What it means
The name promises more than it delivers. No policy covers literally everything, and standard exclusions include wear and tear, gradual deterioration, faulty workmanship, war, nuclear events and frequently flood and earthquake unless bought back separately.
What makes the cover valuable is where the burden of proof falls. Under a named perils policy the claimant must show the damage came from a listed cause such as fire or theft, whereas under all risks the claim is payable unless the insurer can point to a specific exclusion.
Insurers increasingly label these policies open perils or special form rather than all risks, partly because regulators dislike the implied promise of total protection. The substance is unchanged, and the exclusions schedule is where the real negotiation happens.
All risks cover costs more than named perils, and the gap is the price of the broader wording plus the harder-to-predict claims it attracts. Buyers should compare the exclusions and sub-limits rather than only the headline premium, because a cheap all risks policy with twenty carve-outs can be worse than a well-drafted named perils one.
The wording also matters for unusual losses. Mysterious disappearance of stock, accidental spillage of a chemical batch, or a machine damaged by an unexplained power surge are the sorts of events that often fall outside a named perils list but inside an all risks policy.
In practice
Real-world examples.
Example
A jeweller's display case is emptied overnight with no sign of forced entry. The named perils policy next door would have refused the claim because burglary requires visible entry, but the jeweller's all risks wording pays the $140,000 loss as an unexplained disappearance.
Example
A construction firm's mobile crane is damaged when a subcontractor reverses into it on site. The all risks contractors policy covers accidental damage without the firm having to argue that the incident fits a listed peril such as collision or vandalism.
Example
A gallery ships a sculpture between two cities and buys all risks transit cover for the $600,000 piece. When the crate is dropped during loading, the insurer pays the restoration cost of $75,000 without a dispute about which named peril applied.
Formula
Calculation
There is no pricing formula a buyer can apply directly, but the purchase decision can be framed as a comparison: buy the broader cover if the extra premium is less than the probability of an otherwise uncovered loss multiplied by its size.
Harbourline Foods insures $5,000,000 of plant and stock. A named perils policy costs $18,000 a year while the all risks version costs $26,500, so the extra premium is $26,500 - $18,000 = $8,500. The broker estimates a 3% annual chance of a loss that a named perils policy would refuse, with an average size of $400,000, giving an expected annual exposure of 0.03 x $400,000 = $12,000. Because $12,000 exceeds the $8,500 of extra premium, the all risks policy is worth buying, with an expected annual benefit of $12,000 - $8,500 = $3,500. If the broker had instead estimated a 1% chance, the expected exposure would be 0.01 x $400,000 = $4,000 and the extra premium would no longer be justified.Case study
Seen in the real world.
This is an illustrative and fictional account. Vellamo Brewing insured its plant on a named perils basis to save $9,000 a year in premium, on the reasoning that its main hazards were fire and theft and both were listed.
In the second winter a heat exchanger failed and released glycol into a fermentation tank, ruining $310,000 of product. The cause was neither fire nor theft nor any other listed peril, and because contamination was not on the schedule the claim was declined in full.
The fictional finance director moved the programme onto an all risks wording the following year at an extra $11,500 a year, and negotiated the exclusions line by line rather than accepting the standard schedule. The illustrative point is that the cheaper policy was cheaper only until the company had a loss its list had never imagined.
Watch out
Common mistakes.
- Reading all risks as covering absolutely everything, when the exclusions schedule can run to several pages and often removes flood, earthquake and gradual damage.
- Comparing two quotes on premium alone without reading the exclusions and sub-limits, which is where the two policies actually differ.
- Assuming all risks removes the deductible, when the excess still applies to every claim and a high excess can make broad cover almost worthless for smaller losses.
Questions
People also ask.
Who has to prove a claim under an all risks policy?
The policyholder must show there was sudden accidental physical damage and quantify it, after which the insurer must prove an exclusion applies if it wants to decline.
Why do insurers now call it open perils or special form?
Because all risks overstates the cover and has produced disputes, so most markets prefer wording that does not imply an unlimited promise.
Is all risks always the better buy?
Not always; for simple, low-value or highly standardised exposures, a named perils policy at a lower premium can be perfectly adequate, and the saving can be put towards a higher limit.
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