Professional Documents
Culture Documents
NARENDRAPUR
Some thoughts
Few preliminary observations:
1.
The inspiration for the project came in the chamber of Shri K P Brahma, GM(P) when it was suggeste that we print a book & make it available to the aspirants in the Class I Promotion exercise.
2.
2. Our fundamental tenet is the Democracy of knowledge. We believe that in the Age of Informationavailability
of information should be just a click away for everyone. The competitive edge of a user
group should come from the depth of understanding & utilisation of the available information.
(Incidentally , we at NCIL practice what we preach. We are trying to share with all NICians on the
Company Intranet- all material - as basic reference or as PPT. Our endeavour is to further enrich &
expand this information base.)
3. This is a Team Work. It is a compilation of the work earlier done at Ahmedabad & somewhat updated
& re-organised by the team at HO/ NCIL in Kolkata.
4. For us at NCIL- this was our maiden foray in the field of editing. We tried to learn on the run. In
retrospect we feel that we were somewhat overambitious to begin with- both in terms of tight time
schedule & the content. Our initial target was to create a reference source which will have its utility
beyond the current Promotion exercise & to ensure an uniform layout throughout the content.
5. We have partly succeeded in this but at the cost of time overrun.
6. The material is in your hands now. We await your feedback to improve on this in the next edition.
7. With our one edition experience, we have started working on the next one right now. Please mail
your inputs to- s.singh@nic.co.in, s.k.pradhan@nic.co.in, a.k.das@nic.co.in,
u.bhattacharya@nic.co.in
We acknowledge with thanks the role of all who have inspired &/or contributed to this project now
or in the earlier versions. At the same time, with humility, we regret our editorial shortcomingswhich
we hope to overcome with more experience.
Contents
1. FIRE INSURANCE 1 - 24
2. BUSINESS INTERUPTION (LOP) 26 - 40
3. INDUSTRIAL ALL RISK 42 - 46
4. ENGINEERING INSURANCE 48 - 76
TESTS 76 - 118
5. MISCELLANEOUS INSURANCE 120- 138
TESTS 138-- 173
6. MOTOR INSURANCE 173- 206
TESTS 206- 218
7. MARINE INSURANCE 240- 254
8. AVIATION INSURANCE 256- 299
TESTS 299-324
9. RE-INSURANCE 326- 337
TESTS 338-352
10. FINANCE TESTS 354- 408
11. HUMAN RESOURCE * 420 469
TESTS 496-502
( * Page numbering error)
This book is for private circulation amongst NICians only.
FIRE INSURANCE
Insurable Interest :
War perils.
Nuclear losses.
Pollution, contamination unless caused by insured perils.
Curios, documents etc. >10,000Rs., Goods held in trust or on commission
unless specifically covered
Change of temp. (Stocks in cold storage)
Pure electrical fires.
Architects etc. fees (beyond 3% of claim amount) & Removal of debris
(beyond 1% of claim amount).
Consequential losses.
Spoilage due to cessation of process.
Theft- during/ after loss.
Earthquake.
Terrorism damage.
Shifting of property to other place But Mechanical items & equipments are
covered for 60 days if shiftOut of the above exclusions certain are covered as ADD-On Covers. e.g.
curios /documents etc. > Rs.10,000/- can be covered for actual value under Misc.
Out of the above exclusions certain are covered as ADD-On Covers. e.g.
Terrorism, Earthquake, architects fees(beyond 3% of claim amount) & removal
of debris(beyond 1% of claim amount), spoilage (due to cessation of process),
curios /documents etc. > Rs.10,000/- can be covered for actual value under Misc.
Department (subject to declaration).
1. Housebreaking
2. Electrical apparatus clause
3. Spontaneous combustion (wording modified)
4. Insurance of jetties, docks and other properties erected in water &
damage by water borne bodies clause
5. Boiler explosion damage clause
6. Start up/shut down expenses clause
7. Accidental damage clause
CLAUSES
OMISSION TO INSURE, ALTERATIONS, EXTENSIONS CLAUSE
TEMPORATYREMOVALOFSTOCKS- CLAUSE
REINSTATEMENTVALUE CLAUSE
LOCALAUTHORITIES CLAUSE
DESIGNATION OFPROPERTYCLAUSE
DECLARATION POLICY
FLOATER POLICY
Floater Policy can be issued for stocks at various locations under one
Sum Insured (The Standard Floater Clause I, Annexure A shall be
attached to such policies).
