INDUSTRY ALL RISK INSURANCE:
DEFINITION, COVERAGE, BENEFITS, COST, CLAIMS

Industrial All Risk (IAR) insurance is a comprehensive property policy tailored for industrial and manufacturing risks. IAR Insurance is aimed at large-scale industrial or commercial entities with significant assets and complex operations, such as factories, power plants, or mining operations.

IAR insurance operates on an "all risks" basis, meaning it covers all physical loss or damage to insured property unless explicitly excluded.

This typically includes property damage (e.g., to buildings, machinery, and inventory) and business interruption losses due to covered events, such as equipment breakdown, natural disasters, or other disruptions, subject to policy terms. Key features include:

Broad Coverage: Encompasses risks like fire, theft, vandalism, and sometimes natural disasters (if not excluded).
Business Interruption: Covers loss of profits or revenue due to operational downtime.
Customizability: Can be tailored to specific industry needs, such as manufacturing or energy sectors.
Exclusions: Common exclusions include wear and tear, war, nuclear risks, or intentional damage.

When to choose IAR: for factories, plants, heavy manufacturing, large industrial projects, or any operation with significant machinery, process risk, or complex interruption exposures. For simple commercial or residential properties, a standard property policy may suffice.

how does Iar differ from property ALL RISK insurance?

Industrial All Risk (IAR) insurance is a comprehensive property policy tailored for industrial and manufacturing risks. It covers physical loss or damage to industrial assets (buildings, plant & machinery, boilers, production equipment, stock, civil works, and often contractors’ plant) from all accidental perils unless specifically excluded.

Industrial All Risk (IAR) and Property All Risk (PAR) insurance are both comprehensive "all risk" policies that cover a wide range of perils. However, they differ in scope, target audience, and coverage details. Below is a detailed comparison:

Scope:
- IAR Insurance: Property damage + business interruption
- PAR Insurance: Primarily property damage
Target Audience
- IAR Insurance: Large industrial/complex operations
- PAR Insurance: Commercial properties, simpler businesses
Business Interruption
- IAR Insurance: Included as standard
- PAR Insurance: Optional, requires endorsement
Customization
- IAR Insurance: Highly customizable for industrial needs
- PAR Insurance: Less customizable, standard commercial focus
Premium
- IAR Insurance: Higher, reflects broader coverage
- PAR Insurance: Lower, reflects narrower coverage
Typical Industries
- IAR Insurance: Manufacturing, energy, mining
- PAR Insurance: Retail, offices, warehouses

What types of businesses or industries typically purchase IAR insurance?

Industrial All Risk (IAR) insurance is typically purchased by large-scale businesses and industries with significant assets and complex operations. These include:

Manufacturing: Factories producing goods like automobiles, electronics, or chemicals, where machinery and inventory are critical.
Energy and Utilities: Power plants, oil and gas facilities, or renewable energy installations with high-value equipment.
Infrastructure and Construction: Companies managing large projects like bridges, dams, or commercial buildings.
Mining and Heavy Industry: Operations involving extraction or processing of minerals, metals, or other resources.
Petrochemicals: Refineries and chemical processing plants with specialized equipment and high-risk environments.
Large Commercial Enterprises: Warehouses, logistics hubs, or retail chains with extensive property and inventory.
Hospitality and Real Estate: Large hotels, malls, or property developers with significant real estate assets.

These industries opt for IAR insurance due to its comprehensive coverage for property damage, equipment breakdown, and business interruption, tailored to protect complex operations from a wide range of risks.

What are the key coverages included in a standard IAR insurance policy?

A standard Industrial All Risk (IAR) insurance policy provides comprehensive coverage for large industrial and commercial operations, typically encompassing the following key coverages:

Property Damage: Covers physical loss or damage to insured assets, including:
- Buildings and structures (e.g., factories, warehouses).
- Machinery, equipment, and tools.
- Inventory, raw materials, and finished goods.
- Examples of covered perils include fire, lightning, explosion, vandalism, or accidental damage.
Business Interruption: Compensates for financial losses due to operational downtime caused by a covered event, including:
- Loss of profits or revenue.
- Additional expenses to resume operations (e.g., renting temporary facilities).
- Fixed costs like salaries or rent during the interruption period.
Machinery Breakdown: Covers repair or replacement costs for sudden and accidental breakdown of machinery or equipment, often including electrical or mechanical failures.
Theft and Burglary: Protects against loss of insured property due to theft, burglary, or robbery.
Transit Coverage: Covers goods or materials damaged during transportation within the policy's geographical scope.
Accidental Damage: Includes unforeseen and unintended damage to insured property not caused by excluded perils.
Debris Removal: Covers costs to remove debris from insured premises following a covered loss, such as after a fire or explosion.
Temporary Repairs and Expediting Costs: Reimburses expenses for temporary repairs or measures to minimize further damage or speed up recovery.

