ISR vs business insurance: how to tell when you’ve outgrown small business insurance

A small business would mostly likely need to consider a business insurance policy to cover some general risks associated with running a small operation. But as your business evolves in size and complexity over time, the old policy may be insufficient to cover all of your risks. If your business operations and assets have grown substantially, it could be time to consider whether industrial special risk (ISR) insurance is a better fit.

What is ISR or industrial special risk insurance?

In a nutshell, ISR insurance is typically suitable for larger or more complex businesses with more than $10m in physical assets. It provides more comprehensive cover for your high value assets such as properties, commercial premises and equipment. Examples of businesses that may buy an ISR policy include manufacturers, warehouses, logistics firms, aged care providers, health care providers, and accommodation and hospitality.

Alternatively, a business insurance policy is typically suitable for small-to-medium businesses with less than $10m in assets. It is a packaged insurance product that offers a range of business-related insurance covers such as public and products liability, property, business interruption, theft, motor, management liability and more. Examples of businesses that may prefer a business insurance policy include professions, consultants, digital businesses, start-ups, retail and hospitality.

One of the benefits of an ISR can be that it is customised to the business, whereas business insurance packages are typically off-the-shelf.

Is ISR right for you?

While the decision to purchase industrial special risk insurance ultimately depends on your individual circumstances, there are some initial factors to consider, and discuss with your broker, when evaluating whether ISR is suitable for your business.

1. Does your business asset value exceed $10 million?
   Generally speaking, for ISR insurance to be financially feasible, your business needs to have assets in excess of $10 million. This could include physical assets such as buildings, equipment, stock and contents as well as your business interruption exposure. For example, you may have $3 million of physical assets but a gross profit at risk of $7 million should your property be damaged. This would still require an ISR policy to ensure you are properly covered in the event of a major incident.
   
   
2. Is it difficult to find an insurance product that covers all your risks and needs?
   If your business has large value assets, complexities or niche exposures, it may be difficult to find one insurance product to cater for all of your risks. In this instance, a one-size-fits-all business insurance package may no longer work for you. You may need to consider an ISR policy in addition to other insurance policies and solutions.
   
   
3. Does your insurer suddenly require substantially more information about your business?
   The bigger and more complex your business becomes, the more information your insurer will need to ascertain whether they can provide the cover you need, and at what cost.
   
   In this instance you may need to engage additional expertise such as an insurance broker, valuer or other specialists before an insurer can give you a quote or cost estimate.
   
   Some examples of additional information the insurer may request include:
   - Risk engineering survey reports
   - Hydrant flow testing
   - Property replacement cost valuations
   - Business interruption assessments
   - Thermographic scans of electrical switchboards.
   
   If your insurer starts asking you for such or more detailed information, it may be a sign that it’s time to switch from a business insurance policy to an ISR policy.
   
   
4. Are there any risks you can no longer manage through insurance?
   While insurance is a great way to transfer and manage your risk, not all risks can be transferred onto an insurer.
   If your business has risks that potentially fall outside traditional insurance, you ought to consider conducting a risk review. A risk advisor with expertise in your industry can help guide you through the process, identify and assess your business risk exposures, provide insurance guidance, negotiate competitive pricing from the insurance market, as well as explore alternative risk transfer solutions if necessary.

In a nutshell

Assessing your business’s assets, risk exposure and obligations with the help of an expert broker can help you determine whether industrial special risk insurance is necessary, and whether you need to supplement it with other solutions or programs. Industrial special risk insurance is a comprehensive and tailored product designed to protect businesses with high value assets or complex risk exposures and needs. To find out if this is the right product for you and learn about how it can provide financial support to help protect your business during challenging times, please contact a Marsh risk advisor.

This is a general overview of the policy. Please call us and ask for a copy of the insurer’s policy wording. We recommend you read the policy wording so you have an understanding of the policy terms, conditions and exclusions before you decide whether this policy suits your needs.

LCPA 23/279