What a business fire policy covers
A standard fire policy covers loss or damage caused by fire, lightning and explosion (for example, of domestic boilers or gas used for domestic purposes, depending on the wording). You choose which property items to insure, each with its own sum insured:
| Item | Examples |
|---|---|
| Building | The structure, if you own it |
| Renovation, fixtures and fittings | Ceilings, partitions, wiring, shopfront |
| Machinery and equipment | Production machines, compressors, forklifts in the premises |
| Stock | Raw materials, work in progress, finished goods, goods for sale |
| Office contents | Computers, furniture, files |
How to set the sum insured
- Building: the cost to rebuild, including demolition and professional fees, not the market price of the property.
- Machinery: the cost to replace with equivalent machines, including delivery and installation, where the policy is on a reinstatement basis.
- Stock: your highest expected stock value during the year, or ask about a declaration arrangement if levels swing a lot.
- Renovation: what it would cost to redo it today.
The average clause: how under-insurance cuts your claim
Most fire policies contain an average clause. If the sum insured is less than the actual value at the time of loss, the claim is reduced proportionally:
Claim paid = Loss × (Sum insured ÷ Actual value)
Example: machinery worth RM500,000 is insured for RM250,000. A fire causes RM100,000 of damage. The claim paid is about RM100,000 × (250,000 ÷ 500,000) = RM50,000, so half the loss comes out of your pocket.
Extensions to consider
- Flood: essential for premises in low-lying or flood-prone areas
- Riot, strike and malicious damage
- Storm, tempest and windstorm
- Impact damage from your own or third-party vehicles
- Bursting or overflowing of water tanks and pipes
Burglary and money in premises are usually separate policies. Consequential loss (business interruption) insurance covers lost profit and continuing expenses while you rebuild.
Reducing risk, and premium
- Keep fire extinguishers serviced and hose reels working
- Keep exits and aisles clear, and stack stock away from lights and wiring
- Check electrical wiring regularly, especially in older shophouses
- Store flammable materials properly
Good housekeeping lowers the chance of a fire, and insurers look at it when they price and accept the risk.
If you need to claim
- Make sure everyone is safe and call Bomba.
- Make a police report if required, for example for riot or malicious damage.
- Inform your agent or insurer as soon as possible.
- Take photos and videos before cleaning up, and don’t throw damaged items away until the adjuster says so.
- Prepare stock records, invoices and asset lists to support the claim.
Lulu arranges fire insurance for shops and factories. See fire insurance with Lulu.