Contact EverBright for specific coverages.

How does IAR insurance address loss of profits or revenue?

Industrial All Risk (IAR) insurance typically includes business interruption coverage as a core component, which directly addresses loss of profits or revenue resulting from a covered event that disrupts business operations.

This coverage is designed to help businesses recover financially by compensating for income lost during the period of interruption and covering ongoing expenses.

Key Aspects of Coverage for Loss of Profits or Revenue:

Business Interruption Coverage:
- IAR policies cover financial losses when a covered peril (e.g., fire, machinery breakdown, or explosion) causes a temporary halt or reduction in business operations.
Loss of Profits:
- Compensates for the net profit the business would have earned during the interruption period, based on historical financial data or projections.
Revenue Protection:
- Covers lost revenue directly tied to the interruption of operations, ensuring the business can maintain financial stability, which is particularly critical for industries like manufacturing or retail, where downtime can significantly impact income.
Fixed Costs and Continuing Expenses:
- Covers ongoing expenses that continue despite the interruption, such as rent or lease payments and salaries for key employees.
Extra Expenses:
- Reimburses additional costs incurred to minimize the interruption or resume operations, such as renting temporary facilities or equipment and expediting repairs or sourcing alternative suppliers.
Indemnity Period:
- The policy specifies an indemnity period, which is the maximum time for which loss of profits or revenue is covered, starting from the date of the covered event.
Calculation of Losses:
- Insurers calculate loss of profits based on Historical Financial Data and Projected Earnings.

How does IAR insurance handle coverage for goods in transit?

IAR Insurance typically offers coverage for goods in transit through specialized transit or inland marine policies, focusing primarily on risks occurring within the insured premises or compound of the industrial site.. These policies are designed to protect against risks such as theft, damage, loss, or destruction while goods are being transported by land, sea, or air.
Key Aspects of Coverage for Goods in Transit:

Standard Coverage Scope:
- Intra-Premises Transit: Most IAR policies include coverage for goods moving within the industrial compound or premises (e.g., from warehouse to production line). This protects against accidental loss or damage due to covered perils like fire, theft, or collision during internal handling.
- Covered Perils: When included, transit risks are protected on an "all risks" basis (unless excluded), such as theft, damage from accidents, fire, or vandalism.
- Duration for Specific Items: Some policies extend limited transit coverage for equipment or machinery sent off-site for repairs or maintenance (e.g., up to 60 days), but this is not for general goods shipment.
Limitations and Exclusions:
- External Transit Exclusion: Goods in transit outside the specified premises are generally excluded from standard IAR coverage. For example, shipments between factories, to customers, or across state borders are not covered unless added via endorsement.
- Common Exclusions for Transit (if Covered):
  - Delay in transit (e.g., due to traffic or customs).
  - Losses from inherent defects in goods, temperature changes (unless refrigerated goods are specified), or vermin.
  - International shipments or high-value items like explosives, unless declared.
  - War, strikes, or terrorism (often excluded unless added).
- Sum Insured: Transit coverage, when included, is typically limited to a sub-limit (e.g., a percentage of the total sum insured) or the declared value of the goods.

Does IAR insurance include coverage for third-party liability?

Yes, IAR Policy typically includes coverage for third-party liability, protecting against legal liabilities arising from accidental bodily injury, death, or property damage to third parties resulting from the insured's operations. However, the specifics of the coverage, including the extent of the liability limit and any exclusions, can vary between insurers and specific policies, so it's crucial to review the policy details.

What IAR Third-Party Liability Covers

Bodily Injury or Death:

Covers legal liability if a third party is accidentally injured or killed due to the insured's actions.
Property Damage:

Covers liability for accidental physical damage or loss to a third party's property.

