Industrial All Risks (IAR) vs Fire Insurance — Which One Does Your Property Actually Need?

In 2024, the Malaysian fire insurance market wrote billions in premiums across commercial and industrial properties. Yet many property owners still can't answer a basic question: what's the actual difference between their fire policy and an IAR policy?

The answer isn't just about which perils are listed. It's about how the policy responds when something goes wrong. Fire insurance covers named perils. IAR covers all risks except what's specifically excluded. That structural difference changes who has to prove what at claim time, and that's where the real value lies.

This guide compares fire insurance and IAR side by side, using actual policy wording structures, so you can make an informed decision at your next renewal.

The Fundamental Difference: Named Perils vs All Risks

This is the single most important distinction between the two policies, and everything else flows from it.

A fire insurance policy covers property "destroyed or damaged by FIRE or LIGHTNING." That's the base. Every additional peril, from flood to storm to explosion, must be explicitly added as a special perils extension, each for an additional premium. If the cause of your loss isn't named in the policy, you're not covered.

An IAR policy covers property that is "accidentally physically lost destroyed or damaged other than by an excluded cause." The IAR starts from a position of coverage for everything, then carves out specific exclusions. If the insurer wants to deny your claim, they have to point to a specific exclusion that applies.

Feature	Fire Insurance	IAR
Coverage approach	Named perils only. If the cause isn't listed, it's not covered.	All risks. If the exclusion isn't listed, it's covered.
Burden of proof	Insured must prove the loss was caused by a named peril.	Insurer must prove an exclusion applies to deny the claim.
Base perils	Fire and lightning only	All accidental physical loss or damage
Extension mechanism	Special perils added individually for additional premium	Broader coverage built in; specific exclusions carved out
Premium	Tariffed (regulated base rate)	Non-tariffed (risk-rated by insurer)
Section II (BI)	Available as an add-on	Available as an add-on (same BI methodology)

What IAR Covers That Fire Insurance Doesn't (Without Extensions)

Under the standard fire policy, the following scenarios require individual special perils extensions, each at additional cost. Under IAR, they're covered as part of the base "all risks" wording unless specifically excluded.

Scenario	Fire Policy	IAR Policy
A forklift accidentally crashes into a structural column	Requires impact damage extension	Covered as accidental damage
A water pipe bursts inside the building, damaging stock	Requires burst pipes extension (with exclusions)	Covered (unless premises unoccupied 30+ days)
A contractor accidentally damages a wall during renovation work	Not a named peril. Likely not covered even with extensions.	Covered as accidental damage
Roof collapses due to accumulated rainwater	Not a standard named peril. Storm extension only covers wind damage to roof first.	Covered unless a specific exclusion applies
Smoke damage from a neighbouring property fire that doesn't reach your premises	Policy covers fire damage, but smoke-only damage without direct flame involvement is debatable	Accidental physical damage, covered
The exact cause of damage can't be determined	Claim likely fails. You must prove the cause matches a named peril.	Claim likely succeeds. Insurer must prove an exclusion applies.

That last row is arguably the most important. In practice, the cause of damage isn't always clear. A wall cracks. Equipment fails. Water appears where it shouldn't. Under fire insurance, uncertainty works against you. Under IAR, it works in your favour.

What IAR Still Excludes

IAR isn't unlimited coverage. The policy has its own exclusion list, and it's important to understand what's carved out.

The IAR policy excludes damage caused by faulty or defective design, materials, or workmanship, latent defect, gradual deterioration, deformation, distortion, or wear and tear. It excludes interruption of water, gas, electricity, or fuel supply to and from the premises. It excludes settling, bedding down, shrinkage, or expansion of foundations, walls, floors, or ceilings.

It also excludes mechanical or electrical breakdown or derangement of machinery or equipment. That's the territory of Machinery Breakdown insurance. And like fire insurance, IAR excludes war, terrorism, nuclear risks, and government confiscation.

Key IAR-specific exclusions to note:

IAR Exclusion	What It Means
Theft without violent entry or exit	Simple theft (no break-in) isn't covered. Disappearance and inventory shortage are also excluded.
Mechanical or electrical breakdown	Internal failure of machinery is excluded. But if the breakdown causes a fire that damages other property, the fire damage is covered.
Property damaged as a result of its undergoing any process	Damage to goods being worked on or processed isn't covered, unless ensuing damage from an otherwise covered cause follows.
Coastal or river erosion	Gradual land erosion isn't accidental damage.
Boiler explosion (internal pressure vessels)	Damage to the boiler or pressure vessel itself from its own explosion is excluded. That's BPV insurance territory.

When Fire Insurance Alone Is Sufficient

Fire insurance isn't always the wrong choice. For certain property profiles, a fire policy with the right special perils extensions provides adequate coverage at a lower premium than IAR.

