Fire Insurance vs Property All Risk (PAR) Insurance: A Guide for SMEs in Southeast Asia
Small and medium-sized enterprises (SMEs) in Southeast Asia face various property risks – from fires to floods and theft. Two common insurance types can protect business assets: Fire Insurance and Property All Risk (PAR) Insurance. Below, we explain each in plain English – what they cover, what they exclude, who they protect, real examples, and whether they're mandatory or optional across Southeast Asia.
Fire Insurance
What is Fire Insurance?
Fire Insurance is a type of property insurance that covers damage to your business property caused specifically by fire. It's a financial safety net if a fire breaks out and destroys or damages your building, inventory, equipment, or other assets. Fire policies usually also cover related perils like lightning strikes and explosions of domestic gas appliances.
For example, if lightning hits your shop and causes a fire, or a gas cooker explodes and ignites a blaze, a Fire Insurance policy would compensate you for the loss. Essentially, it helps pay the cost of repairing, rebuilding, or replacing property after a fire so your business can recover.
What Does Fire Insurance Cover?
A basic Fire Insurance policy typically covers losses directly caused by:
- Fire – e.g. flames from an accidental blaze in the office
- Lightning – if lightning directly causes a fire or damage
- Certain Explosions – for instance, explosion of a gas stove or gas tank on the premises (if included in the policy)
Importantly, Fire Insurance policies can be extended (for an extra premium) to cover additional hazards often called "allied perils." These add-ons might include damage from disasters or events like storms, floods, earthquakes, burst water pipes, impact from falling objects, riots, etc.
Common Exclusions (What's Not Covered)
Fire Insurance is a named-peril coverage, meaning it only covers the specific causes listed in the policy. Anything not listed is generally excluded unless added via extension. Some common exclusions and limitations include:
- Other perils not added – Damage from causes like typhoons, earthquakes, burst pipes, or impact by vehicles won't be covered by a basic fire policy unless you have bought those extensions
- Deliberate Acts or Negligence – If the fire was intentionally caused by the insured (arson) or due to gross negligence, the claim can be denied
- War or Nuclear Risks – Almost all insurance (including fire policies) excludes war, armed conflicts, or nuclear radiation-related damage
- Minor scorching without fire – Typically there must be an actual ignition. For example, mere charring or heat damage without open flame might not qualify
- Consequential losses – Basic fire insurance usually won't cover business interruption (lost profits due to the downtime) unless you have a separate or add-on cover for that
Who Does Fire Insurance Protect?
Fire Insurance primarily protects the business owner or property owner – i.e. the person or entity who buys the policy (the insured). It ensures that if a fire damages your business assets, you (the business) don't bear the full financial loss.
- If you own your building, fire insurance protects your building and contents. If you rent your premises, you can still buy fire insurance to protect your contents, equipment, or any interior improvements you paid for.
- If you are a landlord, fire insurance on the building protects your property interest (so you can repair the building after a fire instead of losing that asset).
- Employees and customers are not directly covered by a fire insurance policy – it won't pay out compensation for an employee's injury or a customer's losses due to a fire. It only covers damage to the insured property.
Real-World Examples of Fire Insurance in Action
Example 1: Retail Shop Fire
A small retail shop in Singapore has an electrical fire after hours, destroying stock and fixtures. Because the owner purchased Fire Insurance, the policy covers the cost of rebuilding the burnt section of the shop and replacing the destroyed inventory. This means the shop can reopen after a few weeks, with the insurance paying out instead of the owner absorbing hundreds of thousands in losses.
Example 2: Factory Blaze
A manufacturing SME in Malaysia suffers a factory blaze due to a machine overheating. The fire destroys expensive machinery and part of the building. The company's Fire Insurance policy pays for the factory repairs and helps replace the damaged machines. Without fire coverage, the SME might have gone bankrupt; with it, they rebuild and resume operations after several months.
Fire Insurance: Mandatory, Recommended, or Optional?
Regulations differ across Southeast Asia and India. Here's a summary for Fire Insurance:
| Country | Status | Notes |
|---|---|---|
| Singapore 🇸🇬 | Recommended | Not legally mandated, but required by banks for mortgaged properties and by many landlords in lease agreements |
| Malaysia 🇲🇾 | Recommended | No law requiring it, but banks mandate it for financed properties; considered essential for businesses |
| Vietnam 🇻🇳 | Mandatory for some | Compulsory for high-risk or large-scale businesses (e.g., tall buildings, large shopping centers); optional but recommended for others |
| Indonesia 🇮🇩 | Optional | Not legally required; banks may require it for financed properties |
| Thailand 🇹🇭 | Optional | No law requires it; lenders typically require it for mortgaged properties |
| Philippines 🇵🇭 | Effectively Mandatory | Required to obtain a Fire Safety Inspection Certificate, which is needed for business permits |
| India 🇮🇳 | Optional | Not legally mandated; banks typically require it for commercial building loans |
Property All Risk (PAR) Insurance
What is Property All Risk Insurance?
Property All Risk (PAR) Insurance – sometimes just called "All-Risks Insurance" or "Property All Risks" – is a comprehensive property insurance that covers loss or damage to insured property from almost any sudden and accidental cause, except for specific exclusions.
In plain terms, it is broader than basic Fire Insurance. Instead of naming only certain perils (like fire or lightning) that are covered, an All Risk policy covers "all" perils by default and will pay for any damage to your property unless the cause is explicitly excluded in the policy.
A simple way to think of it: if you have PAR insurance and anything bad happens to your property, you're likely covered regardless of whether it was a fire, a flood, a burglary or some other mishap, as long as it wasn't caused by something the policy excludes.
What Does Property All Risk Cover?
