What is an ISR policy,
really.
Industrial Special Risks is one of the broadest commercial property wordings available in the Australian market. It's written on an all-risks basis and bundles property damage with business interruption in a single contract. Below is what's inside it, how it's priced, and how to know whether you should be on one.
An ISR policy in one sentence.
A broad-form commercial insurance contract written on an all-risks basis that combines physical property loss (Section 1) with the financial consequence of that loss (Section 2) inside a single wording.
The modern Australian ISR wording traces back to the ISR Mark IV template, a widely adopted market standard. Most major insurers write their ISR product on some variant of Mark IV, with their own endorsements layered on top. That's why two ISR policies are never identical. The bones are the same; the extensions, sub-limits, and exclusions differ.
You'll see it sold under names like Commercial Property, Business Property, or Property Damage & Business Interruption. If the wording is on an "all risks" basis and runs declared values against a combined limit of liability, you're on an ISR or a very close cousin.
Named perils vs all risks: the load-bearing distinction.
A named-perils policy lists the events it will respond to. Fire. Storm. Impact. Water damage. If your event isn't on the list, there's no cover, even if nobody thought to exclude it.
An all-risks wording does the opposite. It presumes cover for every accidental, sudden, unforeseen physical loss and then lists exclusions. The burden shifts. To deny a claim, an insurer has to identify a specific exclusion that applies, not simply note your peril wasn't listed.
A forklift battery starts a smouldering fire at 3am. The sprinklers activate, extinguish the fire in minutes, and then continue to run for two hours before anyone gets on site to shut the system down. Building damage is minor. Water damage to stock is severe.
On a named-perils policy you would argue about whether this is "fire" or "water damage" or "sprinkler leakage" and whether each one was named. On an ISR, the insurer carries the burden of identifying a specific exclusion that applies, and in this scenario none obviously does.
Scenario presented for illustration only. Every claim is assessed on its own facts and the specific policy wording in force at the time of loss.
The most common exclusions on an ISR are war, nuclear, wear and tear, inherent vice, gradual deterioration, mechanical breakdown (unless separately insured), cyber, and faulty design. Everything else is in, unless your insurer writes a specific endorsement.
The physical loss. What it replaces.
Section 1 responds to sudden, accidental, physical loss or damage to insured property at the insured situation. The declared value is almost always at replacement cost, which is the cost to rebuild or replace with new-for-old, not market value and not depreciated value.
The structure itself, foundations, roofing, fixed plant, landscaping where scheduled. Replacement cost means rebuild at current construction rates, not the sale price of the land plus building.
Fit-out, leasehold improvements, tools of trade, production plant, office contents. Valued new-for-old at the time of loss.
Raw materials, work in progress, finished goods. Valued at cost for manufacturers, at landed cost for wholesalers, at retail selling price only where specifically endorsed.
Clearing a destroyed site. Budget 10-20% of the combined building plus contents value. Total losses produce genuinely large debris bills, and underinsuring this line is a common expensive mistake.
The financial consequence. What it keeps running.
When Section 1 responds, Section 2 typically responds too. It replaces the income the business would have earned if the insured damage hadn't happened, for the duration of the indemnity period.
The most common basis is gross profit: turnover less variable costs (purchases, freight, commissions). Gross profit holds up the fixed costs that don't stop just because the building is closed: rent, rates, salaries, loan repayments, debt service, accounting fees. Without Section 2, those fixed costs eat through working capital fast.
The length of time the policy will pay to bring you back to the financial position you would have been in. 12 months is the default. It is rarely enough for manufacturing. Lead time on replacement plant, council approvals, rebuild time, and the commercial reality of customers already sourcing elsewhere all compound. 18, 24, and 36 months are common for real industrial risks.
Payroll cover can be written at 100% for the whole indemnity period (keep every wage on the books) or on a dual basis: 100% for the first 4-13 weeks, then a remainder percentage (e.g. 50%) for the balance. Dual payroll is cheaper and matches the reality that you'd probably restructure headcount if a long outage hit.
Increased cost of working pays for extra expenses you incur to avoid or reduce the business interruption loss: renting a temporary premises, hiring temporary plant, express freight, contract manufacturing. Additional ICOW covers expenses that don't reduce the loss economically but you'd incur anyway to protect long-term customer relationships.
Prevention of access (can't get to your premises because a neighbour's building burnt down). Public utilities (your site was fine but the substation wasn't). Suppliers extension (your key supplier burnt down and you can't get inputs). Customers extension (your key customer burnt down and your sales collapse). These are negotiated, not assumed.
Where policies differ most.
The combined Section 1 + Section 2 limit of liability is the maximum the insurer will pay for any one event. Underneath that, a long schedule of sub-limits caps specific extensions and categories. Get these wrong and the overall sum insured looks fine while the actual claim falls short.