Fire-only typically makes sense when the property is a simple building structure with straightforward occupancy (office, basic retail, residential). When the primary risk is genuinely fire-related, and other perils are minimal. When the building owner only needs to protect the physical structure, not complex operations or processes inside it. When budget constraints require the minimum coverage that satisfies lender or statutory requirements.

A commercial office building occupied by a single tenant running a professional services business, for example, has limited exposure to accidental damage beyond fire. The fire policy with flood, storm, and burst pipes extensions may be perfectly adequate.

When IAR Is the Right Choice

IAR becomes the more appropriate cover when the property has broader risk exposure and the financial stakes are higher.

IAR is typically the right choice for manufacturing and processing facilities where multiple perils are present simultaneously. Properties with high-value machinery and equipment inside. Multi-tenant buildings where different occupancies create different risk profiles. Properties where the owner can't afford to argue about which specific peril caused the loss. Facilities with complex operations where accidental damage from daily activities (forklifts, heavy equipment, material handling) is a real and frequent risk.

For a factory with production lines, raw material storage, heavy vehicle movement, and complex M&E installations, the range of things that can go wrong extends far beyond fire and lightning. IAR captures those scenarios without requiring you to anticipate and specifically insure against each one.

The Premium Difference: Cost vs Coverage

IAR costs more than fire insurance. That's expected, because the coverage is broader. But the premium comparison needs context.

Fire insurance is tariffed. The base rate is fixed by trade code and construction class. Special perils extensions each add to the premium. By the time you've added flood, storm, explosion, impact, burst pipes, riot and strike, and subsidence, the total premium for a fully extended fire policy can approach IAR territory for some property types.

IAR is non-tariffed. The premium is risk-rated by the insurer based on the property type, occupancy, claims history, sum insured, and risk quality. This means IAR premiums are more negotiable, and better risk quality (good fire protection, clean claims history, well-maintained premises) can result in more competitive pricing.

The right question isn't "which is cheaper?" It's "which provides adequate coverage for my actual risk exposure?" A fire policy that's cheaper but doesn't cover the loss you actually suffer isn't saving you anything.

Business Interruption: Same Methodology, Different Trigger

Both fire insurance and IAR can include a Section II for business interruption (loss of profit) coverage. The BI methodology, including gross profit definitions, indemnity periods, and the average clause, works the same way under both policy types.

The difference is the trigger. Under fire insurance, BI only activates if the underlying property damage was caused by a named peril. Under IAR, BI activates if the property damage is covered under Section I, regardless of the specific cause. This means IAR + BI provides broader business interruption protection because the range of triggering events is wider.

For a detailed guide to BI coverage, see our business interruption insurance guide.

FAQ

What does IAR stand for in insurance?

Industrial All Risks. It's a comprehensive property insurance policy that covers accidental physical loss or damage from any cause, unless the cause is specifically excluded. It provides broader coverage than a standard fire insurance policy.

Can I have both fire insurance and IAR on the same property?

No. You would have one or the other for the same property, not both. IAR replaces fire insurance; it doesn't supplement it. Both policies contain a contribution condition that prevents double recovery.

Is IAR always better than fire insurance?

Not always. For simple commercial properties with limited exposure beyond fire, a well-structured fire policy with appropriate extensions can provide adequate coverage at a lower cost. IAR is better suited for properties with complex operations, high-value contents, or multi-peril exposure.

Does IAR cover machinery breakdown?

No. IAR specifically excludes mechanical or electrical breakdown of machinery. For internal failure of equipment, you need a separate Machinery Breakdown policy. But if a machinery breakdown causes a fire that damages surrounding property, the fire damage to other property is covered under IAR.

Who decides whether I get fire or IAR?

You do, in consultation with your insurance intermediary. The choice depends on your property type, occupancy, risk profile, and budget. Your intermediary should assess your risk exposure and recommend the appropriate policy form. Some lenders or landlords may specify minimum requirements.

Does the average clause apply to IAR?

Yes. IAR policies contain an average clause that works identically to the fire policy version. Underinsurance under IAR results in the same proportional claim reduction. The broader coverage doesn't protect you from getting the sum insured wrong.

Foundation Conclusion

The choice between fire insurance and IAR comes down to one question: when something unexpected happens to your property, do you want to be in the position of proving your loss matches a named peril, or do you want the insurer to prove an exclusion applies?

For complex properties, the answer is usually IAR. For simpler properties, fire with the right extensions can be sufficient. Foundation helps property owners across Malaysia evaluate which policy structure matches their actual risk exposure, so the coverage works when it matters.

Talk to our risk specialists about the right coverage for your property

Disclaimer: This article provides general guidance on insurance coverage available in the Malaysian market as of March 2026. Policy terms, conditions, and availability vary by insurer. Always review your specific policy wording or consult a qualified insurance professional before making coverage decisions.