Industrial Special Risks Insurance Explained
Industrial special risks insurance (ISR) is an insurance that covers medium to large enterprises against financial losses they might incur because of loss or damage of their physical assets.
Industrial special risks insurance is usually taken out by organisations with insured values of more than $3 million, but this minimum can vary between insurers. Because it is a broad and flexible type of insurance, it is often taken out by organisations wishing to fill in the gaps not covered by other types of insurance they may have.
An industrial special risks insurance policy typically contains a section relating to material loss or damage and a section dealing with consequential loss or business interruption.
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- What Does Industrial Special Risks Insurance Cover?
- Who Needs Industrial Special Risks Insurance?
- How to Calculate Your Industrial Special Risks Insurance Premium
- What is Material Loss or Damage?
- What is Covered by Consequential Loss?
- Industrial Special Risks Insurance Exclusions
- Apply for Industrial Special Risks Insurance
What Does Industrial Special Risks Insurance Cover?
Industrial special risks insurance protects against a wide range of events such as fire, storm, earthquake and criminal acts. As it usually contains open-ended wording, it effectively covers any possible instances of loss or damage that are not excluded or limited in the policy.
It can cover things such as:
- loss or damage to premises, plant and machinery and contents, plus property belonging to directors and employees of the company
- loss of profits and increased expenses resulting from damage to insured property and damage to property housed with suppliers or customers
- burglary, theft and employee dishonesty
- accidental damage and glass breakage
- costs associated with the removal of debris
- costs associated with the re-writing of records
- damage to money, other than through embezzlement or negligence by a money carrier.
While industrial special risks insurance will usually cover all of these events and more, it is the exclusions or endorsements that are included in relation to these events that differentiate ISR policies. These could include:
- an endorsement excluding drinking glasses in relation to cover for accidental glass breakage
- an endorsement excluding cover for burglary where the alarm was not switched on
- an endorsement excluding cover for money damage that is not reported within a certain time frame.
For this reason, it is vital that an organisation reads and understands the wording in an industrial special risks insurance policy (particularly the exclusions) and has the policy tailored to suit their own particular business needs.Back to top
Who Needs Industrial Special Risks Insurance?
The word ‘industrial’ is somewhat misleading in the name industrial special risks insurance because it appears to be a form of insurance for manufacturers or factory owners. In reality, industrial special risks insurance is actually a form of cover for a wide range of organisations in a variety of industries.
As previously stated, industrial special risks insurance is most suitable for medium to large organisations with insured values of around $3 million. This requirement may vary, with some insurers requiring a minimum of $2 million, while others specify at least $5 million.
In general, ISR insurance is most useful to those organisations that have high asset values and/or multiple business locations and multiple occupation classes.Back to top
How to Calculate Your Industrial Special Risks Insurance Premium
Insurers use a variety of factors to determine the amount an organisation will pay for industrial special risks insurance.
Typical considerations would include things such as:
- the nature of the activities being carried out at the organisation’s premises
- the materials used in the construction of the premises
- the overall value of the premises
- the organisation’s previous insurance and claims history.
As with any insurance policy, the level of perceived risk is the main determining factor of price and extent of cover. The higher the level of risk to the insurer, the more the organisation will pay for cover.
Commonwealth and state taxes may also be included in the premium and it is worth noting that excesses are usually higher with ISR insurance, often beginning at around $1,000.Back to top
What is Material Loss or Damage?
An industrial special risks insurance policy usually contains a section dealing with material loss or damage and another with consequential loss or business interruption.
Material loss or damage refers to loss or damage of property or personal property insured by the organisation at the time of the incident. A typical ISR policy will define the indemnity (the cover provided), the property insured and the basis of settlement.
Indemnity may include compensation for loss or damage of the property, costs associated with reinstating the property, government fees payable prior to reinstatement, firefighting costs, temporary property protection costs, demolition and debris removal costs, costs of damage to equipment belonging to directors and employees, costs associated with monies owing that cannot be collected due to the destruction of records.
Property insured includes property owned by the organisation, property for which it is responsible, property that has been purchased by the organisation where transfer of title is still pending, personal property including monies belonging to the organisation.
Basis of settlement
Basis of settlement refers to the cost of replacement (based on current value), reinstatement or repair of the property and contents such as raw materials, goods under manufacture, finished goods, company records and calculated monthly accounts receivable.
What is Covered by Consequential Loss?
The other section dealt with in industrial special risks insurance is the section dealing with consequential loss. Consequential loss covers loss of profit and other financial losses that occur as a result of an interruption to normal business operations after an incident.
In this section, a typical ISR policy will define the indemnity (the cover provided) and the basis of settlement.
The indemnity covers things such as the costs associated with an interruption to business in accordance with the basis of settlement, providing that the property was insured against material loss or damage at the time of the incident.
Basis of settlement
Basis of settlement can be limited to the loss of gross profit due to a reduction in turnover and the increased cost of working to avoid a reduction in turnover, as well as the cost of claim preparation and loss relating to pay-roll.
Industrial Special Risks Insurance Exclusions
As mentioned previously, due to its broad nature, industrial special risks insurance will cover almost any clause that is not specifically excluded in the policy. Hence there are often a number of exclusions and the following are just some of those found in a typical ISR policy.
- various kinds of piping such as sewer pipes, gas pipes, irrigation pipes and most water pipes
- foundations for machinery
- any vehicles or mobile equipment being driven on a public thoroughfare
- any aircraft or marine vessel
- any machinery such as cranes, hoists, elevators, conveyors or power shovels
- any computers or data processing equipment
- any machine that uses radioactive materials and radio and television apparatus
- any steam or gas turbine
- any generator unit exceeding 250 horsepower
- any wiring or fittings used for lighting or electricity.
- any damage arising from wear and tear or general deterioration
- any damage resulting from repairs or renewal of certain parts
- any damage resulting from intentional exposure of machinery to abnormal conditions
- any damage resulting from faults or defects that were known to the insured.
Apply for Industrial Special Risks Insurance
An industrial special risks insurance policy is sometimes called an 'all-risks' policy because of its perceived broad coverage of a lot of different risks. However, the truth is that most ISR policies contain a number of exclusions such as those mentioned here that can substantially limit the extent of the cover provided. As a result, an organisation may find that it requires additional property policies to supplement their industrial special risks insurance.Back to top