In a world of industrial development, both greenfield and brownfield projects come with their own set of challenges and risks. Whether it be new projects that involve construction of new buildings or industrial facilities from scratch on an undeveloped land (greenfield) or projects involving redevelopment or expansion of already existing industrial sites (brownfield) wherein such sites have been previously used for industrial purposes and could be contaminated. These are the areas where the industrial all risk policy with its comprehensive coverage comes to light.
UNDERSTANDING THE INDUSTRIAL ALL RISK POLICIES
The Industrial All Risk Insurance Policy (IAR) is a comprehensive insurance policy designed to cover major manufacturing industrial risks and perils that industrial operations may face. It covers a wide range of risks with broader exposures than the typical Fire and Perils insurance policies. Being a comprehensive package policy covering practically all risks and perils that a large industry may face during its operations, the IAR policy acts as a solution with the aim of protecting businesses from financial implications in cases of material damage, breakdown of machinery leading to business interruption that can result in heavy losses in a business.
Key Benefits of an IAR policy:
- Complete Protection for all risks that threaten industrial unit – Being a comprehensive package policy as compared to a Fire insurance policy, the IAR policy covers a broader range of risks allowing the insurer to protect their organization against a wider range of risks and not just fire.
- Coverage against losses suffered as a result of Machinery damage– Insurers can also use the IAR policy to secure a better and stronger coverage against losses occurring due to machinery damage.
- Losses arising through business interruption and interference– The IAR policy also covers losses incurred by a business when their business operations are interfered with or has been halted.
IAR Policy Coverage:
The policy protects businesses in the following event:
- Damage to the material – This includes material damage that may occur to a property that necessitates the replacement of assets such as buildings, fixtures, inventory etc.
Therefore, any damage caused to machinery or units that cause irreparable losses shall be covered by the policy.
- Interruptions in business – The policy covers loss of income that may occur due to business or service interruptions in the case of a disaster that results in material damage or machine failure which in turn results in a halt in operations. The policy therefore compensates for any loss in revenue due to interruptions caused by covered perils as per the policy.
Exclusions under the IAR policy:
Certain incidents have been excluded under the IAR Policy:
- Damages caused to business due to materials with flaws or defects, inherent vice and wear and tear.
- Damages caused to business due to building collapse or cracks.
- Damages caused to business due to corrosion rust, shrinkage, loss of weight, contamination of the finished product.
- Larceny, theft, or pilferage on property.
- Dishonesty and inventory shortage leading to halt in the operations.
- Willful negligence, cessation of work and loss of market.
- War and War Group of Perils leading to operations being disrupted.
- Nuclear Group of Perils i.e., damage to nuclear reactors in the vicinity of the industrial building.
- Any loss due to destruction of property by order of public authority.
Sum Insured and Premium:
The sum insured for Section I (Material Damage) shall be on a Reinstatement Value basis while stocks would be covered on a Market Value basis. The sum insured for machinery breakdown risk should be the same as the sum insured for damaged plant and machinery on account of fire, minus the value of piping and cabling. The sum insured for Section II (Business Interruption) is calculated using Annual Gross Profit and the specified Indemnity Period. Indemnity period is the maximum period during which the business may remain interrupted according to the activities involved.
Does the Policy cover Intellectual Property Rights?
Industrial All Risk Policy being a comprehensive coverage is designed to cover an array of physical and operational risks primarily focusing on tangible assets and business interruptions including damage to property, machinery breakdown, business interruptions, and liabilities arising from third party claims. However, the IAR Policy being a comprehensive package policy does not cover Intellectual Property (IP) Risks and IP protection typically requires a specialized coverage policy.
To protect against IP risks, companies need to consider specialized Intellectual Property Insurance Policies that cover Infringement Defense Coverage that provide money for cover defense costs, legal fees, damages, and expenses incurred in a judicial proceeding relating to IP. The policy also protects patents, trademarks, copyrights, trade secrets and innovations from other predatory companies and assist in pursuing such parties who infringe upon a company’s IP.
