Floating Policy of Fire Insurance

A floating policy is a variant offered under fire insurance that helps to cover changing assets/moveable goods – inventory, merchandise, company equipment, etc., owned by the insured, regardless of location.

Rather than insuring each asset/item separately, it will allow you to declare and insure the total value of your business assets. This value can also be adjusted periodically to account for any changes, and it may be done by you or by your insurer, depending on policy terms.

This policy is beneficial for businesses that deal heavily in imports and exports. It helps to fill in gaps under standard property insurance policies like fire and burglary insurance since goods vulnerable to damage or loss may not meet the claims criteria in some cases.

Floating policies in insurance help cover business assets like moveable equipment that may not be stored at a specific location. It will cover claims arising out of loss or damage to these assets due to events concerning fires.

For example, let us take a construction company that has equipment (moveable property), like cranes, bulldozers, etc., that constantly need to be moved from one construction site to another.

While lightning strikes may not be a problem in some regions in India, they may be a cause for concern when operating in regions like Madhya Pradesh, Odisha or Jharkhand[1], resulting in fires and irreparable damage to equipment.

A floating policy in insurance will cover these damages as and when they arise, regardless of whether the equipment is stored inside or outside their place of business – provided that these goods belong to the company/insured.

You should note that key features of floating fire insurance policies will vary depending on your chosen insurer.

Here are some general features offered under floating policies in insurance to give you a better understanding of its inner workings:

Declaration of Values: You must periodically declare the total value of your covered assets to your insurance company. These declarations can be made monthly, quarterly or annually, depending on your insurance policy.

Flexible Premiums and Coverage: A floating fire insurance policy offers flexible policy terms where coverage and premiums are calculated and adjusted to reflect current changes in inventory or assets. The premiums are calculated and paid based on declared values for that particular period.

Comprehensive Documentation: You must maintain thorough records of all your insured assets. This ensures that declared values for assets are accurate and prevents any issues during your claim process.

Adjustment Clause: This policy type has an adjustment clause where you or the insurers can declare changes in asset values during your policy term. This ensures you get adequate coverage as the value of your assets increases/decreases.

Cancellation and Non-Declarations: If you fail to make your declaration on time or accurately, it can affect your coverage. This can either result in your insurance provider cancelling your policy or adjusting your coverage themselves.

We also recommend having a general understanding of the characteristics of fire insurance, as most features and inclusions under fire insurance will overlap with the features offered under a floating fire insurance policy.

Flexible Coverage Terms: A floating fire insurance policy offers flexibility in coverage and premium payments, making them perfect for businesses that have assets that fluctuate in value and quantity.

This means you can adjust your coverage amount to reflect current changes in inventory or equipment. Your premiums will be calculated based on the total declared value for that term.

Automatic Property Coverage: Floating policy insurance also offers automatic coverage to newly acquired or constructed property, eliminating the need for mid-term policy adjustments any time new assets are added to your insurance portfolio.

For example, these can be assets like new company cars or laptops that employees use when they visit clients or work off-site.

Saves Time and Money: This policy type mitigates the need to insure each asset under a separate policy. Therefore, it can save you a lot of time and money that comes with managing and maintaining multiple insurance policies.

This means less paperwork, fewer administrative resources being used up and less money being spent on policy fees.

Dynamic Risk Coverage: Floating fire insurance policies are perfect for businesses with constantly changing inventories/assets. These can be import/export companies that need to insure their goods with a policy that can ‘float’ or adapt to the changing nature of insured goods.

Higher Coverage Limits: Most insurers offer higher coverage limits under floating policies or will allow you to adjust and declare your total asset value depending on your current stock. This ensures you have sufficient and sustained coverage.

Easy Claims: In the event of a fire, your floating fire insurance policy will cover losses arising from multiple locations or assets under a single claim. This reduces the amount of paperwork on your part and also simplifies the entire claims settlement process.

• Buildings or structures – both on-site and off-site. This includes newly erected structures.

• Stock, inventory or merchandise owned by the company, located and stored in warehouses outside business premises.

• Equipment or machinery used in construction, like scaffolding, cranes, tractors, etc. that do not have a set location are constantly moved around.

• All office equipment, whether owned or leased, like computers, phone systems, furniture, etc.

• Company vehicles used for transportation.

• Companies that do not have a set or consistent physical address – circuses, carnivals, fairs, etc.

Intentional Damage:** Damage or property loss intentionally caused by the policyholder or anyone else acting on their behalf will not be covered.

Negligence: Failure to maintain the insured property or failure to take precautions against potential loss by the policyholder will not be covered.

Breaches of Law: Any losses or damages to business assets arising out of illegal activities will not be covered as breaches of law are considered a violation of policy terms by insurers

Normal Wear and Tear: Damage that arises from regular usage of equipment or loss due to old age of the property will not be covered – E.g. Equipment failure due to old age, rust, gradual deterioration.

Unoccupied Property: This may tie into negligence in some cases. Vacant buildings or other property that remain unoccupied for an extended period will not be covered under a floating fire insurance policy in case of fire damage.

Policy Specific Exclusions: Exclusions will vary across the board depending on your chosen insurer and policy type.

Some additional exclusions under floating fire insurance can include events like acts of war, earthquake and flood damage, natural disasters – hurricanes, tornadoes, etc., which can also be labelled as ‘Acts of God’, government actions, nuclear perils, etc.

A floating policy in fire insurance can help cover financial losses arising out of fire damage to moveable goods, inventory, mechanise and company assets. It is a type of fire insurance where your assets are protected regardless of their location, provided you are the owner.

This policy type is immensely beneficial to businesses that deal heavily in moveable assets import/export. This is because even one cataclysmic event can result in a complete standstill of operations.

To help you avoid this, Tata AIG offers business insurance policies for businesses across India to ensure they stay covered against unexpected losses.