Industrial All Risks vs Standard Fire Policy: Which Property Cover Fits Your Plant

A Standard Fire and Special Perils (SFSP) policy is a named-perils contract. It lists a defined set of insured events, fire, lightning, explosion and implosion, aircraft damage, riot strike and malicious damage, storm cyclone flood and inundation, subsidence and landslide, bursting and overflowing of tanks and pipes, sprinkler leakage, impact damage and a few others, and it pays only when the loss traces to one of them. Since the April 2021 standardisation, that wording reaches smaller risks through the Bharat Sookshma Udyam Suraksha cover up to Rs 5 crore and the Bharat Laghu Udyam Suraksha cover up to Rs 50 crore, while risks above Rs 50 crore are placed on insurers' own filed fire products that keep the same named-peril skeleton.

The Industrial All Risks (IAR) policy inverts that logic. It covers all sudden and accidental physical loss of or damage to the insured property except what the contract specifically excludes. The practical effect is a shift in the burden of proof. Under an SFSP the insured has to characterise a loss and fit it to a listed peril before the policy responds. Under an IAR the loss is assumed covered unless the insurer can bring it within a written exclusion. That single difference, who has to prove what, is the reason large industrial buyers gravitate to IAR and the reason it is priced and deductible-structured differently.

An IAR is also a package rather than a single section. It bundles Section I Material Damage, which folds property damage and machinery breakdown into one all-risks grant, and Section II Business Interruption, which covers the resulting loss of gross profit, into a single contract for a plant or a group of plants. An SFSP buyer assembles the equivalent protection from separate policies and add-ons.

IAR is not a product every buyer can ask for. Market practice, carried forward from the erstwhile tariff and continued by insurers after detariffing, reserves the IAR wording for industrial risks with a total sum insured, aggregated across all insured locations, of at least Rs 100 crore. A plant below that threshold sits in SFSP or Bharat Laghu Udyam territory and builds breadth through endorsements rather than through an all-risks grant.

The threshold exists because IAR only makes underwriting sense on a spread of risk large enough to absorb the broader cover. A single mid-size shed on an all-risks basis would expose the insurer to every unnamed cause of loss without the premium base to carry it. On a Rs 100 crore-plus programme, often multiple blocks, utilities, stock and machinery across a campus, the exposure is diversified enough for the insurer to write the wider grant and load a higher deductible in exchange.

For the buyer, eligibility is therefore the first gate in the decision. A group running several plants can sometimes cross the threshold on a combined basis even where no single site would qualify alone, which is worth testing at renewal. A standalone factory of Rs 30 or Rs 60 crore cannot buy IAR and should not spend the decision cycle comparing to it; its real choice is how to build a named-peril programme well, covered later in this piece.

The value of the all-risks grant is concrete, not cosmetic, and it shows up in three places.

The first is unnamed perils. A named-perils policy simply does not respond to a cause of loss that nobody listed. An accidental structural collapse that is not triggered by a named peril, damage from an internal handling accident, or an unusual mechanism that does not fit the tariff wording can fall through an SFSP. An IAR picks these up because it starts from cover and works backward through exclusions, so a loss does not have to be anticipated by name to be paid.

The second is fewer proof-of-peril disputes. A large share of contested property claims in India turn not on whether damage occurred but on how it is characterised. Was the boiler failure an external explosion (fire policy) or an internal breakdown (machinery policy)? Was the water damage a burst pipe (named peril) or gradual seepage (excluded)? Under an SFSP the insured carries the argument. Under an IAR the loss is covered unless the insurer proves an exclusion, which removes a whole category of characterisation fights, though not the ones the exclusions still create.

The third is the integration of machinery breakdown. Because IAR Section I folds machinery breakdown into the material-damage grant, the boundary dispute between an SFSP and a separate machinery breakdown policy disappears. On a plant where a single event can involve both fire damage and internal mechanical failure, having both inside one contract with one insurer removes the finger-pointing between two sections that a split programme invites.

All risks does not mean all losses, and the buyer who reads only the insuring clause will misjudge the cover. An IAR carries a substantial exclusions schedule, and most of the exposures that trip up SFSP claims are still outside an IAR.

The surviving exclusions that matter most for an industrial buyer include: damage to a component from its own faulty or defective design, material or workmanship (the resulting damage to sound property may still be covered, but the defective part is not); electronic data and the cost of reconstituting it; unexplained inventory shortages and losses revealed only at stocktaking; consequential loss beyond the insured Section II business interruption; wilful misconduct of the insured; war and nuclear risks; and pollution or contamination except where it results from an insured event. Terrorism is generally excluded from the base wording and written back through the market terrorism pool as a separate rated cover.

