Industrial All Risks (IAR) Insurance Malaysia

A burst water main floods your factory floor at 2am. Production halts. RM800,000 in machinery needs drying and recalibration. Two weeks of lost revenue follows. You file a claim under your fire insurance policy and discover: burst pipes are not a named peril. Claim denied.

This is the gap IAR insurance fills. Industrial All Risks covers your factory property on an "all risks" basis. Instead of listing what IS covered (like fire insurance does), IAR covers everything that ISN'T specifically excluded. That reversal changes the entire claims dynamic.

This page covers:

• How IAR differs from fire insurance and why the distinction matters
• Section I (Material Damage) and Section II (Business Interruption) coverage
• COPE analysis and how underwriters price IAR
• Sum insured calculations and the average clause trap
• Premium factors with indicative rate ranges
• Common exclusions and how to fill each gap
• Industry-specific claim scenarios
• What your broker needs to get you quoted

IAR vs Fire Insurance: The Core Difference

Fire insurance and IAR both protect industrial property. The difference is fundamental: fire insurance lists specific perils it covers, while IAR covers all perils unless specifically excluded. This distinction determines whether your claim gets paid.

With fire insurance, you must prove your loss was caused by a listed peril. With IAR, the insurer must prove an exclusion applies. That burden-of-proof reversal is worth more than most factory owners realise until they have a claim.

For a deeper comparison with worked examples, read our guide on IAR vs fire insurance for Malaysian factories.

What Does IAR Insurance Cover?

IAR policies are structured in two sections. Section I covers physical damage to your property. Section II covers the financial losses that follow when physical damage stops your operations. Both sections respond to the same "all risks" trigger.

Section I: Material Damage

Section I covers sudden and unforeseen physical loss or damage to insured property. The key phrase is "sudden and unforeseen." Gradual processes like wear, corrosion, or slow deterioration are excluded. But any sudden event that damages your property is covered unless a specific exclusion applies.

Section II: Business Interruption (BI)

Section II is not automatic. It must be specifically requested, separately valued, and included in the policy. Many factory owners skip BI to save premium, then discover that rebuilding the factory was the easy part. The revenue lost during 12-18 months of reconstruction is often greater than the physical damage itself.

The indemnity period is the most important number in your BI section. If your factory takes 18 months to rebuild and resume full production, a 12-month indemnity period leaves you unprotected for the final 6 months. For manufacturing facilities, 18-24 months is recommended because specialised machinery often has 6-12 month lead times for replacement.

For more on business interruption coverage, read our guide on business interruption insurance for factories and data centres.

Who Needs IAR Insurance?

The short answer: any industrial operation where property damage would cause significant financial harm. Fire insurance covers the minimum. IAR covers the reality of what actually goes wrong in factories and industrial facilities.

The general guideline is that facilities with total insured values above RM10 million should consider IAR. But even smaller operations benefit from IAR if they have complex risk profiles: cold storage, chemical processing, precision manufacturing, or any operation where a single event could halt production for weeks.

Get an IAR Insurance Quote

IAR vs Fire Insurance: When to Choose Which

Not every property needs IAR. The decision depends on your asset complexity, operational exposure, and risk tolerance. Here is a practical decision framework.

For properties where you're unsure, the cost comparison often settles it. IAR typically costs 20-40% more than fire insurance with equivalent special perils extensions. For a RM20 million factory, that difference might be RM5,000-15,000 per year. The coverage gap it fills is worth far more.

How IAR Premiums Are Calculated: COPE Analysis

Unlike fire insurance which uses regulated tariff rates, IAR is market-rated. Each risk is individually underwritten. Underwriters assess your property using COPE analysis: Construction, Occupancy, Protection, and Exposure. Each factor directly affects your premium.

Indicative IAR Premium Rates

Actual rates vary significantly based on COPE assessment. These ranges give a general indication of where different risk profiles fall.

Good fire protection directly reduces premiums. A factory with automatic sprinklers, smoke detection, fire hydrant system, and a valid BOMBA fire certificate can see premium reductions of 30-50% compared to an identical unprotected facility. The investment in fire protection often pays for itself through lower insurance costs within 2-3 years.

Sum Insured: The Average Clause Trap

Underinsurance is the single biggest claims problem in Malaysia's industrial property market. The average clause (condition of average) penalises you proportionally if your sum insured is less than the actual replacement value of your property.

How the Average Clause Works

The penalty applies even for partial losses. You don't need a total loss to trigger average. A RM2 million fire in one corner of your factory still gets reduced if your total sum insured is below actual replacement value.

Sum Insured Valuation Methods

For properties valued above RM10 million, a professional reinstatement valuation by a registered valuer is strongly recommended. Most insurers accept valuations up to 3 years old. The cost of a professional valuation is a fraction of what underinsurance could cost you at claims time.

Common IAR Exclusions and How to Fill the Gaps

IAR is broad, but it's not unlimited. Understanding what's excluded tells you where you need complementary coverage. Every exclusion on this list has a corresponding insurance product that fills the gap.

The machinery breakdown exclusion catches the most factory owners off guard. IAR covers damage to machinery from external causes (fire, flood, impact from another object). But if a motor burns out internally, a bearing seizes, or an electrical component fails due to an internal fault, IAR does not respond. Read more about machinery breakdown insurance for Malaysian factories.

