I think strand insulation is not viewed as critical for the machines I deal with 10,000hp and less. It may be a different story for huge Roebel bars on large generators.
If there were no strand insulation at all the whole machine would run hotter due to the effects of eddy currents. If there is a localized defect in strand insulation it may result in a slight increase in local temperature. That will not be a problem unless it damages the turn or ground insulation. Failure of ground insulation usually results in immediate trip. Likewise failure of turn insulation ususally results in extreme heating which then fails the ground insulation and trips the motor quickly. For some machines with no "dedicated" turn insulation, the strand insulation plays the role of turn insulation and in that case failure of strand insulation = failure of turn insulation would result in motor trip within a short period.
I believe NEMA MW-1 calls for both voltage withstand capability and surge withstand testing of magnet wire strand insulation.
Anyone else is welcome to step in with comments or correct me if I have misstated something.
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