INDUSTRIAL ALL RISK (IAR) INSURANCE POLICY

An Industrial All Risk Insurance Policy (IAR Insurance Policy) is a comprehensive package policy which provides Insurance Protection against a wide variety of risks face by an industry or factory during its operation. It offers coverage against a wide range of Perils such as Fire, Theft, Burglary, Machinery Breakdown and Business Interruption.

An Industrial All Risks Insurance Policy offers much wider coverage than a traditional Fire Insurance Policy and hence it is preferred by large factories and industries.

An Industrial All Risk Insurance Policy has 2 Sections:

1. Material Damage Section: The material damage section of the IAR Insurance Policy provides coverage against any material damage event to the Insured Property during the Policy Period. It provides coverage for Fire Damage Event (same coverages as a Fire Insurance Policy) and Machinery Breakdown Event. 

Machinery Breakdown (MBD) Section under Industrial All Risk includes not only your conventional Machinery Breakdown, that is, electrical breakdown or mechanical breakdown, but it also includes your Electronic Breakdown (Electronic Equipment Insurance Policy) and Boiler explosion (Boiler Pressure Plant Policy).

Additionally, Theft and Burglary are Inbuilt covers in an IAR Policy, and Transit Risk within the Premises is also covered under an IAR Policy. These are big advantages of an IAR Policy over a SFSP Insurance Policy

So, the Material Damage Section of an Industrial All Risk Insurance Policy is a combination of Fire Insurance Policy, Machinery Breakdown Insurance Policy, Electronic Equipment Insurance Policy, Boiler and Pressure Plant Insurance Policy, and Theft and Burglary Insurance Policy.

2. Business Interruption Section: The Business Interruption Section of IAR Policy covers the loss of gross profits faced by the business due to business interruption because of a material damage event faced by the Insured Property.

The Business Interruption Section of the IAR Policy covers both forms of business interruption: Business Interruption arising out of Fire Damage (Fire Loss of Profits) and Business Interruption arising out of Machinery Breakdown (Machinery Loss of Profits). Fire Loss of Profit Insurance is mandatory while Machinery Loss of Profit Insurance is optional under the Industrial All Risk Insurance Policy.

The Sum Insured under an Industrial All Risk Insurance Policy for Fixed Assets like Plant and Machinery, Buildings, Furniture, Fixtures and Fittings, Electrical Installations must be declared on Reinstatement Value Basis (RIV Basis).

There is no provision to declare Sum Insured on a Market Value Basis unlike in a Standard Fire and Special Perils Insurance Policy. In a normal Fire Insurance Policy, we can cover fixed assets like Plant & Machinery, Buildings, Furniture, Fixtures and Fittings on a Market Value Basis (MV Basis) and save premium.

However, Inventory Stocks like Raw Materials, Work in Progress and Finished Goods are covered on Market Value Basis in an Industrial All Risk Insurance Policy in same way as in a Fire Insurance Policy.

The minimum Sum Insured required for Material Damage under an Industrial All Risk Insurance Policy is Rs100 Crores although some insurance companies offer IAR Insurance Policies for a Sum Insured of even less than Rs100 Crores.

The Minimum Material Damage Sum Insured limit of Rs100 Crores can be for 1 or more location. It means that if the Insured has 4 locations, an Industrial All Risk Policy does not need to have a Sum Insured of Rs100 Crores for only one location. Even if the sum total of all 4 locations put together is Rs100 Crores, then also the Insured Party is eligible to avail an Industrial All Risk Policy.

The Business Interruption Section of the IAR Policy constitutes Fire Loss of Profit and Machinery Loss of Profit. Fire Loss of Profit is compulsory while Machinery Loss of Profit is optional.

The Sum Insured for the Business Interruption Section (Fire Loss of Profit and Machinery Loss of Profit) represents the Annual Gross Profit of the Company. The Minimum Indemnity Period under the Business Interruption Section of the IAR Policy is 12 months.