If there was a fire in a factory, till sometimes now, insurers did not pay claims for the equipment that caused it. The policy only paid for damages caused to other equipment and premises as a result of the fire. From now on, after the Insurance Regulatory Development Authority (IRDA) allowed partial freedom of wordings, the equipment that caused the fire is also being covered at a little extra premium.

For the first time, a general insurer has started covering ‘exclusions’ at a slightly higher premium after the Insurance Regulatory Development Authority (IRDA) allowed partial freedom of wordings. ‘Exclusions’, in insurance parlance, relate to developments where insurers will not come up with a compensation.

These are explicitly mentioned in policy wordings of any insurance policy. For instance, till sometime ago, if there was a fire in a factory, insurers did not pay claims for the equipment that caused it. The policy only paid for damages caused to other equipment and premises as a result of the fire. From now on, the equipment that caused the fire is also being covered at a little extra premium.

In insurance parlance, the event of not covering the equipment which sparks off the fire is called the dynamo clause. “We are doing away with the dynamo clause in any industrial policy at an extra premium. These are exclusions that have been part of the standard wordings for quite sometime. However, they did not make much sense. Hence, we have decided to cover these too,” said Richard Wulff, chief underwriting officer, HDFC Ergo General Insurance Co.

“Industrial clients were losing out as a result of the dynamo clause, since, despite having an insurance policy, they had to shell out a sum to replace the equipment that caused the fire. There have been several cases in different industries where insurers have not paid for replacing the equipment causing trouble,” said a senior insurance analyst.

Similarly, if a machine rotating at high speed, like a mixer, broke and damaged other equipment in the vicinity, the rotating machine would not have been eligible for claims earlier. Mr Wulff added: “If a fire is the result of a turbine in an industrial workshop, the affected equipment around it would qualify for payment of claims but not the turbine.”

Source: Economic Times