When disaster strikes isn’t the time to discover limitations in your commercial property insurance, especially if one event has triggered a cascade of further issues. But there is property insurance available to larger business operations that extends to consequential losses without the need to specify what they are: industrial special risks insurance. Here’s how it can plug gaps you might not have even thought about.
Industrial special risks (ISR) insurance provides broad business insurance for medium and large businesses with insured values of typically $5 million and above, by providing protection for a range of risks which includes anything not specifically excluded in the policy. This broad scope and flexibility makes ISR highly adaptable to the needs of businesses with high value assets, supply chain relationships and critical business partnerships.
In terms of property loss, industrial special risks insurance covers
- replacement of assets – buildings, stock, contents, machinery, theft, money, glass
- payment of related fees to architects, engineers, surveyors and other reinstatement services
- fees imposed by authorities for rebuilding approvals and necessary statutory compliance costs
- customs fees, excise and other duties
- temporary protection of the property in the interim prior to repair or replacement
- replacement of locks, alarms, keys and combinations if damaged or stolen
- removal of debris, reinforcement of damaged structures, interim repairs
- repair or replacement of staff valuables left on the premises
- costs of suppressing a fire and/or restocking fire protection equipment
- other related losses that are not specified under the policy.
Protection against domino effect damage to property
Most commercial property policies contain an optional additional section called Business Interruption or Consequential Loss (depending on the insurer). This section within ISR insurance is designed to ensure that any impacts to the business as a consequence of damage to your property do not cause further financial loss.
Consequential losses that may be claimed include, but are not limited to
- decline in turnover or revenue
- increased costs of preventing decline in turnover or revenue, which may include any valid expense incurred in getting the business operational again, such as using back-up facilities or sites, overtime payments to employees, importing equivalent products etc
- payments to professionals and other expenses involved preparing a claim
- payroll costs.
The majority of these instances relate to damage to your property, which either negatively impacts your source of turnover or requires additional costs to maintain your revenue stream at pre-damage levels.
As an example, if you were a manufacturing business and suffered fire damage to a key piece of machinery this would negatively impact the amount of units you could produce, leading to a flow-on effect on your turnover. Your industrial special risks cover could either directly replace your lost turnover or pay a proportionate value of alternative parts or outsourcing that stage of the process, to maintain turnover at its pre-damage level.
Cover for impacts to your business that are offsite to your property
There are other extensions available to include in an ISR cover, if your business has material exposures elsewhere to your property location. These could include damage sustained by a key customer or supplier, utility provider, or if access to your premises has been prevented, as some common examples.
Could ISR help your business be better protected?
If you’re interested in finding out more about how industrial special risks cover could provide additional protection to your business, talk to one of our expert brokers.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient’s industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers’ control.
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