Loss of Profits- Basics

Satyendra Singh
 Agenda for the day
• Property cover & Balance sheet cover
• MD LOP ALOP
• Alphabet

• Tariff / Guidelines
• Policy, Addl. Covers
• Deciding the Sum Insured
• Rating
• Claims
 Basics

• Property cover / Material damage (MD) cover

• Balance sheet cover / Business Interruption (BI)/

Consequential loss (CL) / Loss of profit (LOP)
cover

• MD LOP ALOP
 Alphabet
•Indemnity Period
•Standing Charges.
•Annual Turnover.
•Standard Turnover.
•Gross Profit.
•Rate of Gross Profit
•Time excess
 Consequential Loss (Fire) Insurance
Policy
• Cover for Balance – Sheet of a commercial organization

• There must be a material damage policy covering the

interest of the insured

• All perils covered in standard Fire material damage policy

are necessarily covered

• Option to cover all or some of the Special Perils covered

under the material damage policy
 MATERIAL DAMAGE PROVISO
FIRE POLICY FLOP POLICY

Material Damage Business Interruption

Insurers liable ? Liability

Indemnification under Indemnification under

FIRE Policy FLOP Policy
 SCOPE OF COVER

LOSS OF GROSS PROFIT

(Also covers any Loss Minimising Expenses upto
the costs thereby avoided)
Due to reduction in Turnover
and
INCREASE IN COST OF WORKING
(Subject to limit of Savings in Profit)
• Gross Profit : Net trading profit plus Insured Standing
charges or in case of a loss, Insured Standing charges
less such a proportion of any trading loss as the amount
of insured standing charges bears to all the standing
charges of the business
• Net Profit : The net trading profit (exclusive of all capital
receipts and accretions and all outlay properly
chargeable to capital) resulting from business after due
provision for all standing and other charges including
depreciation but before deduction of any taxation
chargeable on profits
• Insured Standing Charges : To be selected and a list be
submitted
• Indemnity Period : Beginning with the occurrence of
damage and ending not later than selected months
• Annual Turnover/Output : The Turnover/ Output
during the twelve months immediately before the
date of damage
• Standard Turnover/Output :The Turnover/ output
during that period in the twelve months immediately
before the date of damage which corresponds with
the Indemnity Period
• Rate of Gross Profit : Earned on the Turnover during
the Financial Year immediately before the date of the
damage
 Basis of Loss Settlement :
• In respect of Reduction in Turnover : The sum produced by applying the
Rate of Gross Profit to the amount by which the Turnover
during the Indemnity Period shall in consequence of the damage, fall
short of the Standard Turnover
• Increased Cost of Working

Complusory Deductible:

• Other than Petro Chemical Risks – 7 days of Gross Profit

• Petro chemical risks - 14 days of Gross Profit

ALOP
 Stakeholders In A Project

FINANCE
CHARGES

MAIN PRINCIPAL FINANCIAL

CONTRACTOR INSTITUTIONS
LOAN
S
INVESTMENT
GROSS MANAGEMENT
PROFIT

SUB
CONTRACTORS PROJECT
MATERIAL
LABOUR
 Various Stages Of A Project
MAXIMUM
INDEMNITY
INSURANCE PERIOD PERIOD

CAR / EAR - ALOP ( ALOP )

TRANSIT

PLANNING ON SITE STORAGE COLD / HOT

PRE - TEST COMMERCIAL
HANDLING OPERATION
TEST
CONSTRUCTION
ERECTION

SCHEDULED DATE OF
COMMENCEMENT OF
INSURED BUSINESS
 Why Is ALOP Necessary To Project Finance ?

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Accident Delay in Completion Delay in Start Operation

• Loss or damage during transportation and

construction works could cause Principal to
go into default.

• Cash flow is the most important factor for

Principal management and for Lenders.
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• Huge risk
Insured and Uninsured Delays

FIRE, INSURED PERILS

STRIKE, TERRORISM, SHORTAGE OF MATERIALS

INSURED DELAY
SCHEDULED BUSINESS
COMMENCEMENT
UNINSURED
DELAY

INDEMNITY PERIOD

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