compliance with the inspection regimes is typically a precondition of LOP MB cover, with breach potentially affecting both the underlying MB cover and the consequential BI [2][3][6].
For LOP MB claims involving major industrial losses, the interaction with broader regulatory regimes (COMAH for major hazard facilities; environmental permitting for emissions-regulated facilities; sector-specific regulators for water, energy and similar utilities) requires careful coordination. A breakdown event can have regulatory consequences beyond the immediate insurance loss, with reporting obligations under RIDDOR 2013 for serious injuries or dangerous occurrences and potential enforcement action by sector regulators [7].
The Insurance Act 2015 governs the duty of fair presentation for LOP MB placements. Disclosure of business interruption exposure (production volumes, gross profit margins, supply chain dependencies, customer concentration) is critical to the underwriter’s assessment of the BI risk and to the calculation of the sum insured [1].
A UK industrial or commercial customer arranges LOP MB cover alongside its main machinery breakdown insurance, typically under a combined engineering insurance policy. The two covers respond in parallel to a covered breakdown event: the MB cover for the physical damage repair costs and the LOP MB cover for the consequential business interruption [4][5].
The LOP MB sum insured is calculated as the expected gross profit during the indemnity period plus expected increased costs of working. ‘Gross profit’ for BI insurance purposes is typically calculated as turnover less specified variable costs (cost of goods sold, energy in some calculations, freight and certain other variables), with fixed costs (rent, business rates, salaries, depreciation) treated as ‘standing charges’ that continue to be incurred during BI and therefore form part of the gross profit definition. The precise definition is set out in the policy wording and is critical to the eventual claim calculation [4][5].
Underwriters assess LOP MB risk based on the type of plant covered (with single-source critical plant higher risk than redundant or parallel plant arrangements), the expected downtime for various failure modes, the availability of replacement parts and repair services, the operator’s contingency arrangements (alternative production sites, mutual aid arrangements with other operators, finished goods inventory buffer), and the gross profit margin structure of the business [4][5].
Claims handling for LOP MB events involves the BI loss adjuster working alongside the MB loss adjuster, with detailed reconstruction of the financial impact of the downtime. The standard ‘comparison’ method calculates the loss by comparing the actual turnover during the BI period with the turnover that would have been achieved but for the breakdown event, using historical performance and trend analysis to project the ‘unaffected’ turnover. The increased costs of working element is calculated separately, requiring evidence of the additional costs incurred to maintain operations [4][5].
Standard LOP MB: cover for gross profit loss and increased costs of working with a fixed sum insured and indemnity period.
Extended indemnity period LOP MB: 18 or 24 month indemnity periods for plant with longer expected repair or replacement times.
Increased cost of working only: cover for the additional costs of maintaining operations following breakdown, without the gross profit component. Used by operators with effective contingency arrangements that can avoid most of the gross profit loss.
Standing charges only: cover for the fixed costs that continue during BI, without the variable gross profit component. Used by operators with relatively high variable cost ratios.
Customers and suppliers extension: cover for breakdown events at the premises of key customers or suppliers that affect the insured’s operations. Particularly important for tightly integrated supply chains.
Denial of access extension: cover for prevention of access to the insured premises following a breakdown event affecting nearby premises.
Public utility extension: cover for BI arising from interruption of utility supplies (electricity, gas, water, telecoms) caused by breakdown at the utility’s premises.
Catastrophic event extension: cover for very large breakdown events with extended indemnity periods and broader peril definitions.
A UK food manufacturer operates a factory with substantial industrial plant. The company arranges LOP MB cover alongside its main MB insurance, with a sum insured of £8.5m (representing expected 12-month gross profit at current production levels), a 12-month indemnity period and a 72-hour time excess. Annual premium for the LOP MB cover is approximately £18,000. During the policy year, a gearbox failure on a key packaging line causes a 5-day production interruption; the loss adjuster calculates the lost gross profit at approximately £85,000 (5 days at the line’s daily contribution to gross profit), of which approximately £33,000 falls within the 72-hour time excess. The LOP MB cover responds for the balance of approximately £52,000, less the policy deductible. Figures in this example are illustrative.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
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