Factory & warehouse insurance: The saviour during turbulent times!

In business, “location” takes a very special place, and so does the actual building that you zero in on as your office. It should not only be aesthetic and aligned with your business requirements, but it should also offer optimal safety standards for your employees and assets. If the unit you plan to set up is a manufacturing unit, then the factory and warehouse have a very significant role to play in the proper functioning of the business. Often factories and warehouses do not have the sophisticated security measures which are often undertaken for commercial office setups. However, the equipment and the produce kept in factories/warehouses are extremely valuable. Any untoward happening in the factory or warehouse could bring the business operations to a standstill. It is quite apparent from this, that factory and warehouse insurance could be critical for business continuity.

Key Takeaways

• Asset Density vs. Security: Factories and warehouses often house higher-value assets with less sophisticated security than offices, making specialized insurance a non-negotiable necessity.

• Comprehensive Inclusions: A robust policy covers not just the “four walls” but everything inside, including electricals, movables, and work-in-progress goods.

• The Peril Checklist: Coverage is only as good as the perils listed. Ensure your policy explicitly mentions implosions, aircraft damage, and missile testing, alongside standard risks like fire and flood.

• Valuation Flexibility: Choose a Valued Cover if market values are hard to determine, or a Floating Policy if your goods move frequently between multiple processing or storage sites.

• Resurrection Costs: The cost of hiring architects and surveyors for reconstruction can be significant; these are often covered through specific riders or add-ons.

• The “Fine Print” Mandate: Not all policies cover everything. Business owners must verify that pollution or contamination resulting from a covered peril is included to avoid future claim rejections.

What is factory & warehouse insurance?

This is a type of insurance that offers coverage to industrial setups that are especially in the business of manufacturing and storage of goods. So, if your business suffers a financial loss due to damage to machinery, equipment, goods, building, etc., within or around the premises, due to an unfortunate event such as fire, flood, etc.; then the insurance company would pay for the financial losses IF the business is adequately insured. 

Inclusions under the Factory & Warehouse Insurance Policy:

The policy covers all the losses incurred on the damage to the products, equipment, machinery, etc., that are stocked in and around the premises. It also offers coverage for any damage to the building/premises. In addition, you can extend the coverage to the produce/goods that move in/out of the premises. The comprehensive coverage under factory and warehouse insurance offers:

• Content coverage:
  Provides coverage for all the contents stored on the premise including machinery, equipment, goods, etc.
• Edifice coverage:
  The premise itself is covered, hence any financial loss incurred due to damage to the building will be compensated under the insurance plan. 
• Money insurance:
  Cash insurance or money insurance indemnifies the insured against any loss of money within the premise under coverage. In this context, money includes currency notes, cheques, money orders, bullion, etc.
• Stock coverage:
  The stocks held in the warehouse which could either be raw materials or finished products, would be compensated for. The valuation of the stock would have been at market value at the time the insurance policy was drawn.
• Production interlude:
  In case the damage is such that there is a brief interruption in production, then there needs to be an effort to re-stabilize the business. This insurance provides coverage against such production interludes.
• Civil liability coverage:
  Many untoward instances lead to civil liability problems and litigation issues. The costs such as lawyer fees, and compensation to a third party could be a sizeable corpus. Hence, availing of comprehensive coverage that also takes care of this aspect would be advisable. 

Scope of coverage – property in Factory & warehouse insurance:

Thus, the coverage under the factory and warehouse insurance policy are:

• Building along with interior and electricals
• Plant, machinery, and equipment 
• Furniture, fixtures, accessories, and other movable items
• Raw materials, work-in-progress, and finished goods
• Currency, billions, artworks, blueprints, drawings, etc.,

Not all policies cover everything. There are some policies that offer certain benefits, while other plans offer other benefits. You need to choose according to your requirement.

Scope of coverage – perils:

The events against which the coverage is allowed are as important as the physical items that the insurance offers coverage for. It is an aspect that most business owners often miss out on.

Thus, you need to take ample care to ensure that the events that could potentially cause damage to your business are under the purview of insurance coverage. This can help avoid claim rejections in the future. Ideally, you should ask your insurer and go through all the fine print to confirm that every aspect of the risk, that could potentially damage your business; is mentioned in the policy document.