Unspecified locations are not allowed.
Applicable Fire Rate= Highest rate applicable to any of such locations
+10%
Presence of "Kutcha" construction under any location may be ignored for
rating.
If stocks are in godown/ process blocks in same compound, no floater
extra premium.
In case Stocks in a process block are covered under the Floater Policy andthe rate for the process
block is higher than the storage rate, the process
rate plus 10% loading shall apply.
VALUED POLICY
When market value cannot be ascertained, agreed value policy can be issued for
work of art, curious, etc.
It can be issued only for dwellings issued for minimum period of three years and
maximum can be for any number of years but discount is maximum for 10 years
Policies for a period exceeding 12 months shall not be issued except for
"Dwellings".
Mid-term Cover may be granted for the deleted perils of STFI &/or RSMD.
Generally, it is not permissible to grant mid-term cover for STFI and/or RSMTD
perils. The following provisions shall apply, where such covers are granted midterm:
Insurers must receive specific advice from the insured accompanied by payment
of the required additional premium in cash or by draft. This additional premium
shall not be adjusted against existing Cash deposits or debited to Bank guarantee.
Mid-term cover shall be granted for the entire property at one complex
/compound/location covering the entire interest of the Insured under one or more
policy(ies). Insured shall not have any option for selection.
Cover shall commence 15 days after the receipt of the premium.
The premium rates as under shall be charged on short period scale (as per Rule 8)
on full sum insured at one complex/compound/location covering the entire
interest of the insured for the balance period i.e. up to the expiry of the policy.
Payment of Premium: Premium shall be paid in full and shall not be accepted ininstallments or by
deferred payments in any form.
N.B:- It is not permissible to split sum insured of the same property under various
policies for different periods of insurance to derive advantage of deferred
installments for payment of premium. Notwithstanding the above, different
policies may be issued for stocks where circumstances necessitate issuance of
such policies.
Minimum Premium: Minimum premium shall be Rs.100/- per policy except for
risks ratable under Section III and 'Tiny Sector Industries' under Section IV where
the minimum premium shall be Rs. 50/ per policy.
CANCELLATION OFPOLICY:
SUM INSURED
FIRE INSURANCE POLICY- SI SHOULD BE ADEQUATE
OTHERWISE FOR UNDERINSURANCE WE NEED TO APPLY PRORATA
CONDITION OF AVERAGE CLAUSE.
Raw materials- Cost price including all the expenses like octroi, freight
etc. to bring up to the place.
Stocks in Process: Cost of raw materials + process cost including labour,
etc.
Finished goods Manufacturer - Cost of manufacturing.
Wholesaler - Purchase price from manufacturer.
Retailer- purchase price from wholesaler
Profit not to be included - exception Declaration Policy
TARIFF PROVISIONS
Occupancy
Construction
Fire Extinguishing Appliances.
Option to delete RSMD &/or STFI Add on covers.
Voluntary Higher Deductible (Excess) opted by Insureds.
Claims experience
Principle of 'One Risk One Rate' whichever will be higher of Process
(Mfg.) risks, or ii) Storage risk,
Entire property in one complex/ compound will attract the same rate
irrespective of kind of occupancy (Mfg./ storage/ utilities etc.).
Dwelling exempted from the above rule.
Two or more factories in the same compound /independent products per
se rating if detached, otherwise the highest rate.
Non- hazardous
Category I goods
Category II goods
Category III goods
Open storage
Tank farms, etc.
For simple risk like dwellings, offices, hotels, shops etc. rating Per Se i.e. on its
own without considering other occupancies in the building.
For Entire Building Tariff Rate Rs. 1.80%o less De-Tariff Discount.
For Contents of individual owner - Per Se (Partially on-merit).
DISCOUNTS APPLICABLE
One of the principles of rating in fire insurance is that if risks with different degrees
of fire hazards are close to one another then the higher hazard risk may cause
spread of fire to other risks close by. Hence this factor should be considered while
rating a risk. For simplification the tariff has allowed per se rating for contents of
each insured as per their occupancy.
SILENTRISK:
CLAIMS
To intimate insurerIn case of any fall / displacement of building or any part without
operation of any insured peril within 7 days.
Alterations of trade, manufacturing, occupational change immediately.
If un-occupancy for more than 30 days.
Change of interest by sale etc.
