Industrial All Risks (IAR) Insurance Malaysia

Your fire policy covers fire. What covers everything else?

Michelle Chin, Cert CII, Co-Founder, Foundation. Reviewed 8 September 2026.

A burst water main floods your factory floor at 2am. A forklift reverses into a production line. Copper wiring is stolen over a long weekend. A monsoon flood submerges your ground-floor stock. None of these are fire. Your fire insurance doesn't respond to any of them. But they're exactly the kinds of incidents that happen in Malaysian factories every month.

IAR (Industrial All Risks) insurance 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 — and it includes business interruption as standard under Section II. For factories with total insured values above RM10 million, IAR is the coverage that actually matches the risks you face.

This page covers:

• Do you need IAR? Quick assessment
• 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 intermediary needs to get you quoted

Find Out What IAR Would Cost for Your Factory

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.

Deductibles are set by the insurer and scale with the sum insured and the hazard, and they are usually higher for flood, subsidence and machinery perils than for the main fire section.

IAR is individually underwritten and there is no published rate schedule for the class. The lever you control is the quality of the risk information you present: a documented protection and maintenance story routinely produces better terms than an identical facility with no records.

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. Make sure your factory meets baseline compliance before your IAR survey — download our factory safety compliance checklist.

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.

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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 Intermediary 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 intermediary 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.

Get an IAR Quote — We'll Compare It Against Your Current Fire Policy

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 intermediary should map these coverages together to eliminate gaps and avoid overlaps. See our factory safety compliance checklist for the complete operational framework.

For a complete overview of what factory coverage should include beyond IAR, see our factory insurance buyer's guide.

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.

If you're currently on fire insurance and wondering whether IAR is worth the upgrade, the answer for most factories above RM10M in total value is yes. The 20-40% premium difference buys you coverage for the incidents that actually happen in factories — not just fire.

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.