Insurance Advisory Newsletter – Commercial Asset Insurance: May 2023
Commercial Asset Insurance Policy
An asset is any tangible item that has certain financial value, such as building, plant and machinery, furniture, fixtures and fittings, cars, real estate, computers and other electronics, stock, jewellery, etc. Commercial asset insurance, also known as business property insurance (“Asset Insurance”), is a type of insurance product that has been specifically designed to protect a business entity’s (“Insured”) owned or leased physical assets from various risks and perils. The primary purpose of Asset Insurance is to provide financial protection in the event of damage, loss, or destruction of an Insured’s tangible assets such as buildings, office spaces, equipment, inventory, furniture, machinery, and other physical properties that are necessary for the efficient operation of a business.
In the event of any loss or damage to the assets, the Asset Insurance covers the reinstatement costs against the damage incurred from a wide range of risks such as fire, explosions, natural disasters, theft, and vandalism that can cause damage or loss of a company’s physical assets. With the right and appropriate insurance coverage, an Insured can recover from these losses and continue their operations without financial hardships. Reinstatement cost is the amount at which the insured assets can be reinstated or replaced by a similar asset property without taking into consideration any depreciation and to the extent required to bring such property to a condition substantially the same as its condition before being damaged or destroyed.
The premium for Asset Insurance is based on tariff-driven rates and the same are determined by various factors, including the location of the property, the safety features deployed (fire alarms, water sprinklers, security systems, etc.), the materials used in the construction (potentially combustible materials used in the construction, such as wood, may have higher premiums due to the increased risk of fire), the internal structural materials used, and also the commercial market value of the property.
Standard Coverages And Exclusions Under Asset Insurance
Coverages |
Exclusions |
| 1. Damage due to fire – Fire due to its own fermentation, natural heating or spontaneous combustion or bush fire and forest fire.
2. Act of God – Any loss suffered by the Insured due to lightning, earthquake, volcanic eruption, or other convulsions of nature, storm, cyclone, typhoon, tempest, hurricane, tornado, tsunami, flood, and inundation. 3. Damage due to violence – Any loss suffered by the Insured due to acts of terrorism, riots, strikes, malicious damage, etc. 4. Theft – Any loss suffered by Insured due to theft of any assets of Insured are covered. |
1. Intentional damage – If the Insured has suffered any loss or damage that has been caused by the Insured deliberately or wilfully, the Insurer does not take responsibility for such loss or damage.
2. Missing or mislaid property – If the Insured property is missing or has been mislaid, no reimbursement will be offered in that case. 3. War – Any loss that occurred due to war, invasions or war-like situations will be excluded from the coverage. 4. Pollution and contamination – Damage or loss arising out of pollution or contamination will not be reimbursed. |
Standard Asset Insurance Products
The decision to choose an appropriate Asset Insurance product in India is dependent on the cumulative value of the insured assets of the respective Company. Depending on the total sum insured, there are primarily two standard products that have been introduced and ratified by the Insurance Regulatory and Development Authority of India (IRDAI) and these products are currently being offered, (with a slight variation in the additional extensions being provided) by the insurance companies in India.
The standard products introduced and ratified by the IRDAI provide protection against impact damage, riots, strike and malicious damage, fires, explosions and implosions, natural calamities, terrorism, and theft. The two standard products are as below:
- The Bharat Sookshma Udyam Suraksha Insurance Policy (“BSUSIP”) can be availed by a company if the total value at risk across all insurable asset classes at each location does not exceed INR 5,00,00,000 (Five Crores) at the time of policy commencement, whereas;
- The Bharat Laghu Udyam Suraksha Insurance Policy (“BLUSIP”) is applicable and available to companies whose total insurable risks across all insurable asset classes range between INR 5,00,00,000 (Five Crores) to INR 50,00,00,000 (Fifty Crores).
Where the total sum insured (value of assets) at a particular location exceeds a sum of INR 50,00,00,000 (Fifty Crores), an Insured would have to insure its assets under a ‘Standard Fire and Special Perils’ insurance policy, which is a standard insurance product and separately avail applicable add-ons for additional insurance coverage.