Factors to Consider

Policy Variations:

The scope and limits of the third-party liability coverage can differ significantly depending on the insurer and the specific IAR policy.
Exclusions:

Most policies will have exclusions, which might include liabilities arising from certain events such as war, terrorism, or specific types of renovation work.
Ancillary vs. Standalone:

While IAR policies often provide third-party liability coverage, in some cases, it might be offered as a separate or optional extension to an existing policy.

What are the Add-On Covers under a industrial all risk Insurance Policy?

Add-on covers for an Industrial All Risk (IAR) Insurance policy customize coverage by extending protection beyond standard material damage and business interruption, including options like debris removal, spontaneous combustion, expedited repairs, utility supply failure, and errors and omissions.

These extensions are crucial for businesses to address specific risks, such as the aftermath of a natural disaster, supply chain disruptions, or issues with damaged property replacement. Here are some common examples of add-on covers:

Material Damage Related Add-Ons:
- Debris Removal: Covers the costs of removing debris after a covered event.
- Spontaneous Combustion: Provides coverage for fires originating from spontaneous combustion.
- Impact Damage: Protects against damage caused by vehicles, cranes, and other equipment used in operations.
- Start-Up Expenses: Covers costs incurred to restart operations after a shutdown due to an insured event.
- Architects, Surveyors, and Consulting Engineers' Fees: Covers fees for professionals needed after a claim.
- Molten Metal Damage: Specifically covers damage from molten metal.
- Omission to Insure: Protects against unintentional failure to include new additions, alterations, or extensions in the policy.
Business Interruption (BI) Related Add-Ons:
- Failure of Gas/Water/Electricity Supply: Covers business interruption losses due to the failure of utility services.
- Suppliers' and Customers' Premises Extension: Extends coverage to losses from disruptions at suppliers' or customers' premises.
- Prevention of Access Cover: Provides coverage when access to the insured premises is denied due to events at nearby locations.
Other Important Add-Ons:
- Involuntary Betterment: Covers the unintentional upgrading of replacement property with newer technology, which might otherwise be excluded.
- Temporary Repair Cost: Covers the extra cost of temporary repairs.
- Increased Cost of Working: Covers additional expenses to minimize loss and expedite repairs.
- Claim Preparation Costs: Covers the expenses of preparing and submitting a claim.
- Additional Customs Duty: Covers increased customs duties on imported replacement goods.

What are the Main Exclusions under industrial all risk Insurance?

Industrial All Risk (IAR) insurance is a comprehensive "all risks" policy that covers a wide range of perils for property damage and business interruption unless specifically excluded. The exclusions define the boundaries of coverage, identifying risks that are either too high, uninsurable, or covered under separate policies. Below is a detailed list of the main exclusions typically found in a standard IAR insurance policy, based on common industry practices and available information.

Wear and Tear: Gradual deterioration, corrosion, rust, shrinkage, and loss of weight are not covered.
Faulty/Defective Workmanship: Damage resulting from inherent vice, latent defects, faulty design, or defective materials.
War and Terrorism: Damage caused by war, warlike operations, or acts of terrorism is typically excluded.
Nuclear Perils: Damage from radioactive and nuclear energy risks is also excluded.
Willful Acts: Damage resulting from any willful act or willful negligence by the insured or their representatives.
Consequential Loss: This refers to indirect losses, such as business interruption, loss of market, or delay, which are often excluded.
Property in Transit: Loss or damage occurring while goods are being transported between locations is usually not covered.

Certain types of property are often not covered:

Precious Items: Money, securities, bullion, precious stones, and jewelry are frequently excluded unless specified.
Vehicles: Road vehicles, watercraft, and aircraft licensed for road use are generally excluded.
Works of Art: Fine art, curiosities, and rare books may be excluded unless specifically insured.

How is the premium for an IAR policy calculated?