Talk to a P&E Insurance Specialist

Claim Scenarios: How IAR Responds

These scenarios show the practical difference between fire insurance and IAR coverage in real industrial settings.

In five of six scenarios, the factory with fire insurance receives nothing. The factory with IAR is covered. The fire policy only responds when there is actual fire. For more on flood-related claims, see our guide on water damage insurance for Malaysian factories.

Common IAR Extensions

Standard IAR policies can be extended to cover specific risks that are either excluded by default or need higher sublimits. Extensions carry additional premium but are often essential for specific industries.

The IAR Claims Process

Knowing what happens after a loss helps you prepare. IAR claims follow a structured process, and the speed of settlement depends heavily on how well you document the loss from day one.

For large claims, request an interim payment. If your claim is clearly valid and the only question is the exact amount, most insurers will release 50-70% of the estimated amount while the final figure is being agreed. This keeps your business running during the adjustment process.

What Your Broker Needs to Quote IAR

A detailed submission gets better terms. Underwriters price what they understand. Incomplete submissions get loaded with uncertainty margins that increase your premium.

Your broker should present this information in a structured submission. A well-prepared submission demonstrates that the risk is professionally managed, which directly influences the terms underwriters offer.

How IAR Fits Your Factory's Insurance Programme

IAR is the foundation of an industrial property insurance programme, but it doesn't work alone. Here is how IAR connects with other P&E coverages to create a complete programme.

A complete factory insurance programme typically includes IAR (property + BI), MB/MLOP (machinery), BPV (if applicable), CGL (liability), and WC (workers). Your broker should map these coverages together to eliminate gaps and avoid overlaps. See our factory safety compliance checklist for the complete operational framework.

Structure Your Factory's Insurance Programme

Frequently Asked Questions

What does IAR stand for?

IAR stands for Industrial All Risks. It is a comprehensive property insurance policy that covers industrial and commercial property on an all-risks basis, meaning any sudden and unforeseen physical loss or damage is covered unless specifically excluded in the policy wording.

Is IAR insurance more expensive than fire insurance?

Yes, typically 20-40% more than fire insurance with equivalent special perils extensions. For a RM50 million factory, the difference might be RM10,000-25,000 per year. The broader coverage including accidental damage, theft, and water damage makes the additional cost worthwhile for most industrial operations.

Do I need both IAR and fire insurance?

No. IAR replaces fire insurance entirely. It provides everything fire insurance covers plus accidental damage, theft, water damage, and more. You choose one or the other. Having both would create overlapping cover and wasted premium.

What is the average clause in IAR?

The average clause reduces claim payments proportionally when you are underinsured. If your property is worth RM20 million but insured for RM10 million (50%), the insurer pays only 50% of any claim, even partial losses. Avoid this by insuring at full replacement value and obtaining a professional reinstatement valuation every 3 years.

Does IAR cover flood damage?

Yes. Flood is generally covered under IAR because it is not a standard exclusion. However, properties in flood-prone areas may face higher deductibles or sublimits for flood claims. Fire insurance requires a separate special perils extension for flood coverage, and even then, coverage terms may be more restrictive.

Does IAR cover machinery breakdown?

No. Internal mechanical or electrical failure of machinery is a standard IAR exclusion. IAR covers damage to machinery from external causes like fire, flood, or impact. For internal failures (motor burnout, bearing seizure, electrical faults), you need separate Machinery Breakdown / MLOP insurance. This is the most commonly missed gap in factory insurance programmes.

Can a factory tenant buy IAR insurance?

Yes. Tenants can insure their own contents, stock, machinery, and tenant's improvements under an IAR policy. The building structure is typically the landlord's responsibility. Check your lease agreement for specific obligations. Some leases require tenants to insure specific items or contribute to the building's insurance costs.

How long does an IAR claim take to settle?

Small material damage claims (under RM500,000) typically settle within 2-3 months. Large claims involving business interruption can take 6-12 months because the BI calculation requires actual revenue data from the post-loss period. Request an interim payment for large claims so your business can continue operating during the adjustment process.

What is the minimum sum insured for IAR?

There is no formal minimum. However, IAR is most cost-effective for properties with total insured values above RM10 million. Below that threshold, fire insurance with special perils extensions may provide adequate protection at a lower premium. The decision should be based on your risk profile, not just the property value.

Does IAR include business interruption automatically?

No. Business interruption is a separate section (Section II) that must be specifically requested, separately valued, and included in the policy. Many factory owners skip BI to save premium, then discover the revenue loss during shutdown far exceeds the physical damage cost. Always include Section II and ensure the indemnity period is long enough for your specific rebuild timeline.

Conclusion

For industrial property owners in Malaysia, the choice between fire insurance and IAR comes down to how much risk you are willing to retain. Fire insurance covers the basics: fire, lightning, and explosion. IAR covers the scenarios that actually happen in factories, warehouses, and industrial facilities: accidental damage, water damage, theft, and the revenue loss that follows.

Foundation structures IAR programmes for manufacturing plants, logistics facilities, cold storage operations, semiconductor fabs, chemical plants, and industrial complexes across Malaysia. We understand COPE analysis, know how to present risks to underwriters, and negotiate terms based on your specific risk improvement features.