The sub-limits that matter most in practice:
- Theft without forcible entry
Standard theft covers forcible entry. Shoplifting, slip-and-grab, and opportunistic theft without a forced door need this separate sub-limit. Undersized for hospitality and retail by default.
- Money on premises / in transit / in safe
Cash only. Sub-limits vary wildly. A bar takes different amounts than a jeweller. Set it for your actual Friday night float, not for the template.
- Glass replacement
Shopfronts with large frameless glass panels can blow the default sub-limit with a single accident. Check it against the actual pane value.
- Additional extra cost of reinstatement
Covers compliance upgrades when rebuild requires you to meet current codes. Rebuilds of older buildings routinely trigger this, and the default sub-limit is often too low.
- Removal of debris
Scheduled separately from the building value. Underinsured by default. At a total loss, the debris bill is real.
- Prevention of access
Business interruption caused by authorities or damage to surrounding property blocking your premises. Important for shopping centres, CBD sites, industrial estates.
- Unspecified suppliers and customers extension
Applies only up to a sub-limit. For a site with a single critical supplier, this sub-limit is structural to your business survival.
- Claims preparation costs
The cost of bringing in accountants, quantity surveyors, and specialists to prove the loss. Major claims take months to quantify and you shouldn't be paying out of pocket.
The underinsurance trap.
ISR policies apply co-insurance (also called "average"). If your declared value is less than a set percentage of the true replacement value at the time of loss (typically 80% or 85%), you become a co-insurer for the shortfall. That applies even on partial losses.
Even though the loss was well below the sum insured, the average clause cuts the payout because the site was underinsured at the time of the loss. A fresh quantity surveyor valuation every two or three years is the simplest way to not get caught.
What underwriters actually look at on a site.
ISR pricing turns heavily on construction. Two identical businesses in different buildings price very differently. The materials, the age, and the protection drive the rate more than the turnover does.
Expanded polystyrene sandwich panel, common in cold storage, food processing, and pharmaceutical facilities. Once ignited, EPS burns fast and produces massive heat loads that can bring down a building before brigades arrive. Underwriters want exact floor-to-wall ratios, the backing material, and the fire barrier detailing.
If the site has EPS and no sprinklers, options narrow dramatically. Appetite comes back if compartmentation and suppression are rated.
Aluminium composite panels. After Grenfell and multiple Australian high-rise incidents, PE-core ACP is essentially uninsurable on residential, heavily loaded commercial. FR-core and A2-rated panels are treated far more favourably. The specific product, batch, and installation detail need to be documented.
If you don't know what grade of ACP is on your building, get a fire engineer's report before the next renewal.
Widespread in pre-1990 commercial buildings. Doesn't disqualify the risk. Does mean rebuild cost and post-loss remediation protocols are specific, which affects the reinstatement clause. Insurers ask for location and type.
Forklifts, e-bikes, scooters, solar storage. Lithium batteries in thermal runaway are a known ignition source, and insurers now price charging areas separately. Dedicated fire-rated charging rooms with isolation and detection are rewarded. Chargers in general warehouse areas are penalised.
Age of wiring and the switchboard, plus date of the last qualified electrical inspection. Electrical fault is a leading cause of commercial property fires. An in-date thermographic inspection report carries real weight at renewal.
Sprinklers first. Then smoke detection (hardwired over battery), fire alarm monitoring back to brigade or security, hydrants, hose reels, extinguishers. Town water supply, distance to nearest brigade, and whether that brigade is permanently staffed or volunteer all feed directly into the rate.
Perimeter deadlocks, window bars on ground level, skylight protection, monitored alarms (GPRS, dedicated line, or digital dialler), CCTV, and whether the monitoring company has authorised access for alarm verification. Theft sub-limits respond to the quality of protection disclosed at bind.
Where the two products actually diverge.
The crossover point is not a hard rule. It's about complexity. A simple cafe with $500k of fit-out is a business pack. A cold-storage operator with $8M of stock, a 24-month lead time on the refrigeration plant, and a dozen suppliers they rely on is an ISR. The question is less what you'd pay and more what has to respond if something goes wrong.
Plain-English version of the comparisonSignals an ISR is the right wording for you.
- →Combined building, contents, and stock over roughly $3 million
- →More than one location you need to insure together
- →Custom or long-lead-time plant and machinery that drives your revenue
- →A single critical supplier or customer whose loss would interrupt you
- →Mortgagee or financier requiring specific insurance clauses on the policy
- →Operations that couldn't bounce back in 12 months after a total loss
- →Temperature-sensitive or high-value stock where spoilage alone justifies broader cover
- →Heritage, ACP, EPS, or other construction features that need negotiated terms
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