The work done in each area is the underwriting starting point
Building regulations and insurers assess industrial property by the work done and materials handled in each area. The important distinction is not the size of the operation or the value at risk. It is how quickly a fire could grow, whether it could produce toxic smoke, and whether it could cause an explosion.
A single industrial building often contains production, raw-material storage, finished-goods storage, a workshop, offices and plant rooms. These are different risks under one roof and should be described separately. An insurer cannot assess the property accurately from a single generic description of the site.
A small office supporting the factory can usually be treated as part of the main operation when it has appropriate facilities and safety measures. A separate bulk solvent store cannot. When an area has its own material fire hazard, identify it in the insurance information.
The separate areas an industrial property owner should identify:
- Production areas where a process or material could spread fire rapidly, create toxic smoke or cause an explosion.
- Production areas with a more moderate fire risk.
- Lower-fire-risk production areas.
- Plant rooms housing the usually unattended mechanical or electrical services needed to run the building.
- Storage areas, with the stored materials and quantities recorded separately from the manufacturing process.
- Parking areas for more than 10 vehicles.
Source: National Building Regulations and Building Standards Act 103 of 1977, regulation A20 and Table 1 (Occupancy or Building Classification).
Flammable liquids: when a store needs closer attention
Building rules set limits on when a room used to store or process flammable liquids needs more robust safety measures. Fuel already held in a vehicle or machine is treated differently from stock kept in a store. The precise limits depend on quantity and the liquid's properties, so obtain competent advice before increasing stock or changing how it is stored.
It is easy to cross those limits without noticing. A workshop with drums of thinners, a maintenance store holding degreaser, a paint-mixing area or a small solvent-decanting operation can turn an ordinary store into an area needing its own separation, ventilation, spill containment and fire protection.
The insurance consequence is direct. The proposal form and the policy schedule describe the risk, and a description that does not disclose a flammable liquid store creates a disclosure exposure independently of any building control question. Where a loss adjuster later establishes that the quantity on site exceeded the threshold, the discussion moves from the fire itself to what the insurer was told about the building.
Source: National Building Regulations and Building Standards Act 103 of 1977, regulation A20(3).
Sprinkler design height, racking and the drift that follows an occupancy change
A sprinkler installation is designed against an assumed commodity, storage arrangement and storage height. It is one of the few controls that reliably changes the maximum loss a warehouse can sustain, and it is also one of the easiest to invalidate without any physical alteration to the system at all.
Racking installed higher than the design height, a change from palletised goods to plastic containers, block stacking where the design assumed aisles, a new mezzanine built without extending protection beneath it, or an obstruction placed under the sprinkler heads all defeat a correctly installed system. So does a control valve closed during maintenance and not reopened, which is the single most common cause of a sprinkler system failing to operate in a real fire.
None of these are visible on a schedule. All of them are discoverable in a walk-through, and all of them are discoverable by a loss adjuster afterwards. Where an insurer has made sprinkler protection a warranty or a condition precedent rather than a recommendation, the consequence of the drift is not a rating adjustment but a declined claim.
Source: National Building Regulations and Building Standards Act 103 of 1977, read with SANS 10400-T (fire protection) and SANS 10400-W (fire installation).
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Plant, machinery and the single irreplaceable machine
Industrial operations concentrate value in equipment rather than in structure. A buildings sum insured calculated on the shell will understate the replacement cost of the site once production lines, presses, ovens, compressors, chillers, cranes, conveyors and standby generation are added, and the causes of loss for that equipment are not the same as for the building.
Mechanical and electrical breakdown is excluded from a standard property policy. It belongs to a machinery breakdown or engineering class, which responds to the internal failure of the plant itself rather than to fire, storm or riot. Where the plant is critical to production, the associated machinery loss of profits cover is usually more important than the repair cost of the machine.
The question that reorders most industrial programmes is a simple one: which single item, if destroyed tonight, would take the longest to replace. A press with an eighteen month lead time from an overseas manufacturer sets the indemnity period for the whole operation, regardless of what the building would take to rebuild. Long-lead plant should be identified, its replacement lead time confirmed with the supplier rather than estimated, and the interruption cover built around that figure.
Read our business interruption insurance guide →
Riot, strike and the Sasria coupons an industrial site needs
Standard commercial property and business interruption policies exclude loss caused by riot, strike, public disorder, civil commotion and connected malicious damage. Sasria SOC Ltd, the state-owned special risk insurer, is the only insurer permitted to provide this cover in South Africa, and it is issued as a coupon attached to the underlying policy rather than as a standalone contract.
