February 23, 2023

Industrial All Risk Insurance

Industrial All Risk Insurance

The Industrial All Risk Insurance policy is an all-inclusive package that safeguards industrial units from a wide range of potential losses. This policy provides protection against machinery breakdowns, damages resulting from fire and related perils, electronic equipment damage, burglary, and business interruption.

Industrial operations face a multitude of risks, ranging from accidental property damage to the theft or breakdown of expensive equipment. Any sudden loss or interruption can severely impact both the industrial project and the company, resulting in delayed production, lost profits, and, in some cases, business closure.

Industrial All Risk Insurance provides businesses with an all-round coverage so that they can maintain their financial integrity even in the face of unexpected catastrophes, like floods, fires, riots, major short circuits, or burglaries.

This policy serves as the essential security for large industrial projects and provides significantly broader coverage than its more widely known counterpart, the Standard Fire and Special Perils (SFSP) policy. This policy is available to factories, plants, and all other types of high value industrial units.

Industrial All Risk insurance is a comprehensive policy that provides coverage against all risks except for those specifically listed in its exclusions. It is a single policy that combines multiple covers, including Fire and Allied Perils Insurance, Burglary and Theft Insurance, Electronic Equipment Insurance, Business Interruption Insurance, and Machinery Breakdown Insurance. This policy is designed to protect various commercial assets, such as buildings, warehouses, electrical installations in buildings, machinery, plant and equipment, accessories, goods in closed and open locations, furniture, fixtures, fittings, pipelines, and more.

The Sum Insured under this policy is calculated on a reinstatement value basis for property like buildings, machinery, furniture, fixtures, fittings and electrical installations and on a market value basis for goods. However, for the Business Interruption section, Sum Insured is set on the basis of annual gross profit.

Coverage under an Industrial All Risk policy is usually divided into two sections -

Section I - Material Damage cover

This section covers any physical damage to insured property due to any cause (other than those that are excluded). This includes the following risks:

  • Fire and allied perils
  • Burglary
  • Accidental breakdown of machinery
  • Accidental breakdown of electronic equipment

Section II - Business Interruption (BI) cover

This section covers consequential loss of profits or increased cost of working that may result from risks covered in section I. This cover includes:

  • Fire Loss of Profit (FLOP) insurance, for loss of profits following fire and allied perils.
  • Machinery Breakdown Loss of Profit (MLOP) insurance, for loss of profits following breakdown of machinery and equipment. MLOP coverage is, however, optional.

This policy also offers extra cover options that can be availed on payment of additional premium. Some of these add-on covers are listed below:

  • Terrorism cover
  • Cover for architects’, consulting engineers’, and surveyors’ fees
  • Cover for damage due to earthquakes
  • Escalation clause
  • Designation of Property Clause
  • Omission to insure additions, alterations and extensions clause
  • Temporary removal of stocks clause
  • Debris Removal Clause

The exclusions under this policy are also divided into two sections, pertaining to their respective covers. For Section I, i.e., the Material Damage cover, the exclusions are further divided into excluded causes and excluded property. These are:

This list pertains to all those risks and events that are specifically excluded from coverage under an Industrial All Risk policy. The policy does not cover loss or damage to property caused by :

  • Faulty or defective design materials or workmanship, inherent vice, gradual deterioration, or wear and tear
  • Interruption of the water supply, gas, or electricity, and failure of fuel or disposal systems
  • Collapse or cracking of buildings
  • Corrosion, rust extremes or changes in temperature, pollution or contamination, coastal or river erosion
  • larceny
  • Acts of fraud or dishonesty
  • Unexplained or inventory shortage, misfiling or misplacing of information, clerical or accounting errors
  • Any willful act or negligence on the part of the insured business or any representative
  • Cessation of work delay or loss of market or any other consequential or indirect loss of any kind or description whatsoever
  • War, invasion, act of foreign enemy, and related perils
  • Permanent or temporary dispossession of property by any lawfully constituted authority
  • Destruction of property by order of any public authority
  • Ionising radiation, contamination, or nuclear perils

This policy does not cover any loss or damage to the following property:

  • Money, cheques, stamps, bonds, credit cards, securities of any description, jewellery, precious stones, metals, bullion, furs, rare books or works of art unless specifically mentioned in the policy
  • Goods held in trust or on commission, documents, manuscripts, business books, computer systems, designs, etc. unless specifically mentioned in the policy
  • Road vehicles, aircraft, or watercraft
  • Any property in transit other than within the insured premises
  • Property or structures in course of demolition, construction or erection and materials or supplies in connection therewith
  • Land, driveways, pavements, roads,runways, tunnels, etc.
  • Livestock growing crops or trees
  • Property damaged as a result of it undergoing any process
  • Property undergoing testing or installation including materials and supplies thereof
  • Machinery and equipment temporarily removed for repairs, cleaning, renovation or other similar purpose for more than 60 days
  • Any other property specifically mentioned in the exclusions list of the policy document

In addition to the above exclusions, this policy comes with special exclusions for coverage offered in section II, i.e., Business Interruption. Under the following circumstances, coverage for any loss of gross profits will not be offered:

  • Any restrictions on reconstruction or operation imposed by any public authority
  • The insured business’s lack of sufficient capital for timely restoration or replacement of property
  • Loss of business due to causes such as suspension, lapse or cancellation of a lease licence
  • Damage to boilers, economizers, turbines, or other vessels in which pressure is used resulting from their explosion or rupture
  • Deliberate erasure, loss, or corruption of information on computer systems or other records, programs, or software
  • Loss of profits due to mechanical breakdown of machinery and equipment, unless this cover has been opted for

Industrial All Risk Insurance is an indispensable tool for manufacturing concerns and large industries that frequently engage in an array of complex operations and employ the use of expensive machinery. With coverage for more than 20 risks, this policy acts as an ideal security blanket for every contingency.

Contractor's Plant and Machinery Insurance

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.