UNDERSTANDING GREENFIELD & BROWNFIELD PROJECTS
What are Greenfield Projects?
Greenfield projects involve building new industrial facilities on previously unused or underdeveloped land. These projects start from a ‘clean slate’ with no such preexisting structures or contamination.
What are Brownfield projects?
Brownfield projects involve the redevelopment or expansion of existing sites that were previously used for industrial or commercial purposes. These sites often have existing sites and may be contaminated. Some characteristics include pre – existing structures which involves the renovation or demolition of existing buildings. The clear advantage of a brownfield project is that the building is already constructed thereby greatly reducing the cost of starting up. Further the time devoted to construction may also be reduced significantly.
KEY COVERAGE AREAS FOR THESE PROJECTS
The IAR Policy offers a comprehensive package policy coverage for a wide range of risks perils including fire, explosion, natural disasters, accidental damage, machinery breakdown and business interruption for both greenfield and brownfield projects.
Coverage for Greenfield Projects:
- Construction Risks – Covers risks that are associated during the initial construction phase including accidental damages, natural disasters, fire, theft etc. The policy protects significant investments made during the critical stages of construction and early operational phases.
- Material Damage – Covers physical losses or damages to project materials, equipment and machinery that are associated during the construction stages. The policy protects significant investment in materials and equipment necessary for construction.
- Natural Disasters – Provides coverage for damages caused by natural disasters like earthquake, floods, storms, and other natural events. The IAR Policy becomes critical for areas that are more prone to natural disasters and ensures that such project developments can recover after such an event.
- Fire and Explosion – Any losses arising due to fires, explosions and other related perils that can occur during construction phase.
- Business Interruption – Any losses arising due to operations of the project being halted or disrupted by an insured event.
- Third Party Liability – The policy provides protection against legal liabilities arising from damage to third party property or injury to third parties during construction. This policy becomes crucial to cover legal and compensation costs in case of accidents relating to third parties.
Coverage for Brownfield Projects:
Such projects require a tailored coverage that addresses both redevelopment risks and ongoing operational challenges.
- Existing Structure Coverage – The policy provides insurance for damages caused to pre-existing structures during such redevelopment or expansion. The policy thereby protects the value of the pre-existing structure while it undergoes redevelopment.
- Property Protection – The policy typically covers physical assets such as buildings, machinery, equipment, stock, and other property. In the event of damage or loss due to covered perils, the insurance helps in the restoration or replacement of the insured property.
- Business Interruption – The policy provides protection against losses that are created through business operations being halted or interrupted caused due to an insured perils further fostering business continuity.
- Machinery Breakdown – Any losses created due to machinery breakdown or damage to existing and new structures shall be covered by the policy.
- Natural Disasters – The policy covers any losses caused due to natural disasters such as earthquakes, floods, storms, and other natural events causing such damages to both pre-existing structure and new structures.
- Pollution Liability: The policy covers losses arising from any contamination or pollution except for the excluded perils and manages risks associated with pre-existing contamination and environmental damage costs.
- Fire and Related Perils – Any losses arising from fire, explosions and other related perils will be covered by the policy.
CONCLUSION
The wide array of coverage provided by the Industrial All Risk Policy is specialized to cover needs of both greenfield and brownfield projects. For greenfield projects, the focus lies on losses due to damages during the initial operations and construction related risks. This ensures that needed developments can proceed with financial security, minimum disruptions and safeguards investments that are required to build projects from the scratch. Whereas for brownfield projects, the policy addresses challenges and losses created due to damages to existing structures, potential contamination and redevelopment or expansion of the already existing structure. By covering complexities of redeveloping existing structure, the policy encourages the revitalization of urban areas, contributing to sustainable development and economic growth.
Thus, the Industrial All Risk Policy provides a robust and comprehensive coverage that becomes essential for carrying out of greenfield and brownfield projects that ultimately fosters growth in the industrial sector.