A standard property "all risks" policy for a business typically covers any sudden, accidental physical loss or damage to the insured property, unless excluded. Key perils covered usually include:
- Fire, Lightning, Explosion – All the basics that a Fire Insurance would cover are included in PAR by default
- Natural Disasters – Most all-risk policies cover many natural catastrophes such as floods, storms, cyclones, typhoons, earthquakes, wind/hail, tsunami, etc., unless excluded
- Accidental Water Damage – For instance, damage from a burst water pipe, leakage from sprinklers, or water tanks overflowing
- Impact and Other Accidents – Damage from things like a vehicle crashing into the building, a falling tree, or collapse of a structure
- Theft and Vandalism – PAR insurance usually includes coverage for losses due to burglary, break-ins, or vandalism damage
- Miscellaneous Accidents – Pretty much any sudden and unforeseen physical damage to your insured property
- Business Interruption (often optional) – Many PAR policies can include coverage for lost income if your business operations are halted due to an insured damage
Common Exclusions in PAR Insurance
"All Risk" doesn't mean literally every possible event is covered. There are standard exclusions even in an all-risk policy. Common exclusions include:
- Intentional Acts or Fraud – Deliberate damage caused by the insured or fraud is not covered
- War and Nuclear Risks – Damage due to war, insurrection, terrorism, or nuclear radiation is usually excluded
- Wear and Tear & Maintenance – Gradual deterioration, inherent defects, rust, corrosion, mold, or mechanical breakdown are typically not covered
- Pollution/Contamination – Unless caused by an insured peril accidentally, pollution damage is often excluded
- Data/Electronic Risks – Loss of electronic data or cyber-attacks are usually excluded from property policies
- Some Natural Calamities (if specifically excluded) – While PAR is broad, certain policies might exclude extremely high-risk perils or limit them
Who Does Property All Risk Insurance Protect?
PAR insurance protects the same group as fire insurance does – primarily the business owner (insured) and their property interests. It is a first-party coverage for the policyholder's property.
- It protects the business's assets: the building, contents, machinery, stock – whatever property you have insured – against a wide range of accidental losses
- It can also protect a landlord's property similarly
- If you're a tenant, you might get a PAR policy to cover your own equipment and interior improvements
- Like fire insurance, PAR does not directly cover third-party losses or injuries (you would need liability insurance for that)
Real-World Examples of PAR Insurance in Action
Example 1: Office Flood
A flood hits a town in Thailand, and an SME's office is inundated by water, ruining furniture, computers, and important documents. Under a basic fire policy, flood damage wouldn't be covered (unless flood was added). But the business had a Property All Risk Insurance policy, which automatically covers flood as it wasn't excluded. The insurer pays for new office furniture, computer replacements, and even covers cleanup costs. The policy also covers the business interruption for the month the office had to stay closed for repairs.
Example 2: Store Burglary
A burglary occurs at a retail store in the Philippines. Thieves break in overnight and steal a large amount of inventory and cash, also breaking the door and windows. With a PAR policy, the store owner's insurance covers the stolen merchandise's value and the repair of the broken storefront. (A simple fire policy would not have paid for theft losses.)
Example 3: Power Surge Damage
In Malaysia, a printing company's main printing press machine is severely damaged by a power surge that also causes a small fire. The Property All Risk insurance covers the fire damage and, importantly, also covers the damage to the machine from the electrical surge. The policy pays for repairs and the company is back in operation quickly. If they had only fire insurance, it might cover the fire effects but not the electrical damage to the machine unless specifically endorsed.
Property All Risk Insurance: Mandatory, Recommended, or Optional?
Generally, Property All Risk insurance is optional in all the given countries; it is not specifically required by law. However, it is widely recommended as a best practice for comprehensive protection. Since PAR coverage already encompasses fire coverage, buying a PAR policy usually meets any fire insurance requirements as well.
| Country | Status | Notes |
|---|---|---|
| Singapore 🇸🇬 | Optional | No legal mandate; many SMEs purchase all-risk insurance as part of business insurance packages |
| Malaysia 🇲🇾 | Optional | Not required by law; SMEs traditionally buy standard Fire Policy with add-ons, but comprehensive all-risk policies are available |
| Vietnam 🇻🇳 | Optional | Law only mandates narrower Fire and Explosion Insurance for certain establishments; PAR is voluntary but would satisfy the fire insurance requirement |
| Indonesia 🇮🇩 | Optional | No law compelling SMEs to buy property all-risk insurance; strongly encouraged given Indonesia's exposure to natural disasters |
| Thailand 🇹🇭 | Optional | No legal requirement; advised due to risks of fire, flood, etc., but left to business owner's discretion |
| Philippines 🇵🇭 | Optional (beyond basic fire) | Regulations require businesses to have fire insurance, but not a full all-risk policy; prudent given the Philippines is prone to natural disasters |
| India 🇮🇳 | Optional | No mandate; standardized fire insurance products for businesses cover named perils including fire, flood, cyclone, etc. |
Key Difference – Fire vs. All Risk
To clarify, Fire Insurance is a basic, named-peril policy (covering only fire and a few defined events), whereas Property All Risk Insurance is a broader form of coverage that includes fire and many other risks by default.
If you imagine insurance coverage as a spectrum, a Fire policy is a narrower slice of protection, and a PAR policy is a wide blanket that covers most untoward incidents that could damage your property.
Many SMEs start with a Fire Insurance (especially if it's required for loans or permits) and may later expand to a PAR policy as they understand the additional threats (like water damage or theft) that could affect their business.
Conclusion
SME owners in Southeast Asia should at least have Fire Insurance to cover the fundamental risk of fire, and seriously consider Property All Risk Insurance for more complete protection. By knowing what each covers and how they differ, you can make informed decisions to stay compliant with regulations and safeguard your business against unexpected disasters.