Floating Policy

A floating policy is a versatile insurance mechanism widely used in Indian commercial insurance to provide coverage across multiple locations, transit routes, or risk categories under a single policy with a consolidated sum insured. In the marine context, a floating policy covers multiple shipments with a pre-declared total sum insured that diminishes with each declaration -- essentially a 'bank' of coverage that is drawn down until it requires replenishment. In the property insurance context, a floating policy covers stock or assets spread across multiple warehouses, factories, or office locations under one sum insured rather than requiring separate policies for each location.

In the Indian market, floating policies serve significant practical purposes. For businesses with multiple godowns or manufacturing units -- common in sectors like FMCG, pharmaceuticals, and textiles -- a floating fire policy eliminates the need to track and adjust individual sums insured at each location as stock moves between them. The premium is calculated on the total sum insured, and the policy automatically adjusts to stock movements between covered locations. This is particularly valuable in India's GST-driven supply chain, where goods frequently move between registered premises.

For marine floating policies, the mechanism is somewhat different. The insured declares a total anticipated shipment value for the policy period, pays premium upfront on this amount, and each shipment is declared against the policy, reducing the available balance. When the policy sum insured is substantially utilised (typically 75%), the policy is replenished by adding sum insured and paying additional premium. Indian insurers and the Tariff Advisory Committee (now under IRDAI's purview) have historically prescribed guidelines for floating policies, including requirements for periodic stock declarations and adjustment of premium based on actual stock values at specified declaration dates.