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How Industrial All Risk Insurance Differ from Fire insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 12/02/2024
  • 2 min read

Insurance is a vital tool to protect your business from unforeseen events that may cause hefty financial losses. It provides financial security and peace of mind to bounce back from a calamity.

Industrial All Risk Insurance (IAR) and fire insurance are two insurance policies that can safeguard your business against potential risks. While both policies cater to multiple threats within the industrial sector, they differ in the scope of coverage and perils they address.

In this article, we will discuss how an industrial all-risk insurance policy differs from fire insurance so that you can pick the most appropriate plan for yourself.

What is Industrial All-Risk Insurance?

An industrial all-risk policy is a comprehensive plan that provides coverage against an array of risks your factory or industry faces during its operation. This insurance policy usually covers accidental damage, fire and allied perils, burglary, machinery breakdown and business interruption.

As the name suggests, an industrial all-risk insurance policy is designed for industrial businesses such as warehouses, manufacturing plants, etc. It can be customised based on unique needs and risks your business is exposed to.

An IAR policy provides more extensive coverage than traditional fire insurance. Hence, large factories and industries prefer this type of policy. The coverage of the industrial all-risk policy is divided into two sections:

Material damage section- The material damage section of the IAR policy wordings includes coverage against material damages caused to the insured property.

Business interruption section- The business interruption section of the IAR policy offers coverage for loss of income due to business interruptions caused by a disaster that may lead to material damage. Loss of profits due to machinery breakdown is optional.

What is Fire Insurance?

Fire insurance is a more specific policy that covers damage or loss caused by fire and related perils. It protects a wide gamut of assets such as buildings, plant and machinery, stocks, fixtures and fittings, etc. against fire, explosion, lightning, etc.

Furthermore, fire insurance also provides coverage for loss or damage caused by water, smoke and firefighting efforts. It is designed for business owners, homeowners and landlords to safeguard properties from damages caused by fire.

Difference Between Industrial All-Risk Insurance and Fire Insurance

Industrial all-risk insurance and fire insurance fall under the category of property insurance. However, there are key differences between both in terms of the extent of coverage and the perils they address. Here’s how industrial all-risk policy and fire insurance differ:

Feature Industrial All-Risk Fire Insurance
Insurance
Extent of Coverage More comprehensive Focuses on fire risks and related perils
Flexibility Flexible and customisable Not very flexible but customisable
Premiums Higher Lower
Risk Assessment Highly exhaustive Not as exhaustive
Policy Limit May be higher May be relatively lower
Suitability Suitable for businesses exposed to varied risks Suitable for businesses exposed to fire risks
Business Resilience Helps businesses with continued operations Helps businesses with continued operations

Let us understand these in details now: Extent of Coverage

IAR policy is more comprehensive since it provides coverage against several perils besides fire. This policy may cover natural calamities like floods, earthquakes, vandalism, theft, machinery breakdown, business interruption, etc.

On the other hand, the coverage of fire insurance policy is limited to fire risks. While the policy may also cover other perils, it primarily covers fire-related incidents.

**Flexibility and Customisation Options **

Industrial all-risk insurance is highly flexible and customisable. You can tailor an IAR policy according to the specific risks and needs associated with your business or industry.

Fire insurance on the other hand is less flexible and is usually standardised and addresses fewer risks. However, it can be customised to suit the requirements.

**Premiums **

IAR policy comes at a higher cost since it provides broader coverage than fire insurance. However, the comprehensive protection offered by the industrial all-risk policy makes it a worthy investment if your business is exposed to a multitude of risks.

Fire insurance premiums are usually lower since it provides coverage for a limited set of perils. The lower premiums of fire insurance make it an affordable option if you own a small business with a lower risk profile.

Risk Assessment

Industrial all-risk insurance usually involves a comprehensive process of risk assessment. The insurance company evaluates several aspects of your business operation to customise suitable policy coverage.

A fire insurance policy also involves risk assessment. However, the process may not be exhaustive since the insurance company mainly focuses on fire-related risks.

Policy Limits

Industrial all-risk policy may include higher policy limits since it protects a business from multiple perils.

On the other hand, fire insurance may involve lower policy limits due to its restrictive coverage.

Suitability

Industrial all-risk insurance is suitable for businesses or industries that have complex business operations and high-value assets that are exposed to diverse risks.

Fire insurance is a suitable choice for properties where fire risks are a significant concern.

Business Resilience

Industrial all-risk insurance covers a wide range of industrial risks. The comprehensive coverage of this policy contributes to your business’s resilience by ensuring that you recover and resume your business operations after a calamity.

Fire insurance is also an effective tool in recovering from fire incidents. It can help businesses recover from fire-related incidents without interrupting your business operations.

Wrapping Up

Picking between industrial all-risk insurance and fire insurance depends on several factors. The nature of your business, the type of operations and the extent of risk exposure can play an important role in making the right decision.

If you own a business with complex operations and a multitude of risks, an IAR policy can provide comprehensive protection. However, you can choose cost-effective fire insurance if you run a small business with a low-risk profile.

You can evaluate the cost of your business including property, inventory, etc. and risk exposure to buy sufficient insurance coverage.

Tata AIG’s SME insurance policies are designed to protect small and medium enterprises and other businesses from a wide range of risks.

FAQS

What are the benefits of an industrial all-risk insurance policy?

Comprehensive coverage for risks that an industrial unit faces: An IAR policy provides coverage against a wider range of threats compared to a fire insurance policy. It gives you the benefit of protecting your business against several risks and not only fire

Coverage for loss of profits due to machinery damage: An IAR policy gives the option of securing coverage against losses caused by machinery damage

Coverage for loss due to business interruption: An IAR policy provides coverage against losses caused by business interruptions

What is covered under a standard fire insurance policy?

A standard fire insurance policy provides coverage against the following perils:

  • Fire

  • Lightning

  • Aircraft damage

  • Explosion/implosion

  • Riots, strikes and malicious damage

  • Storm, typhoon, tempest, cyclone, hurricane, tornado, inundation and flood

  • Missile testing operations

  • Impact damage caused by road/rail/vehicle/animal

  • Bush fire

  • Subsidence and landslide including rockslide

  • Bursting or overflowing of pipes, water tanks and apparatus

  • Leakage from automatic sprinkler installations

Who can buy fire insurance?

Any entity exposed to the risk of fire incidents can buy a fire insurance policy to avoid hefty losses. Here are a few candidates suitable for fire insurance:

  • Manufacturing firms

  • Business owners

  • Hospitals

  • Warehouse owners

  • Transporters

Hotels and lodging centres

Residential property owners

Banks and other financial institutions

Shop owners

Educational institutions

What is not covered under a fire insurance policy?

Usually, fire insurance does not provide coverage for the following:

Nuclear risks

Earthquakes

Wars or foreign invasions

Contamination or pollution

Underground fires

Spontaneous combustion

Fire due to orders of public authorities

Volcanic eruptions, etc.

Damage due to wilful negligence

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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