Lew ee COMMERCIAL RISK MANAGEMENT APPLICATIONS -PROPERTY LIABILITY Perse eee p » Define the Commercial Package Policy » Explain the Boiler and Machinery Insurance » Discuss the Business Owners Policy 41 INTRODUCTION The by Boring kina firms face the different types of property loss exposure. The iieegatt® of the property insurance contracts are available that a can use to protect their property. =4.2 Commercial Risk Management Applications_p, (1) Commercial Package Policy (CPP) ‘bi ‘The insured can get almost all kinds of insurance coverage Commercial Package Policy. A wide range of coverage is available along with Oe ' broader provisions in the CPP. The following seven separate sets of coverag the offered by CPP. weg (i) Commercial property i (ii) Liability (iii) Crime (iv) Boiler and Machinery (v) Commercial Auto (vi) Inland Marine (vii) Farm The insured can pick and select coverages in the CPP as per his suitability (A) Bui 1g and Personal Property Coverage Form (B.P.P) In Commercial Package Policy, the basic protection is provided for build and personal property under the BPP coverage form. The definitions of aj) insured property are provided in this form alongwith any extension or limitations of coverage. Property coverage is further divided into three main groups : buildings, your business personal property and the personal property of others Buildings : Buildings involve the buildings described on the declarations Page, any additions, extensions, fixtures and machinery and equipments _ constituting a permanent segment of the described buildings, and service equipment. Appliances offered by the owners in a rental properties are treated _ as a part of buildings. Your Business Personal Property : It involves the business personal property _ owned by the insured. a ' { { ( [ 6 fi ti (a a 0 4 Personal Property of others : Personal property of others, the third kind of property insured includes two types of properties i.e. improvements and betterments and personal property of others in the control’ of insured. Improvements and betterments refer to any alterations made by insured to @ leased building e.g. decorations, partitions etc. Personal property of others E exposure develops in situations where the insured repairs the property of others. Extensions of Coverage : The BPP has extensions of coverage that expand protection to six other categories of property in addition to the basic coverage that exists when the premium is paid. =Pix extensions are ired or constructed property hese © » Newly acqu’ uur business personal property at newly acquired premises. yo Per: valuable papers and records . sonal effects and property of others property off-premises Qutdoor property. ¢ Versus Blanket Coverage ijnier_ specific coverage, property situated at different locations is listed and feisty insured. Under Blanket coverage sProperas situated at different pOjtions may be insured under a single item. insured Perils n the BPP, three options {a) Causes of Loss-Basic Type are available with respect to insurance perils. (a) Fire (b) Lightning (c) Explosions (@) Windstorm {e) Smoke () Aircraft and Vehicles (g) Riot and Civil commotion (h) Vandalism () Sprinkler Leakage () Volcanic action. {2) Causes of Loss-Broad Types {@) Falling objects - Personal property must have exterior damage to structure before coverage for interior personal property. (b) Weight of Snow, ice or Sleat. (c). Water damage — It Includes accidental leakage of water or stem as the direct result of breaking or cracking of any part of system or appliance containing water. (3) Causes of Loss — Special Type () All direct physical loss unless excluded. (i) Earthquake, flood, war, mudslide, nuclear reaction and boiler . explosion are among perils excluded.waa ‘Commercial Risk Management NA i 4 a‘ (B) Boiler and Machinery Insurance } ‘s Boiler and Machinery Insurance is a type of insurance Providea lyfe industries. It covers damages caused by breakdown or malfunction of 4. ; and other similar equipments related to manufacturing industries, It algo ou t Vy air conditioners, heating, electrical, telephone and computer systems, ‘ers fi and machinery insurance is also termed as equipment breakdown or a ller y if is breakdown insurance. tem ie Specialised insurance companies have development boiler and machin 4 insurance to protect the owners and operators of steam boilers and other jg ; machinery from the risk of explosion other breakdown. Boiler and Machine? ot Policies also may cover the liability of an insured to a third party for damagy, and or bodily injury resulting from an accident as well as defense co; ? Oh ae ae iF hs sts and ¢ supplementary payments for litigation involving a third party. C A boiler and machinery policy may protect its insured from consequential be damage