The exclusion schedule is where an IAR comparison should actually be done. Two insurers' IAR forms carry the same headline all-risks grant but differ in how tightly they draw the defective-design exclusion, whether they extend to certain gradual-cause carve-backs, and how they treat off-premises and transit exposure. The grant is standard; the exclusions are where the cover is won or lost.

The broader cover comes with a larger retained loss, and this is the single feature most often missed by a buyer moving up from an SFSP. An IAR carries higher compulsory excesses than the modest deductibles typical of a named-peril fire policy.

The material-damage section usually bears a compulsory excess expressed as a percentage of the claim subject to a minimum rupee amount, so small losses are retained in full by the insured and only larger claims reach the insurer. Natural-catastrophe perils, storm flood and inundation, earthquake, carry their own separate and higher percentage deductibles, as they do on the fire products, because these are the peak accumulation exposures. The Section II business interruption grant carries a time excess, commonly around seven days, so short interruptions are not indemnified and only the loss beyond the excess period is paid.

The logic is a trade. The insurer widens the grant and shifts the burden of proof to itself, and in exchange the insured retains more of the frequency losses through a higher floor deductible. For a plant whose typical loss is small and frequent, this can be an unfavourable swap: the everyday claims that an SFSP would have paid now sit inside the IAR excess. For a plant whose real fear is the large, hard-to-characterise loss, the higher retention is a fair price for cover that responds without a proof-of-peril fight. Sizing the deductible to the plant's actual loss pattern, not accepting the standard IAR excess by default, is where the structuring work is.

Large industrial property in India is rated on experience and burning cost, not off a fixed schedule, so neither IAR nor an SFSP-plus-add-ons programme is inherently the cheaper answer. The IAR premium reflects the wider grant and the bundled machinery-breakdown and business-interruption cover, partly offset by the higher deductibles that hand frequency losses back to the insured.

For a well-protected risk with a clean loss record, automatic sprinklers to a recognised standard, good compartmentation and disciplined hot-work controls, IAR can price competitively against a stack of separately rated fire, machinery, electronic-equipment and business-interruption sections, and it removes the internal margins and minimum premiums that each standalone add-on carries. For a loss-heavy or poorly protected risk, the all-risks grant is loaded precisely because it responds to more, and the buyer may find the SFSP route, where each add-on is priced and can be dropped, gives more control over spend.

The honest comparison is not headline rate against headline rate. It is total cost of risk: premium, plus the retained losses under each deductible structure, plus the claims that one form pays and the other disputes. A named-peril programme with a low excess may show a lower premium and a higher retained-and-disputed loss cost once real claims are run through it. An IAR with a higher excess may show a higher premium and a lower dispute cost. The right frame is the sum, over a realistic loss year, not the quote alone.

For the plant that cannot reach the Rs 100 crore IAR threshold, and for some that can but should not, the disciplined answer is a well-built named-peril programme rather than an aspiration to all-risks cover.

The building blocks are familiar. Start with the fire cover, the Bharat Laghu Udyam Suraksha wording up to Rs 50 crore or an insurer's own filed fire product above it, and then add the sections the plant actually needs: machinery breakdown for internal mechanical and electrical failure, electronic-equipment insurance for control and instrumentation, a business-interruption or consequential-loss section sized to a realistic indemnity period, and the specific extensions that the site's exposures demand, debris removal, professional fees, expediting costs, and terrorism through the pool.

This route has three advantages for the mid-size buyer. It keeps deductibles low, so the frequent small loss is still paid rather than retained inside an IAR excess. It lets each cover be priced, negotiated and, if uneconomic, dropped. And it keeps the programme legible to a finance team that wants to see what each rupee of premium buys. The cost is the proof-of-peril exposure the all-risks grant would have removed, and the boundary disputes between the fire and machinery sections that IAR would have folded away.

The decision, then, comes down to three questions. Is the risk even eligible for IAR at Rs 100 crore aggregate sum insured? Does the plant fear the large hard-to-characterise loss more than it minds retaining frequency losses behind a higher deductible? And is the total cost of risk, not the headline premium, lower on the all-risks or the named-peril route once real losses are modelled? Answer those honestly and the cover chooses itself.

Comparing an IAR exclusions schedule against a named-peril fire wording and its add-ons, clause by clause, is exactly the work that decides these placements. Sarvada makes insurer policy wordings searchable, so a broker can pull the IAR defective-design, gradual-cause and deductible language alongside the SFSP add-on terms and see where a plant would actually be exposed under each. If your team is structuring a large industrial property programme for the 2026-2027 renewal, Request Access to compare the wordings that decide the choice.