COSTREDUCTION MEASURES
Opt for clause like Designation of Property clause- No Extra premium.
Insure non-stock items on Reinstatement Value basis.
For non-stocks items opt for 'Omission to insure . Clause' and see that
at the end of policy within 30 days the insured send the declaration.
Go for stocks declaration policy for finished goods and raw materials,
send declarations in time to take the maximum advantage.
Floater cum declaration policy decision depends upon the fluctuations in
the stock levels.
When many locations are covered and when it is not possible to keep a
track of sum insured at every location, better to go for a floater policy.
Opt for suitable voluntary excess.
Keep fire fighting system in good working condition, obtain periodical
certificates.
Intimate to the insurer when in any unit production stops for more than 30
days.
Advice decrease in sum insured immediately.
As far as possible go for annual cover- avoid short period covers they are
Costly.
Though it is cost saving it is not advisable to go for deletion of flood, etc.
unless the unit is situated in area where chances of flood are NILHowever
this should be a thoughtful decision.
Riot etc. perils not to be deleted.
Premium can be saved by deleting from the cover the value of plinths and
foundations of the buildings.
INTIMATION OFCLAIM:
Administrative Officer : Rs. 1,00,000/Assistant Manager : Rs. 2,50,000/Deputy Manager : Rs. 10,00,000/Manager : Rs. 15,00,000/D.C.C. : Rs. 30,00,000/Regional Manager : Rs. 40,00,000/R.C.C. : Rs. 80,00,000/Deputy General Manager : Rs. 100,00,000/General Manager : Rs. 200,00,000/Chairman-cum-Managing Director : Rs. 400,00,000/H.C.C. : --- Actuals.--Under Fire Insurance variety of buildings, machinery, equipments and stocks are
involved. In addition to a competent surveyor it is recommended that the
Company officials should visit the site of loss as far as possible.
If the estimated loss is within Rs.20,000/- and loss of profits claim is not involved,
the underwriting office shall have the discretion to waive an independent survey
and settle the claim on the basis of the claim form and other supporting documents
after being satisfied that it is admissible under the policy and that the amount
claimed is reasonable and consistent with the extent of damage. Where necessary,
an official in the underwriting office may inspect the damage.
PROCESSING OFCLAIMS:
In case of isolated losses under the above endorsements, copy of the FIR
lodged with the police is required to be furnished.
Disposal of claims where all records are destroyed in fire &/or allied
perils like flood.
Settlement in these circumstances would generally be a negotiated one
because of non-availability of accounting records and other evidences.
Therefore, the surveyor should be advised to assess such losses on a
realistic and reasonable basis after discussions with the
insured/Bank/Financial Institution (if involved), and if required with
suppliers/customers/statutory bodies like tax authorities, excise
authorities etc.
At present post-loss inspection by LPAis not required. Instead Company
Engineer/Officers may carry out such inspection.
CLAIMS ASSESSMENT:
A. Market Value Basis:
Gross Loss
Less: Depreciation
Less: Salvage
Gross Assessed Loss
Less: Under Insurance
Less: Excess.
Net Loss Payable.
Gross Loss
Less: Salvage
Gross Assessed Loss
Less: Under insurance
Less: Excess
Net Loss Payable
Gross Loss
Less: Salvage
Gross Assessed Loss
Less: Under insurance
Less: Excess
Net Loss Payable.
Under single loss, if Buildings, Machinery and Stocks are affected, only ONE
excess will be applicable. In other words, excess is applicable per event per
Insured.
DISPOSALOFSALVAGE:
In all such cases like what happened in Mumbai during July 2005 flood
settlement was generally be a negotiated one because of non-availability
of accounting records and other evidences.
The surveyors should be advised to assess such losses on a realistic and
reasonable basis after the discussions with the insured (even with theBank/ other Financial
Institutions whenever involved).
If required with suppliers/ customers/ statutory bodies like Tax
Authorities etc. and definitely with the Insurers.
SURVEYOR APPOINTMENT:
Points to be noted
The surveyor must be holding a valid license
Selection of surveyor should be restricted depending on the type of loss
and the nature of the subject matter involved
When for assessment of some losses specific technical expertise is
required - consultants having such technical expertise normally are
associated with the usual surveyors. The consultants' remuneration needs
to be negotiated in advance bearing the expertise in mind and the same
will be in addition to the survey fee payable to the surveyor.