in addition to covering the direct physical damage to an object result from an accident. Nal Hence, an insurance policy that provides coverage for physical damage tp ue and financial loss from equipment breakdown. Boiler and machinery insurance yf also called equipment breakdown insurance covers : ae (i) cost of repairing or replacing the damaged equipment, and ‘ost (i) business losses incurred from the equipment not functioning. Equipment breakdown covers many types of equipment. It protects electrical _ tii systems, air conditioning and refrigeration, mechanical equipment, modem tis office equipment in addition to heating systems such as boilders. fa Il. Business Owners Policy (BOP) eat te This policy is specially designed for certain small to medium sized & businesses. BOP. provides the coverage of general liability insurance and property insurance into a single policy. It typically offer a reduced premium, '¥ often making them a more cost-effective option than separately purchased 1 policies. 4.2 STANDARD COVERAGE A typical Business owner's policy includes property and liability insurance: The types of property covered by a BOP usually include : : (i) Buildings : Owned or rented business premises, additions and additions in progress, outdoor factures.Business Sey Any items owned by the business or mener or owned by a third party but kept temporarily in the care ess Meontrol of the business or business owner. : pifterence 1 Conditions (DIC) Insurance :- DIC insurance provides Mesigned to close specific gaps in standard insurance policies and is e ailable only for larger industrial or commercial risks. It offers D age for some perils that are not covered by standard insurance 1c is designed to fill gaps in insurance coverage, and is most by larges organizations looking protection from catastrophic Reporting Forms :- An insurance form that is used to provide the amounts needed by commercial businesses that carry inventories throughout the year. The value reporting form is used to wr inventory values periodically to the insurance company, which in turn ‘amount of coverage to reflect current merchandise values. on value sts the consequential Loss :- It is considered an indirect loss as compared to ‘satu rom the direct damage. The sum insured under consequential loss policy ped represent the gross profit of the indeminity period selected. The jod is the maximum period needed to put the business back into operating after damage to insured property by an insured peril ment, and orm ¢ Fuca commecial Insurance Policies of New Indian Assurance company Ltd. “nt. It protects chins] Machinery Breakdown Policy al equipment, i=} this is a policy which covers financial loss incurred by the insured due to result of sudden accidental electrical and oilders, ‘bss or damage to machinery as a ‘nechanical breakdown. | _ttreimburses the insured for the cost of repairs or replacement of machinery sl] to mediua ©) oflike nature, bility insus#i’) + Who can take this Insurance : This insurance can be taken by the individual owner of the machine or a person or company having financial interest in the machine. * What kind of machines can be covered : All types if industrial machinery like compressors, pumps, turbine etc. as also electrical machines like transformer, electrical motor, generator etc. can be covered under this policy. ’ | Witt is the sum insured or value for which policy is to be taken : It '@ requirement of this policy that the sum insured or value for which Particular machine is insured should represent the present day value of a similar new machine including all incidental14.6 Commercial Risk Manage expenses like custom duties, taxes, excise, freight, ing handling charges etc. In case the sum insured under Hi: Ice than as per the above requirement the claim will be Baie Pol ortion as the insured bears to the current replac Onh eme; prop Tt cog similar new machinery. Scope of the Policy The policy covers all kinds of electrical and mechanical breakdown from the following incidents : Pe 1. Faulty material/workmanship of the machine : 2. Action of centrifugal forces contributiing to disruption of the parts. *Otatng 3. Failure of lubrication due to malfunctioning of lubricating oj, ite : its breakdown. IMS op 4. Malfunctioning or failure of safety devices. 5. Electrical short-circuiting including electrical fire originatin failure of insulation and or over voltage or under voltage cone 6. Abrupt and sudden stoppage of other connected machinery, 7. Entry of foreign bodies into running machine. 