An Industrial All Risks (IAR) policy premium is calculated by actuaries based on risk assessment of the business, including the value and type of assets covered (buildings, machinery, stock), the scope and nature of operations, and the specific coverage options chosen. Key factors influencing the premium include the sum insured for each coverage section (material damage, business interruption), the indemnity period chosen, and the business's location, industry, and risk exposure.
Factors Determining IAR Premiums

Sum Insured: This is the maximum amount the insurer will pay for a loss.
Material Damage (MD) Sum Insured: Based on the replacement cost of buildings, machinery, and stock.
Business Interruption (BI) Sum Insured: Calculated based on the business's annual gross profit and the chosen indemnity period.
Indemnity Period: The maximum length of time the business will be covered for lost income and increased costs due to an interruption.
Property & Assets: The type and location of assets insured, including buildings, machinery, and inventory.
Industry & Operations: The specific industry of the business (e.g., manufacturing, power) and the nature of its operations influence its overall risk profile.
Risk Assessment: Actuaries analyze the overall risk exposure of the business to determine the premium.

Coverage Details:

Valuation Basis: How assets are valued (e.g., reinstatement value for property, market value for stock) impacts the premium.
Deductibles: The amount of loss the policyholder must bear before the insurance coverage begins.
Exclusions: Specific exclusions in the policy can also affect the premium.

How the Calculation Works

Risk Analysis: The insurer assesses the specific risks faced by the industrial facility.
Valuation of Assets: The cost to replace or reinstate buildings and machinery is determined, and the market value of stocks is established.
BI Calculation: For business interruption, the business's projected annual gross profit and the selected indemnity period are used to set the sum insured.
Premium Rate Application: These factors are used to calculate a total premium, which may be broken down by section (Material Damage, Business Interruption).

In essence, a higher overall risk, larger assets, a longer indemnity period, and more extensive coverage will all contribute to a higher IAR policy premium.

What is the role of a deductible in an IAR insurance policy?

A deductible (also known as an excess) in an Industrial All Risk (IAR) insurance policy is the fixed amount or percentage that the insured must pay out-of-pocket toward a covered claim before the insurer begins to cover the remaining costs. Key Roles of a Deductible in an IAR Policy:

Risk Sharing and Cost Control
Discouraging Small or Frivolous Claims
Premium Reduction
Encouraging Proactive Risk Management

Limitations and Considerations:

Aggregate Deductibles: Some policies include an annual aggregate deductible, where the insured pays up to a cumulative amount across multiple claims in a year.
Non-Recoverable: Deductibles are not reimbursed by the insurer and do not apply to certain costs like debris removal or professional fees if specified in the policy.
Impact on Claims: If the loss is less than the deductible, the insurer pays nothing, and the insured bears the full cost.
Customization: Deductibles can be negotiated based on the business's risk profile, industry, and financial strength. For high-risk industries (e.g., petrochemicals), higher deductibles may be mandatory.

How does the Claims Process work for Industrial All Risk Insurance?

The claims process for an Industrial All Risk (IAR) insurance policy is a structured procedure to report, assess, and settle claims for covered losses, such as property damage or business interruption, caused by perils not explicitly excluded in the policy. Steps in the IAR Insurance Claims Process:

Immediate Notification of Loss
Mitigate Further Damage
Submit a Formal Claim
Provide Supporting Documentation:For Property Damage:For Business Interruption:Other Documents
Insurer Appoints a Surveyor or Loss Adjuster
Assessment and Verification
Application of Deductibles and Policy Limits
Claim Approval or Rejection
Claim Settlement
Reinstatement of Sum Insured (if applicable): After a claim is paid, the sum insured is reduced by the claim amount. The insured may request or the policy may automatically provide reinstatement of the sum insured to its original level, often requiring an additional premium.

Practical Considerations:

Timely Reporting: Prompt notification and documentation are critical to avoid claim denials due to delays.
Accurate Records: Maintain detailed asset inventories, financial statements, and maintenance logs to support claims and avoid disputes over valuation or compliance.
Loss Mitigation: Document efforts to minimize damage (e.g., receipts for temporary repairs) to claim reimbursable expenses.
Broker Involvement: An insurance broker can assist with claim preparation, documentation, and negotiations with the insurer for faster settlements.
Policy Terms: Review the policy for specific requirements, such as time limits for notification, deductibles, sub-limits, or conditions for add-ons (e.g., earthquake, transit).
Dispute Resolution: If a claim is rejected or underpaid, the insured can negotiate with the insurer, involve a broker, or escalate to an ombudsman or regulatory authority

What documentation is required to file a claim under an IAR policy?