Category of Surveyors (i.e. A,B,C) will be checked and appointment of
surveyor must commensurate with this category & quantum of loss
Appointment of joint surveyor may be done on the merits of the claim.
No second surveyor may be deputed.
Wherever the Loss of Profit losses are involved, the surveyors for the
material damage and the business interruption losses, if several, should
be competent to complement one another. One surveyor can be utilized
for both the material damage
Guidelines on the financial authority for appointment of surveyor ( i.e. H.O. /
R.O./ D.O./ B.O.) will be as per scale followed by each insurer.
In case of isolated losses under the RSMD Perils, copy of the first
information lodged with the police and their Final Investigation Report
of police must be furnished.
The surveyor needs to give detailed report on the occurrence and confirm
that the loss/damage is admissible under the policy.
Loss / damage, if any, arising out of omission or commission not
involving physical damage must be segregated.
When the Final Survey Report is submitted by the surveyor the Claim
Processing Official / Authority will process and recommend the exact
claim amount for approval by the Competent Authority (as per the
Financial Settlement Authority of various claims laid down by each
insurer).
The insured / claimant should be advised of the final amount of claim
approved, with details thereof.
The full & final discharge by the insured (The bank/ financial institution's
discharge where required) must be obtained before release of the
amount of claim.
If the loss or any part thereof is recoverable from a Third Party, a letter of
subrogation and/or assignment and Special Power of Attorney, to suit
special cases, is to be sent to the insured for completion on requisite
stamp paper and return before settlement.
In case of Close Proximity Cases detailed investigation should be
immediately instituted when a loss occurs in close proximity, i.e. within 5
days for all classes of insurance under Fire & Engg. Dept. of the date of
inception of risk. The close proximity mentioned here is in reference to
new insurance or where there has been a break in insurance. Close
proximity investigation should also be carried out in cases where it is
found that insurance has been taken out significantly later than it ought to
have been taken, i.e. the risk has remained un-insured or inadequately
insured prior to the insurance cover under reference.
The leader will process the claim on behalf of all the co-insurers. A
decision by the leader regarding claim settlement, taken at the
appropriate level according to the existing tenets of delegation of
financial authority, shall be final and binding on all the co-insurers.
Claims decided at the appropriate level by the leader will not be
processed again by co-insurers, regardless of the amount. The leader will
intimate to the co-insurer details of a claim settled by him with copies of
all relevant reports and documents. The coinsurer will settle his share of
the claim within 15 days from the date of receipt of such intimation from the leader without any delay.
In case of a claim requiring Board decision the decision taken by the
Board of the leader shall be binding on the other co-insurers. There shall
be no separate need for the co-insurers to approach their respective
Boards for decision in respect of such claims. A suitable note may,
however, be placed by the co-insurers before their respective Boards for
information in such cases.
APPOINTMENTOFINVESTIGATOR:
CLOSE PROXIMITYCLAIM:
REPUDIATION OFCLAIM:
Re-opening of the claim file can be done by the authority one step higher than
the appropriate claim settlement authority.
LOSS OFPROFITPOLICY
Whereas, the insured may have to incur the loss of profit, constant expenses
irrespective of business interruption brought by the accidental fire and allied
perils. The standard fire policy does not offer such benefits. Therefore, there is
a need for a separate policy to take care of the consequential loss. This benefit
is offered by a separate policy which can be an extension of fire policy , or
engineering policy and or project insurance.
The extension of LOPto Fire Insurance is known as FLOP (Fire Loss of
Profit).
The extension of LOP to Engineering Policy is known as MLOP
(Machinery Loss of Profit).
The extension of LOP to Project Insurance is knows as ALOP ( Advance
Loss of Profit).
Loss of Profit Policy can also be termed as Consequential Loss Policy or
Business Interruption Policy.
The destruction caused by fire does not end with the smoldering shell of buildings
or the mangled skeleton of expensive machinery or worthless stocks. Destruction
goes on, business comes to a standstill. The factory cannot produce goods, in other
words, money stops coming on.
The earnings of the business dwindle, if not cease totally while business expenses
have still to be met. Wages and salaries have to be paid. So also overheads, rent,
rates and insurance. The net result - "LOSS". In extreme cases the business may
have to be wound up. This is a very real risk.
However, just as the Material/Property damage policy comes to the rescue of the
insured when he incurs material damage, the profit policy works to protect against
the consequent disruption to the business itself.
