In business risk is inevitable. Fire, lightening, explosion or implosion, riots and terrorism damages can cause losses to your business, making it unavoidably to take a cover against these perils. Apart from this, it is necessary to check whether the policy you have taken gives you maximum protection. Especially, companies with complicated business models and dealing with expensive items on a daily basis should be adequately covered against the unforeseen contingencies. What should you look at before taking a cover against business risk?
While taking a policy, make sure the amount from the policy will be sufficient to re-establishment your business in case of total damage. Insure major risks above the market price and see that it is included in the policy document.
There are various types of policies available in the market depending on the needs of the customers including policies which cover operational, property risks, liability and third party risks.
Cover for operational and property risks
Protection against fire: Insurance companies offer protection against fire and related issues in a business. Damages caused by natural calamities like lightening, flood and forest fire are included in the fire-related cover. The protection ensured by each policy can vary on the nature of business. Fire and special peril cover have an inbuilt STFI cover (storm, tempest, flood, and inundation). An industrial all risk policy covers all the standard risks including earthquake and comes with benefits of a standard fire policy. Contractor's all risk policy and erection all risk policy cover offices, buildings and plants which are under construction and protects the plant & machinery against any unforeseen risk during the time of construction.
Declaration policy: The stock value can fluctuate at a given time. To avoid the need to adjust the sum assured according to the changing stock value, a stock declaration policy can be taken. A provisional premium of 75% of the estimated sum assured shall be paid by the policy holder. If the stock value is lower than the sum assured, there is a provision to get back the remaining amount out of the paid premium.
Floater policy: To ensure single protection of stocks at different location, a floater policy can be taken. Protection taken for stocks at single location would not be sufficient to cover the loss sometimes. Floater policies will help to cover the whole stock irrespective of the location. Single sum assured is applicable for all stocks in all locations.
Loss of profit policy: One can utilise loss of profit policy while re-establishing the business due to damages caused by any of the specified perils covered under the insurance policy. If the business is insured by loss of profit policy, the amount of loss due to any interruption caused by the delay in re-establishment of the businesses can be paid to the insured. Sum assured depends upon the gross profit. Gross profit can be calculated either by adding net profit and standing charges or the difference between the turnover and the variable expenses. Inadequacy of sum assured will proportionately reduce the loss payable. The premium of this policy will be 1.25 times of the base premium for the fire insurance policy.
Burglary policy: This policy is designed to cover damage of the property insured by theft. This policy encompasses full value insurance where in full value of the property can be insured and first loss policy under which only a percentage of the property is insured.
Machinery breakdown policy: It covers financial loss arising on damage to the machinery due to unexpected breakdown. In this policy, the sum assured for the particular machine should represent the present day purchase value of a similar new machine.
Coverage against liability, third party risks
Professional indemnity policy: "Professionals like charted accountants, certified financial planners and architects can cover the risk of errors and omissions committed by them while rendering professional service through this policy," Suresh Sadagopan who runs ladder 7 financial services. Only civil liability claims which are insured with a specified sum are covered under this policy.
Directors and officers liability insurance: Directors and officers, who are widely exposed to liability on account of their wrongful act towards shareholders, customers, suppliers, creditors, employees and other third parties, can be covered under this policy.
"Very often directors and officers are personally exposed to legal action that may point fingers at their management role. Not only could this exhaust a company's assets, it could also drain a director's or officer's personal wealth," says TA Ramalingam, head-underwriting, Bajaj Allianz General Insurance
Workmen compensation policy: This policy provides insurance against any bodily injuries or medical emergencies during the course of employment. Annual income of the employee is considered as the sum assured. The nature of employment and wages are the criteria for premium calculation.
Money in transit policy: Insured under this policy can be protected against the loss of cash, currency notes, coins and securities for money while in transit to any destinations. This policy along with the fidelity guarantee option may indemnify the employers against the financial loss on account of forgery, defalcation and fraudulent conversion by employees.
Key man insurance: Key-man insurance is a life insurance policy taken on the life of a key-man with a view to providing liquidity, financial strength and indemnity to the business organisation in case of losses on account of death, absence or exit otherwise of its key-men from the business.
Terrorism cover: The India Market Terrorism Pool was set up in 2002. The General Insurance Co manages a pool of fund for terror insurance of `1,200 core as mandated by the Insurance Regulatory and Development Authority.
