What is the most important part of your manufacturing activity The factory, the store manufacturing activity Perhaps all of them? If you are in manufacturing, these three comprise of your entire business, and damage to any of these directly affects your earnings.
You may try and minimize the chances of predictable harm, mishandling, wastage, etc. of the machines, building, and material, but there will always be a minuscule chance of a mishap. Even with all the technology and expertise, it’s not possible to entirely rule out natural calamities, burglaries, break-ins, theft, etc.
Therefore, it becomes imperative that some damage control and repair mechanism is used to not just minimize the damage but also, to ensure that business remains financially sound. It can be achieved through insurance, and the type of insurance you will seek to ensure the safety of your business’s health is the ‘factory and warehouse insurance.’
What is it?
Factory and warehouse insurance, as the name suggests, offers to cover the hazards (damage risks) a plant or a warehouse could be exposed to, for example, flooding, fire, lightning strike, burglary, breakdown, etc.
If by any chance, any of the goods, machinery or the building gets damaged by any of the incidents covered under the policy; the insurer shares the burden of loss with the insured business.
What is covered?
While running a manufacturing unit, you must be aware of the multitude of assets your unit has that are exposed to various levels of risks. For example, the building itself needs routine repairs, the storehouse must be regularly checked for seepage, etc., and all these assets have different value to your business.
Under the comprehensive cover the following assets can be included:
- Factory and Warehouse Building
- Money in the safe or cash drawer
- Raw, in process and finished stocks
Machinery have a separate insurance for static parts, though you can cover the business interruption costs due to machine failures. Thus, comprehensive cover for your factory and warehouse will also cover:
- The Cost of business interruption and
- Any third-party liability (public liability) arising due to damage to plant and warehouse.
How to Get it?
It’s a simple three-step process:
Step 1: Identify the assets you need to cover with insurance
(Remember that assets that deteriorate quickly or are moving machine parts like conveyor belt etc. are not insurable)
Step 2: Evaluate offers from different insurers
Step 3: Complete the documentation and pay the premium
Identifying your valuable assets is important, though the valuation for the insurance will be done by the surveyor from the insurance company. This is one of the hidden benefits of buying factory and warehouse insurance. The insurance assessors are usually very experienced professionals in warehouse safety and structure, and their reports and suggestions can be quite useful for your business in making your storage safe and also enjoying a good discount on the premium for the policy.
Key Factors that can Influence the cost of insurance are as follows:
- Age of the structure and machinery
- Type of Materials/Chemicals used in the factory (flammable/corrosive/non-flammable etc.)
- Arrangement of fire and hazard control systems
- Electronic Security and surveillance systems etc.
- Reinstatement or Cash value basis
How Will It Work?
Well, insurance kicks in whenever there is a mishap like, fire due to reasons excluded in the agreement with the insurer, and the fire damages the building or the goods within the building. That does not mean that insurer will pay off or share every amount of loss.
Most general insurance policies follow proportionate, deductible and co-pay rules. This means that the business will have to bear the loss up to a certain amount or share the burden with the insurer or both.
Proportionate clause kicks in whenever there is a gap between the actual value of the asset and the sum assured purchased.
For example, your warehouse had goods worth Rs. 5 crores when the accident occurred and the sum assured on your storage insurance is of Rs. 4 crores. If goods worth Rs. 100,000 have been destroyed in the accident insurer will be liable for only Rs. 80,000 (100000 x 4/5).
Where to Buy?
As discussed earlier the covering your manufacturing unit along with the ancillaries can be a simple three step process. Once you are through with step one, you will need to connect to various insurers to understand and compare their plans. This can be done the traditional way by manually comparing each of the plans and then selecting one or two based on your needs. But a faster way to compare and choose is through the web portals offered by insurers and insurance brokers. Insurance brokers in this category have the advantage over individual insurance companies as they can provide quotes from multiple insurers.