If damages occur to the property owned by the insured causing his business to
suffer, the policy would pay the amount of loss resulting from that interruption.
SCOPE OF POLICY:
If the premises are destroyed the ` cost of maintenance also is affected. So the
indemnity under the Policy has the following components:
1) Loss of Income When the factory is unable to function
2) Loss of Income after the repairs and repurchase until the
entire activity commences.
3) Additional expense to engage rented building until the damaged
building is reinstated
4) The machines are installed.
5) Indemnity period must be long enough to cover the above [i]
and [ii]
6) Saving due to the damage are deducted from the
settlement.
NET PROFIT : This policy is designed to take care of loss of net profit, which is
differently meant by this policy unlike the net profit derived from trading and P&
Laccount. Such loss of profit should result from the cause of insured peril covered
under Standard Fire policy and that cause should have brought the interruption of
business.
STANDING CHARGES/ FIXED CHARGES : In spite of the stoppage of the
business, the fixed remuneration and other standardized fixed expenses have to be
incurred by the insured. Such expenses have to be incurred irrespective whether
the business is carried on or not due to the occurrence of the insured peril.
INCREASED ALTERNATE COST OF WORKING : To pay the additional
expenditure incurred by the Insured to maintain the normal business activity
during the period in which the business is affe
TURNOVER : Modern BI policies are based on the turnover of the business.
Profit comes out of turnover and is supported by it. Turnover can be conceived of
as representing the activity of the business, but is defined as the money paid or
payable to the insured for goods sold and delivered and for services rendered in the
course of the business at the premises. Turnover actually consists of Variable
charges, standing charges and net profit as we have already seen. If the ratio of
variable charges of a business to it is turnover is a constant [and this must be so,
because the definition of variable charges is simply those charges, which vary
directly to the turnover.] Then the remainder [the turnover less such variable
charges]. Is also constant to the turnover of the business. Thus, on the basis that
turnover does represent the activity of a business. we can measure this fall in
activity of a business. we can measure this fall in activity [which we do by
calculating the fall in turnover] and then, by applying the remainder constant to the
amount of this reduction, we can get at the true indemnity.
It is against the background of the definition of 'rate of gross profit ' annual
turnover' and standard turnover 'that financial loss will be calculated.
GROSS PROFIT : It may be defined that it is the amount by which the sum of the
turnover and the values of the closing stock shall exceed the value of the opening
stock and specified working expenses. DIFFERENCE BETWEEN
ACCOUNTANT'S AND INSURERS'GROSS PROFIT. The basic difference is
that accountants will take Turnover and deduct Purchases of raw materials to
produce gross profit.Insurers are, however, concerned with identifying that part of
gross profit which
Relates to the business insured and
Can be the subject of an indemnity from insurance
The insured pays only for insurance on those elements of gross profit which
continue to be payable after an interruption in the business [and on net profit] by
using the insurers definition and the premium relates only to the business insured.
Additionally, the insured's accountant will need to know on what basis to prepare
the declaration of gross profit for the insurance company.
8,00,000
Add: Closing Stock as on 31.03.2001
50,000
8,50,000
Less: Opening Stock as on 01.04.2001
Specified working expenses
Less: Purchases net of discounts
1,00,000
Bad debts 50,000
1,50,000
GROSS PROFIT
7 ,00,000
The original definition of gross profit was net profit plus insured standing charges.
The insured's accounts were the starting point. All 'non business' items were
taken out [such as rent and upkeep of let-out portions, stock market gains and
losses etc].
Net trading profit was the surplus left after taking from the turnover of the business
insured All the costs of making it, from purchases of raw material to the cost of
delivery by the insured's vehicles or by post etc .
The 'Difference 'method starts with the accounts but uses them the other way
round. Basically, it lists 'specified working expenses' such as purchases these are
the previously mentioned variable charges which vary directly in proportion to the
turnover. Obviously, if your turnover is down you do not need to buy so much.
Once you have deleted the variable charges you are left with the standing charges
and net profit or [to put it another way ]the gross profit.
STEPS INVOLVED
1) Take out all income and expenditure extraneous to the business insured.
E.G rent of tenanted portions and costs of upkeep of that portion profit or
loss on share transactions [in other firms].
2) Identify the specified working expenses and take them off the total of the
turnover and the closing stock. The result is gross profit.
The term 'difference basis' describes the current definition of gross profit which
can be phrased as The difference between turnover plus closing stock and opening
stock plus specified working expenses.
