Suvidha Insurance Broking Pvt. Ltd. is an IRDA approved Insurance Broker (Direct General) (Licence No. DB-218/03; 264) for non-life sectors of insurance authorized to provide risk management and other insurance related services.

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Consequential Loss (Fire) Insurance Policy

Home Consequential Loss (Fire) Insurance Policy

Consequential Loss (Fire) Insurance Policy

Introduction

Fire and Special Perils Policy compensates only for Material Damage to the insured property. It specifically excludes any consequential loss.

In case of a major loss caused by Fire, there could be an interruption in business operation leading to reduction in turnover finally resulting in possible loss of profits. However, standing or fixed charges continue to accrue regardless of whether there is any production or not. Such loss cannot be covered under Fire policy.

Consequential Loss Policy compensates for the Revenue loss suffered by the enterprise. Hence, for complete protection to the business enterprise and its profitability Consequential Loss Policy is very essential in addition to Fire Insurance Policy.

Scope of cover

The Policy broadly covers loss of Net Profit on account of interruption of business, consequent upon Material Damage to property due to Fire or any other insured peril under the Standard Fire and Special Perils Policy.

It also covers standing charges which continue to be incurred during the period of interruption and the increase in cost of working necessarily and reasonably incurred to maintain the business as far as possible at its normal level, so that loss under net profit and standing charges is avoided or at least minimised.

Sum Insured

Sum to be insured under this policy is the estimated Gross Profit for the Indemnity Period selected.

Indemnity Period is the maximum period beginning with the occurrence of the damage, for which cover of Loss of Gross Profit is required and should reflect the maximum period anticipated for reinstatement of the damaged property. The maximum indemnity period permissible under the policy is 3 years.

Premium

Basis rate depends on Fire and Special Perils rate. Final rate is influenced by Indemnity Period chosen. At inception, Gross Profit is taken on estimated basis and is subject to declaration of the actual figures after expiry of Policy based on final audited accounts.

Significant Exclusions

The Insurance Policy does not cover:

Loss of gross profits, which is not consequent upon property damage due to an insured peril.
Loss due to material damage to property, difference between value of stock at the time of fire and the value at the time of subsequent replacement, deterioration of undamaged stock after fire.
Cost of preparing fire and loss of profits claim, third party claims and loss of goodwill.
Excess

Claims are payable in full without any deduction.

Main Extension

Policy can be extended to suppliers’ and customers’ premises or public utilities, on which the business is dependent and cost of Auditors fees required to submit claim on Insurer.

Definitions under FLOP:
Turnover - The money paid or payable to the Insured for goods sold and delivered and for services rendered in course of the business at the premises.
Insured’s loss - Net Profit and Standing Charges on the Turnover lost. (Termed as Gross profit)
Net Profit - The profit before tax
VARIABLE Charges : These are expenses that vary in proportion with the rise or fall in Turnover
STANDING Charges : These are expenses that remain FIXED IRRESPECTIVE of the rise or fall in Turnover.
Policy Period is the period within which if a indemnifable loss occurs it will be admissible as a claim. It is invariably 12 months.
Indemnity Period - is the maximum period of Interruption for which the Insurers would respond.
Basis of arriving at the Sum Insured:

Sum insured represents the annual GROSS PROFIT. This can be arrived at by any one of the following method.

Addition Method
Gross Profit = Net Profit + Standing Charges Under this method standing charges to be insured are to be listed.
Difference Method
Gross Profit = Turnover - Variable Expenses

Inadequacy of Sum Insured will proportionately reduce the loss payable.