"For property related risks, the India Market Terrorism Pool has a per risk capacity of `750 crore and the rates, terms and conditions are pre defined. Whether the rates would harden as a consequence to the said incident is difficult to state at this stage and the decision has to be taken by the underwriting committee of the pool, which would need Irda's approval too. For risks, whose capacity is beyond the pool capacity, the international market provides capacity and some hardening of rates could be expected," says Rajive Kumaraswami, head risk and re-insurance, ICICI Lombard.
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There are various types of policies available in the market depending on the needs of the customers including policies which cover operational, property risks, liability and third party risks.
Cover for operational and property risks
Protection against fire: Insurance companies offer protection against fire and related issues in a business. Damages caused by natural calamities like lightening, flood and forest fire are included in the fire-related cover. The protection ensured by each policy can vary on the nature of business. Fire and special peril cover have an inbuilt STFI cover (storm, tempest, flood, and inundation). An industrial all risk policy covers all the standard risks including earthquake and comes with benefits of a standard fire policy. Contractor's all risk policy and erection all risk policy cover offices, buildings and plants which are under construction and protects the plant & machinery against any unforeseen risk during the time of construction.
Declaration policy: The stock value can fluctuate at a given time. To avoid the need to adjust the sum assured according to the changing stock value, a stock declaration policy can be taken. A provisional premium of 75% of the estimated sum assured shall be paid by the policy holder. If the stock value is lower than the sum assured, there is a provision to get back the remaining amount out of the paid premium.
Floater policy: To ensure single protection of stocks at different location, a floater policy can be taken. Protection taken for stocks at single location would not be sufficient to cover the loss sometimes. Floater policies will help to cover the whole stock irrespective of the location. Single sum assured is applicable for all stocks in all locations.
Loss of profit policy: One can utilise loss of profit policy while re-establishing the business due to damages caused by any of the specified perils covered under the insurance policy. If the business is insured by loss of profit policy, the amount of loss due to any interruption caused by the delay in re-establishment of the businesses can be paid to the insured. Sum assured depends upon the gross profit. Gross profit can be calculated either by adding net profit and standing charges or the difference between the turnover and the variable expenses. Inadequacy of sum assured will proportionately reduce the loss payable. The premium of this policy will be 1.25 times of the base premium for the fire insurance policy.
Burglary policy: This policy is designed to cover damage of the property insured by theft. This policy encompasses full value insurance where in full value of the property can be insured and first loss policy under which only a percentage of the property is insured.
Machinery breakdown policy: It covers financial loss arising on damage to the machinery due to unexpected breakdown. In this policy, the sum assured for the particular machine should represent the present day purchase value of a similar new machine.
Coverage against liability, third party risks
Professional indemnity policy: "Professionals like charted accountants, certified financial planners and architects can cover the risk of errors and omissions committed by them while rendering professional service through this policy," Suresh Sadagopan who runs ladder 7 financial services. Only civil liability claims which are insured with a specified sum are covered under this policy.
Directors and officers liability insurance: Directors and officers, who are widely exposed to liability on account of their wrongful act towards shareholders, customers, suppliers, creditors, employees and other third parties, can be covered under this policy.
"Very often directors and officers are personally exposed to legal action that may point fingers at their management role. Not only could this exhaust a company's assets, it could also drain a director's or officer's personal wealth," says TA Ramalingam, head-underwriting, Bajaj Allianz General Insurance
Workmen compensation policy: This policy provides insurance against any bodily injuries or medical emergencies during the course of employment. Annual income of the employee is considered as the sum assured. The nature of employment and wages are the criteria for premium calculation.
Money in transit policy: Insured under this policy can be protected against the loss of cash, currency notes, coins and securities for money while in transit to any destinations. This policy along with the fidelity guarantee option may indemnify the employers against the financial loss on account of forgery, defalcation and fraudulent conversion by employees.
Key man insurance: Key-man insurance is a life insurance policy taken on the life of a key-man with a view to providing liquidity, financial strength and indemnity to the business organisation in case of losses on account of death, absence or exit otherwise of its key-men from the business.
Terrorism cover: The India Market Terrorism Pool was set up in 2002. The General Insurance Co manages a pool of fund for terror insurance of `1,200 core as mandated by the Insurance Regulatory and Development Authority.
"For property related risks, the India Market Terrorism Pool has a per risk capacity of `750 crore and the rates, terms and conditions are pre defined. Whether the rates would harden as a consequence to the said incident is difficult to state at this stage and the decision has to be taken by the underwriting committee of the pool, which would need Irda's approval too. For risks, whose capacity is beyond the pool capacity, the international market provides capacity and some hardening of rates could be expected," says Rajive Kumaraswami, head risk and re-insurance, ICICI Lombard.
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