8. Inexperienced operations causing damage due to error of judgement error in operation. Add on covers The policy can be extended to include the following risks on payment of additional premium. ¢ 1. Damage to foundation of machinery e . Damage to oil in electrical apparatus a . Express freight (excluding air freight), holding rates, overtime charges . Air freight Additional customer duty i.e. the additional percentage of duty payable | at the time of reimport for replacement over and above the percentage” of duty included in the original sum insured. 6. Own surrounding property ie. damage to the insured’s ems property or property in his custody or control (not included in the “ insured of the policy) due to any damage to the insured macht” which is covered under the policy. : Oe : 7. Third party liability i.e. liability falling on the insured for bodily 9 to any other party other than those covered by the policy oF for Pi : damage belonging to such other party. YR OD— jgsk Management Applications-Property Liability a7 to claim ei such incident which falls under the scope of the policy, the fant Ser eoe ‘should be followed : ing now" please inform the insuring office by phone, letter or fax. * make all necessary steps to minimise the loss. 3, obtain estimate of repe‘r from repairer of your choice. 4, submit this repair estimate and claim form to the surveyor deputed by the insurance company. 5, After getting clearance from the surveyor, proceed for repairing machine r replacement as the case may be. or ordering fo: 6. Submit actual bills of repair/replacement with proof of payment to the surveyor: 2. consequential Loss Policy this is a specially designed policy which covers accidental loss or damage to electronic equip! ly insurance policies cover only physical damage to property By, Generall insured perils. This, at best, covers the expenses incurred for repairing or d property. But what about the financial loss suffered due replacing the damage frinterruption of business operations whilst the damaged property is being repaired or replaced. This policy offers a tumover arising from in’ ment. solution by covering profits lost due to reduction in terruption of business following damage to the property inwured. This policy can be taken only in conjunction with Fire Policy or Macinery Breakdown policy. This policy is also known as Business Interruption Policy or Loss of Profit Policy is also known as Business Interruption Policy or Loss of Profit Policy. Scope The policy covers : * Loss of gross profit * Increased cost of working Add on covers Ee The Fire Consequential Loss Policy can be extended to cover loss of profit to insured due to : 1. Accidental failure of public electricity/gas/water supply148 Commercial Risk ‘ /, y 2. Damage to customer's premises due to perils covered under Fire: ! # Ae I es mre, 9 The indemnity period is the maximum period required to put the py ' 6 back into normal operation after damage to insured property by esa ” Ne 3. Damage to Supplier’s premises due to perils covered under Pigg How to select the sum insured ? The sum insured under CL Policy (Consequential Loss) should gross profit of the indemnity period selected. 7 insured peril. The indemnity period could vary from 6 months to 3 years, Upto an indemnity period of one year, the annual gross profit should selected as sum insured. Thereafter the GP should be in proportion 44 2 we! times the annual gross y for 24 months - 2 times the annual gross profit for 36 months — 3 times the a annual grosss profit. 1 indemnity period seleted i.e. for 18 months ~ a The gross profit should represent the net tradin; standing charges (fixed charges). The standing char, have to be specified. Gross profit can be insured on @ Profit plus j P ‘ges which are to be j yet! one of the following basis : 1 1. Turnover basis for 2. Output basis 1s 3. Difference basis tt 4. Revenue basis Ihe in abstor How to claim ? The policy operates once there is a valid claim under the Fire Policy or Machinery Breakdown Pollicy. Theo The loss of profit is measured by comparing the turnover/ourput/revenue Le during the indemnity period with the turnover during the corresponding period t in the previous year (known as the standard turnover). uy Hence loss of gross profit = Rate of gross profit x Reduction in tumover Be. = (Gross Profit/Annual turnover) x Reduction in turnover The documents establishing reduction in turnover have to be submitted 0 the surveyor appointed by the insurance company. In addition if any extra expenses have been incurred to minimize in turnover the same are also payable subject to the overall sum insuredpos isk Management Applications-Property Liability Was) ; purgl@'Y policy . ier is designed to cover business premises only like godown, factory, etc: office eypes of policies avaiable : The policy must be effected for the full value of ne’ 1 Value Insurance ¢ 2 roperty to be insured. : In the event of improbability of total loss, the P’ first Loss Insurance = i t for a percentage of total stocks to be