Industrial Special Risks (ISR) policies have become a cornerstone for providing comprehensive insurance coverage to large-scale industrial and commercial enterprises. These policies offer protection against a wide range of risks, including property damage and financial loss. In this blog, I’ll explore the essential components of an ISR policy, along with its history, scope of coverage, additional cover provided, basis of settlement, policy conditions, and the significance of the policy schedule.
A brief history
The roots of Industrial Special Risks policies can be traced back to the early 20th century when businesses faced growing risks associated with property damage and loss. To address these challenges, insurers introduced ISR policies to provide broader and more flexible coverage for industrial and commercial entities. Over time, the scope and features of ISR policies evolved to meet the changing needs of businesses, making them a fundamental aspect of risk management in the modern business landscape.
Scope of coverage
A hallmark of an ISR policy is its all-encompassing coverage for various types of property owned by the insured entity. This coverage extends to protect buildings, machinery, equipment, stock, and other tangible assets. The insured can tailor the scope of coverage to suit their specific business operations, ensuring that their most critical assets are adequately protected.
Another key feature is that Industrial Special Risks policies turn on its head the traditional approach of covering specific perils. Rather than just covering specific events such as fire, storm, earthquake etc., these policies cover all events that cause physical loss or damage to insured property, unless those events are explicitly excluded. This means that an understanding of the list of exclusions is of critical importance.
Another key feature is that the traditional concept of “sum insured” is replaced by two separate concepts: Limits of Liability and Declared Values. The first of these, as the term implies, provides a cap on the Insurer’s liability for the item or areas to which it refers. Declared Values are not limits of liability but are designed for premium rating purposes and become the yardstick for measuring average or co-insurance where this applies.
Additional cover provided
Apart from the core property coverage, ISR policies offer a plethora of additional covers to address specific risks faced by industrial and commercial enterprises. One of the most critical additional covers is business interruption insurance, which safeguards businesses from the financial impact of temporary closures due to unexcluded events. This cover can include loss of revenue, increased expenses, and ongoing fixed costs during the interruption period.
Other additional covers may include:
- Machinery breakdown insurance: protects against the sudden and accidental breakdown of essential machinery and equipment.
- Public liability insurance: covers legal liability for third party bodily injury or property damage that occurs on the insured’s premises.
- Theft insurance: provides coverage for theft or attempted theft of insured property.
- Machinery movement insurance: protects against damage to machinery and equipment during transit or relocation.
Basis of settlement
The basis of settlement in an Industrial Special Risks policy is a critical aspect that determines how the insurer will compensate the insured in the event of a covered loss. There are generally two types of settlement options available:
- Reinstatement: under this option, the insurer will pay for the repair or replacement of the damaged property to its original condition without factoring in depreciation. This ensures that the insured can restore their operations swiftly without incurring additional costs.
- Indemnity: in an indemnity settlement, the insurer compensates the insured for the value of the property at the time of the loss, considering depreciation and wear and tear. This option may result in a lower payout compared to reinstatement, but it reflects the actual market value of the property at the time of the loss.
Policy conditions
Every Industrial Special Risks policy comes with specific conditions that the insured must adhere to for the coverage to remain valid. These conditions are designed to minimise risk and ensure that the insured takes reasonable precautions to safeguard their property. Common policy conditions include:
- Security measures: the insured may be required to maintain specific security measures, such as alarm systems, surveillance cameras, and access control mechanisms, to deter potential threats.
- Regular property inspections: the insurer may expect the insured to conduct regular inspections of their property to identify potential hazards and address maintenance issues promptly.
- Notification requirements: the insured must inform the insurer promptly of any changes or additions to the insured property to ensure proper coverage.
The significance of the policy schedule
The policy schedule is a crucial component of the ISR policy, as it contains essential details specific to the insured’s coverage. This document outlines the insured’s details, the policy period, the Limits of Liability and Declared Values for different areas of the cover, the applicable excess amounts, any endorsements or additional covers included, and other pertinent information. It serves as a quick reference guide for both the insured and the insurer, ensuring clarity and accuracy in the event of a claim.
ISR policies play a vital role in providing comprehensive insurance coverage to industrial and commercial enterprises. With their wide-ranging scope of coverage, additional covers, and flexible settlement options, ISR policies offer peace of mind to businesses facing various risks. Understanding the key components of an ISR policy empowers businesses to make informed decisions, ensuring that their assets and operations are adequately protected from unforeseen perils. As the business landscape continues to evolve, ISR policies will remain an indispensable tool for managing risk and securing the future of enterprises around the world. Our team of experts have extensive experience and comprehensive knowledge with the intricacies of ISR policies. We understand what makes an ISR policy different and have the expertise to locate the key information and clauses within an ISR policy.
Learn more — If you would like to learn more about ISR policies and how we can help you, please contact me at [email protected]
Tags: Australia, Liability, Loss adjusting, Policy, Property, property and loss adjusting team, Property claims, Property damage, Restoring property, Risk