To file an Industrial All Risk (IAR) claim, you generally need to submit a completed claim form, proof of policy ownership (like the policy document and title deeds), documentation of the loss (including police and fire brigade reports, photographs, videos, and detailed inventory of damaged items), and financial records like invoices, receipts, and repair estimates.
Initial Steps

Notify your insurer immediately: Inform your insurer about the incident and provide key details like the policy number, date, and location of the event.
Complete the claim form: Fill out the designated claim form thoroughly, providing all requested information.

Core Documentation

Claim Form: A completed and signed claim form is a fundamental requirement.
Policy Document: Provide a copy of your Industrial All Risk (IAR) policy, as well as any endorsements or certificates.
Proof of Loss: This includes official reports from emergency services like the Police Report and Fire Brigade Report.

Evidence of Damage:

Photographs and Videos: Capture high-resolution images and videos of all damaged areas and items to document the extent of the damage.
Detailed Inventory: Create a comprehensive itemized list of all damaged items, including their descriptions, quantities, purchase dates, and values.
Financial Records: Submit purchase invoices, receipts, and delivery orders for damaged items.
Quotations for Repair: Provide quotations from licensed contractors for the repair or replacement of damaged property.

Supporting Evidence and Information

Proof of Ownership: Include property deeds, title deeds, or other documents that demonstrate your ownership of the insured property.
Business Records: For a business-related claim, you may need to provide stock accounts, technical reports, or quality control (QC) reports.
Communication Records: Keep copies of all communications with your insurance company.

Other Documents: Any other relevant documents or information your insurer requires to support your claim, such as identity documents or internal investigation reports. Contact EverBright to assist in your claim process!

Can IAR policies cover overseas operations or international assets?

Yes, Industrial All Risk (IAR) policies can cover overseas operations or international assets, but this coverage is not automatically included in standard IAR policies and typically requires specific extensions, endorsements, or customized policy terms. Key Points:

Standard Scope of IAR Policies: Overseas operations or international assets (e.g., factories, warehouses, or equipment located in other countries) are generally not covered unless explicitly included through policy extensions or endorsements.
Coverage for Overseas Operations or Assets: To cover overseas operations or international assets, businesses can request extensions or endorsements to the IAR policy, subject to the insurer’s approval and underwriting.
Goods in Transit for International Operations:If the business involves international shipping, an IAR policy can include a goods-in-transit extension to cover losses during international transport by sea, air, or land.
Key Considerations:

Policy Terms: The most crucial factor is the specific wording of your policy, which will outline the covered locations and events.
Foreign Exposures: Standard IAR policies may not be sufficient for international operations, and special foreign package policies are often necessary to cover unique risks.
Types of Coverage: Look for policies that offer coverage for:
Political Unrest: Protection against risks from political instability, sanctions, and embargoes.
Asset Protection: Coverage for physical assets like warehouse stock, plant, and equipment overseas.
Liability: Coverage for legal claims arising from operations, products, or services in foreign countries.
Employee Risks: Coverage for employees who are injured, sick, or targeted while traveling or working abroad.
Business Interruption: Protection against financial losses due to events that disrupt your operations.
Local Regulations: Be aware of the different regulatory environments and insurance requirements in each country where you operate.
Global Programs: Consider a global insurance program that combines local policies with a central international policy to cover gaps and protect against varied risks across different territories.

How frequently should an IAR policy be reviewed or updated?

An IAR (Industrial All Risk) policy should be reviewed at least annually, but also whenever there are significant changes in your business operations, assets, or risk exposure, to ensure coverage remains adequate and aligned with your evolving needs.

Regular reviews help identify changes in coverage needs due to new assets, updated processes, or shifts in the business environment, preventing underinsurance and ensuring your policy continues to effectively protect your interests. When to Review Your IAR Policy

Annually: A yearly review is a good rule of thumb to assess your overall coverage and make necessary adjustments.
During significant changes:
- New assets or increased value: If you purchase new equipment or your existing assets increase in value, you may need to update your coverage limits.
- Changes in operations: Any changes to your manufacturing processes, infrastructure, or business scale can impact your risk exposure and require policy updates.
- New risks: As your business expands or changes, new risks can emerge, necessitating a review of your IAR policy.
- Changes in the business environment: Broader economic shifts or changes in your industry can also warrant a policy review.

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