March 3, 2023

Fire and Allied Perils Insurance | Meaning, Coverage, and Types

Fire and Allied Perils Insurance | Meaning, Coverage, and Types

Fire and Allied Perils Insurance is a risk management tool that safeguards a business’s finances in the event of any loss or damage to its stock, plant and machinery, building, and other commercial assets.

Building a business takes years and sometimes decades of hard work. Yet, a single unforeseen disaster can bring the entire operation down– leaving you struggling to manage the financial losses and keep the enterprise running. That’s where Fire and Allied Perils Insurance can help. This policy helps businesses mitigate the impact of the inherent risks that most companies face in today's environment. The sudden occurrence of a fire, storm, flood, riot, or landslide, can cause huge damage to business property, requiring large amounts of money for repairs and replacements. But with Fire Insurance, all these costs can be easily recovered from the insurance company.

Fire and Allied Perils Insurance is a Property Insurance policy for shops, factories, warehouses, offices, department stores, consulting businesses, and all other types of commercial establishments. It provides financial reimbursement to these businesses for any loss or damage to their property due to fire, natural disasters, explosions, missile testing operations, riots, strikes, landslides, sprinkler leakage, and several other risks.

Fire Insurance helps cover the cost of property replacement, reconstruction, repair, and other associated expenses that may unexpectedly arise during the course of business activity. This policy is usually purchased on a yearly basis, for which periodic premiums have to be paid by the business at the start of each renewal cycle.

Fire Insurance provides coverage for a business’s physical property, such as its building structure, office space, plant and machinery, equipment, furniture and fixtures, stocks of goods (including raw materials, work-in-progress and finished goods), and any other asset specifically mentioned in the policy.

Fire Insurance offers financial protection against any type of loss or damage caused to the above mentioned assets due to the following risks:

  • Fire, lightning and explosion - Any damage caused due an explosion or fire resulting from a short circuit, chemical reaction, third party’s malicious intent, can be covered. Furthermore, damage directly caused by a lightning strike, whether or not it results in a fire, can also be covered.
  • Aircraft damage and impact damage - Any property damage due to falling objects from an aircraft or collision with some other object, person, vehicle, or animal not belonging to the business can be covered. The risks of Fire, Lightning, Explosion, and Aircraft Damage collectively come under the FLEXA cover.
  • STFI cover - This includes coverage for any kind of damage caused by a storm, typhoon, cyclone, flood, inundation, or a similar natural disaster
  • RSMD cover - This includes coverage for damage to property caused by third party actions, such as riots in your neighbourhood, strikes, or malicious acts like arson or vandalism.
  • Subsidence of land - Any property damage due to landslides, rockslides, or collapse of the land on which the business is located can be covered.
  • In-built covers - These include coverage for stocks located at more than one location, movable stocks, professional fees, debris removal, startup expenses after loss, etc.

Other risks covered under this policy include coverage against missile testing operations, bursting/overflowing of water tanks, leakage of automatic sprinklers, and several in-built covers.

A Fire and Allied Perils Insurance policy does NOT provide coverage for the following:

  • Any loss or damage to business property caused by the owner's or their employees’ negligence or willful misconduct
  • Any loss, destruction or damage to stocks in cold storage due to change in temperature
  • Any loss or damage to bullion, precious stones, works of art, or other precious property
  • Any loss or damage caused by war, invasion, or similar perils
  • Any loss or damage caused by ionising radiation, or nuclear risks
  • Any loss or damage to missing or mislaid property
  • Consequential losses, such as loss in market share, loss of profits, etc.

Furthermore, no coverage is provided if the insured property remains unoccupied for more than 30 days during the policy period.

Fire Insurance is one of the most comprehensive, affordable, and widely bought insurance policies for businesses in India. For this reason, the country’s apex insurance regulator, IRDAI, has made several changes to this policy to make it more accessible and affordable for MSMEs.

Up until April 2021, the Standard Fire and Special Perils policy (SFSP) was the only Fire Insurance product that insurance companies were allowed to offer. However, As per new regulations by the IRDAI, w.e.f. 1st April 2021, the old SFSP model has been divided into 3 products covering 3 distinct categories of property. This allows insurance companies to tailor their offerings based on individual risk assessments, resulting in more competitive pricing and better coverage options for policyholders.

Fire Insurance in India can now be purchased through the following products:

A BSUS policy is a commercial insurance product that offers fire and allied perils cover to all businesses with Sum Insured less than ₹5 Crore. Commercial assets like building and structures, stocks, plant and machinery, are insured against a number of risks under this policy, as mentioned above. This policy offers fixed coverage for STFI and RSMD perils, as well as additional protection against Forest Fires, Earthquakes, Volcanic Eruption and Terrorism.

Learn more: Bharat Sookshma Udyam Suraksha policy

A BLUS policy is much like a BSUS policy, with the only difference being the eligibility criteria. Only businesses with Sum Insured more than ₹5 Crore but less than ₹50 Crore can take a BLUS policy for insuring their assets against fire and allied perils. Much of the particulars of a BLUS policy, such as assets and perils covered, claims process, in-built covers, etc. are similar to those of a BSUS policy.

Learn more: Bharat Laghu Udyam Suraksha policy

The old SFSP policy is still offered by insurers, however, it now only covers those businesses with Sum Insured more than ₹50 Crore. Apart from offering much of the same risk coverage as BSUS and BLUS policies, the SFSP policy also allows a certain degree of flexibility in coverage.

The policyholder can tailor their coverage by opting to remove coverage for STFI and RSMD perils in exchange for a reduced premium. Moreover, they may add these deleted covers back later during the policy period by paying an additional premium. This feature enables businesses to customize their coverage based on their unique risk exposures, allowing for greater flexibility and cost-effectiveness.

Know more : Difference between SFSP, BLUS, and BSUS

This is an Insurance product that provides cover for personal homes, dwellings and cooperative housing societies. Earlier, a Standard Fire and Perils Policy (SFSP) would provide coverage for house properties as well, but it has now been diluted into this product.

Still confused about which type of fire insurance would be suitable for your business? Contact one of our agents here and we’ll help you through every step of the process.

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Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.