Industrial sites carry a specific version of this exposure. Labour action at the site, or at a neighbouring operation, is precisely the scenario the exclusion contemplates, and an industrial park can be affected by an event that never targeted the insured business at all. Stock and plant held in a warehouse are frequently insured for a much larger figure than the building itself, which makes a mismatch between the main policy sums insured and the Sasria coupon expensive rather than technical.
The more frequently missed gap is interruption. Sasria business interruption cover attaches to, and depends on, the underlying business interruption section. A factory with a Sasria material damage coupon but no Sasria business interruption coupon can lose months of production to a riot or strike event with no cover for the lost trading income.
Source: Insurance Act 18 of 2017; Sasria SOC Ltd, the state-owned special risk insurer for South Africa (FSP licence 39117).
Hot work, housekeeping and the controls that decide the likelihood
Welding, cutting, grinding and brazing carried out away from a designated area is the most consistent cause of avoidable industrial fires, and a hot work permit system is the control insurers ask about most often. A permit that is issued, records the fire watch, specifies the post-work observation period and is retained afterwards is evidence. A permit book with the last entry two years old is evidence of a different kind.
The statutory floor sits underneath all of this. The Occupational Health and Safety Act imposes a general duty on every employer to provide and maintain, as far as reasonably practicable, a working environment that is safe and without risk to health, and extends that duty to persons other than employees who may be affected by the undertaking. Where contractors are engaged, the Act permits the employer and the mandatary to regulate their respective duties by written agreement, and the absence of that agreement leaves the duty where the Act puts it.
Waste accumulation, obstructed escape routes, pallet storage against external walls, overloaded temporary wiring and blocked hydrants are all inexpensive to correct and all disproportionately represented in industrial fire causes. They are also the items most likely to appear on a survey report as requirements with a completion date.
Source: Occupational Health and Safety Act 85 of 1993, sections 8, 9 and 37, read with the Environmental Regulations for Workplaces and the General Safety Regulations.
COMMON QUESTIONS
Factory and warehouse insurance questions, answered clearly.
Why do insurers need to know what happens in each industrial area?
Industrial risk depends on how a process or material behaves in a fire. Materials or processes that could spread fire rapidly, create toxic smoke or cause an explosion need different safety measures from lower-fire-risk work. Describe each area by its actual use so the insurer can assess the property accurately.
When should we ask about flammable-liquid storage?
Ask before increasing the quantity of paints, thinners, solvents, degreasers or other flammable liquids, or before changing where they are kept or processed. Quantity and the liquid's properties affect the required safety measures, so obtain competent advice and disclose the area to the insurer.
Does a warehouse and a factory need to be insured separately?
They do not need separate policies, but they need separate descriptions. Production and storage involve different activities and materials, and an insurer cannot assess the whole property accurately as one generic risk.
Why does racking height affect a sprinkler system that was correctly installed?
A sprinkler installation is designed against an assumed commodity, storage arrangement and storage height. Racking above the design height, a change of stored commodity, block stacking where aisles were assumed, or a new mezzanine without protection beneath it all defeat a system that is otherwise in working order.
Is machinery breakdown covered by a commercial property policy?
No. Mechanical and electrical breakdown is excluded from a standard property policy because the cause of loss is internal to the plant rather than fire, storm or riot. It belongs to a machinery breakdown or engineering class, usually alongside machinery loss of profits cover where the plant is critical to production.
How should the indemnity period be set for a factory?
By the longest replacement path on the site, which is frequently a single item of plant rather than the building. Confirm lead times with the supplier rather than estimating them, and build the period around demolition, rebuild, procurement, installation, commissioning and the return to full production.
Does Sasria cover a loss caused by labour action at the site?
Riot, strike, public disorder and civil commotion are excluded from standard property and business interruption policies and are covered only by a Sasria coupon attached to the underlying policy. Both a material damage coupon and a business interruption coupon are needed if the loss of trading income is to be covered as well as the damage.
Why do insurers ask about hot work permits?
Welding, cutting, grinding and brazing carried out away from a designated area is the most consistent cause of avoidable industrial fires. A permit system that records the fire watch and the post-work observation period, and that is actually being used, is auditable evidence of a control an insurer can rely on.
Is stock held for a third party covered under our policy?
Not automatically. Goods held on behalf of customers or suppliers need to be identified and disclosed, since the insurable interest, the valuation basis and the liability position all differ from the insured's own stock.
What happens if the process in the building changes?
A process change can alter the building's fire risk and may mean the approved use or safety measures need to be reconsidered. Tell the insurer before making the change, and confirm that the building is suitable for the new activity rather than assuming the existing arrangements still apply.