Typically, these types of policies offer coverage for these perils:

• Fire, lightning, explosions, implosions
• Strike, riots, or mob-led damage
• Storms, floods, typhoons, cyclones, tornados, or the fury of nature that leads to damage
• Transport related damage
• Pollution or contamination due to any of the perils
• Bursting/ overflowing of water tank
• Unforeseen damages due to an airplane crash, missile testing related, bush fire, animal rage, etc.,

Yet again, the above list is only indicative and not exhaustive, you will have to check for the specific details of the plan that you intend to avail of to ensure that the coverage aligns with your need. 

Additional read: How does a declaration policy work for a warehouse or factory?

Types of policy:

The types of factory and warehouse insurance that are available in the market at present are:

Comprehensive cover:

This policy covers all types of possible insurance coverage. It is one of the most ideal ways to de-risk your business. 

Valued cover:

When you cannot determine the market value of the materials under coverage, you need to opt for this type of insurance coverage.

Floating policy:

If you do not have a fixed location for your insurance, say for instance when your goods move from one place to another; you need to opt for a floating policy. This would ensure the continuity of your insurance coverage. Thus, it is ideal for material that moves to and fro for processing, storage, sale, etc.

Replacement and Reinstatement policy:

If there has been damage to the asset covered under the plan, this type of policy would provide the required funds to replace or reinstate the insured asset.

Specific policy:

The property value is usually lower than the actual value of the asset, this coverage is only up to a pre-determined specific amount. 

Additional read: Who can buy factory and warehouse insurance?

Summary Table: Factory & Warehouse Insurance Components

Some of the other perils such as pilferage, theft, etc. are usually covered under other policies. Also, there are riders/add-ons which you can avail of alongside original fire and allied risk policies. 

The resurrection of the factory or warehouse would require time, effort, and money. Usually, architects and surveyors do a consultation before opting for this plan. You can adequately cover these costs by taking appropriate riders. As a business owner, you must undertake proper measures to safeguard the premise and the contents within the premise. Whilst choosing an insurance plan you must gain appropriate knowledge about the types of plans available and the coverage. Remember to understand the inclusions and exclusions before you zero in on any plan. You could take the help of online insurance providers like SecureNow who provide a comprehensive comparison of features of all available products. It will help you choose the one that is most aligned with your requirements. There is the additional advantage of easy processing by availing of the service from this professional portal.

Frequently Asked Questions (FAQs)

1. What is a “Floating Policy,” and do I need it for my warehouse?

A) A floating policy is ideal if your goods are not stored at a single fixed location. If your inventory moves between different warehouses, processing units, or sales depots, a floating policy ensures your insurance “floats” with the stock, providing continuous coverage regardless of which site the goods are currently at.

2. Does this insurance cover the loss of income if my factory shuts down after a fire?

A) Basic factory insurance covers physical damage. However, the “Production Interlude” or Business Interruption component (often an add-on) provides coverage for the loss of profits and the effort needed to re-stabilize the business during the downtime.

3. Is “Money Insurance” really necessary for a manufacturing unit?

A) Yes. Factories often deal with physical cash for daily labor payments or hold cheques and money orders on-site. Money insurance indemnifies you against the theft or loss of these funds, as well as bullion or currency notes kept within the covered premises.

4. What happens if my machinery breaks down due to an internal short-circuit?

A) Standard fire insurance covers damage if a short circuit starts a fire. For the actual breakdown of the machine due to electrical or mechanical failure, you would typically need a Machinery Breakdown (MBD) rider or a comprehensive policy that specifically includes “Replacement and Reinstatement” for machinery.

5. Are “Blueprints and Drawings” covered under standard property insurance?

A) Standard policies often exclude specialized documents. However, comprehensive warehouse insurance can be extended to cover blueprints, drawings, and artworks, which are often vital for manufacturing processes and would be expensive to recreate if destroyed.

About The Author

Shivani

MBA Insurance and Risk

She has a passion for property insurance and a wealth of experience in the field, Shivani has been a valuable contributor to SecureNow for the past six years. As a seasoned writer, they specialize in crafting insightful articles and engaging blogs that educate and inform readers about the intricacies of property insurance. She brings a unique blend of expertise and practical knowledge to their writing, drawing from her extensive background in the insurance industry. Having worked in various capacities within the sector, she deeply understands the challenges and opportunities facing property owners and insurers alike.