insured. proposer can op! a Policies : The policies are given where lar} atio! uate in quantity during the year. The sum insure he insured anticipate ff stocks which t 00% of the annual premium ce. Monthly declarations of premium will be e of the ge stocks d is fixed stock Decla: s he will ly fluc imum value o! hold at any one time. A deposit premium of 1 will be paid at the beginning of the insuran value are to be sent to the company and the “deposit” adjusted at the end of the policy period based upon the averag' monthly declara’ frequent at the maxi! tions. scope of Policy following upon actual, 1. Loss or damage te d violent entry into the o the property insured by theft premises. any attempt forcible an 2, Damage to the premises following upon entry as above oF threat. ntrinsic value of the property he extent of the i vided is to t imit of the sum insured. The indemnity pro to the li s0 lost or damaged subjec Exclusions The company shall not be liable i 1. Gold, watches, jewellery, business books etc. unless spe 2. Loss or damage where any household or of his business S damage. The policy shall cease to attach + 1. If the premises are left unin! nights. 2. In the event of material alterations t0 the premises whereby the risk is increased. i. in respect of : precious stones, plans, designs, money, cifically insured. insured or mem! taff is concerned it ber of the insured’s in the actual theft or thabited for 7 or more consecutive days and14.10 Cormmercial Risk Mansgement vi 3. If the insurable interests has passed from the insured otherwise by wig or operation of law. In event of claim 1. The insured should give immediate notice to the police and algy toi company and within 14 days submit to the company hig can respect of loss or damage sustained. i 2. The insured should also tender to the company al ie information, assistance and proofs in connection with any le claim under. ie 4. Electronic Equipment Policy This is a specially designed policy which covers accidental loss or electronic equipment. damage ty What equipment can be covered under this policy : The policy covers @ following types of equipments : 1. Electronic data processing machine. 2. Telecommunication equipment. 3. Transmitting and receiving installations (including Radio, TV, ¢; Sound Reproduction and Studio Equipment). — Material testing and research equipment. Electro-Medical Installations. Signal and Transmitting units. i Noms + Office calculators, duplicating machines and Reproduction machines. 8. Control and supervisory units. Note : The above items should not be portable and mobile Who can take this policy : This policy can be taken by the owner, lessorar hirer of electronic equipment. & i i Q a Scope The policy covers sudden and unforeseen physical damage including akdown to the electronic equipment covered under the policy due !? any reason not specifically excluded. bre: Thus it covers damage caused by the following perils :- 1, Smoke, soot, dust, corrosive gases etc. 2. Water and Humidity.Applications-Property Liability ee gport ircust and Blectrical fire risk. Faulty ratting object and entry of foreign bodies pire, lightning explosion. Riot ant qheft and burglary. natural calamities ~ flood, inundation, storm, cyclone and earthquake subsidence, damage caused by the following perils are specifically excluded pe of the policy. Normal wear and tear and corrosion of parts arising from use and continuous operation (limited to parts immediately affected, subsequent damage to other parts of the unit covered). ts, gross negligence. perations, lack of skill. d strike and malicious damage and terrorism. landslide, rockslide. poss of from the 80° 1. War, willful act faults for which third party is responsible by law or contract. Failure due to interruption of gas, water or power supply. Aesthetic defects. Consequential loss of any kind. | Loss to consumables and operating media etc. rayon How to select the sum insured ? ‘the sum insured or value of the policy should be equivalent to the present ey purchase price of a similar new electronic equipment including all incidental expenses like cost of installation, duty, freight, taxes etc. If the sum uired as stated above then the claim will only be paid in insured is less than req amount required to be such proportion as the sum insured bears to the insured. The policy can be extended to include the following risks on payment *fadditional premium. 1. Damage to external data media for example punch cards, etc. as also the cost of reconstruction of data on this external caused by a peril covered under the policy. ar or The additional expenditure incurred due to use of a substitute ae system as a result of an accidental damage to the computer sured under the policy and which is covered by the policy. tapes, discs 1 media