INCREASED COSTOFWORKING
Payment of overtime
PERIOD OFINSURANCE:
PERIOD OFINDEMNITY
The indemnity period commences with the date of damage and lasts till such time
as the business is restored to its pre-damaged level or the period stipulated in the
policy, whichever comes first. A consequential loss insurance policy insures
earnings of the business lost during the indemnity period.
The Sum Insured is based on the gross profit of the business. The sum insured is
extracted from the previous year's account. If the indemnity period is 18 months,
the amount is increased by 50%. This is the basic sum insured. Assuming the
business would be interrupted for not more than 12 months, there are adjustments
to be made and this is where a little forecasting comes in.
Normally business does not standstill, year after year, it generally expands. Then
there is another factor to be taken into consideration i.e. Inflation.
Even if the business does not expand in terms of goods produced the expense and
income levels do expand in terms of money, roughly in conjunction with the
general inflation rate. Therefore, a sum to be insured needs to be drawn from the
previous years accounts and an upward adjustment is done in such a way that takes
care of any future influence of inflationary factors.
It is not sufficient if the sum insured is influenced by such factors pertaining to a
particular period of insurance as the indemnity period commences only in
succession to the date of occurrence of insured peril causing material damages.
Supposing, a loss takes place on the last date of a policy i.e. expiry date of the
policy, the indemnity period may be twelve months from that date or may be
twenty four months from that date or the period agreed between the parties to the
contract. This makes it clear that factors pertaining to the period of indemnity
chosen is very relevant while deciding the level of sum insured.
1. WAGES:
Two methods in which wages can be included.
a) PRO-RATABASIS:
It is possible to cover under a separate policy to claim wages for a Standard Period
for an amount to represent the wages for the selected period. E g
Wages of all employees
The wages of a specified category or categories of employees.
The wages of all employees who are normally paid on weekly basis.
b) DUALBASIS:
100% cover for a selected initial period and for the remainder of the indemnity
period, a selected percentage only. On Dual basis it is necessary to have a
minimum indemnity period of 12 months. The sum insured must represent the full
annual payroll. If saving in payroll are made during 100% cover period, such
saving can be carrieThe insured has the option of converting the combination to a straightforward
100% cover for a stipulated period longer than initial period.
DUAL BASIS PROVIDES A FLEXIBLE COVER : There are two main
advantages to the Dual Basis cover. They are
Carry over of saving
Option to Consolidate
Insurance of lay off and/or retrenchment compensation
Auditors feesd over to boost the partial cover period during the indemnity
period.
ASCERTAINMENTOFTHE LIABILITYOFINSURANCE
What should be identified first before looking at the claim for business
interruption?
Whether there is a standard fire policy and claim for material damage has been
admitted.
What would be period of indemnity in case of reinstatement of property
damaged.
Turnover earned by the insured after the damage but preferably at the different
premises of the insured.
The insurance is limited to reduction in turnover.
Limited to increase in cost of working.
The amount payable as indemnity shall be additional cost of working with
some standing charges of the business insured.
How the premium is adjustable with the gross profit earned by the business
differs from the sum insured during the year.
WHATIS TURNOVER?
o Any sum receivable for the sale of redundant plant and machinery.
o Income from any source not insured under the policy. Example rental
income from the tenants.
o Any other business carried out within the insured's premises or goods
sold or services rendered but not insured under the policy.
STANDARD TURNOVER
The Turnover during that period in the 12 months immediately before the date of
incident, which correspond, with the indemnity period. Example -Indemnity
period for the restoration of the business disturbed is 01.06.2001 to 30.10.2001
and this period is the period of interruption. The standard turnover for this purpose
means the turnover for a period from 1.6.2000 to 30.10.2000.
The rate of gross profit earned on the turnover during the financial year
immediately before the incident. This can be expressed by a formula
Gross Profit/Turnover x 100
Turnover
However, the estimated gross profit for the period of insurance should be based on
the previous years audited accounts but not less than that of the nearest financial
year.
N.B. Standard turnover, annual turnover and rate of gross profit are subject to
adjustment to take care of trend of business and special circumstances affecting
the business. For example a workers' strike, a big event (like IPL for sports goods
manufacturers) providing extraordinary business opportunity.
The insured may have to incur any additional expenditure for the sole purpose of
averting or minimizing the reduction in Turnover which, but for that expenditure,
would have taken place during the indemnity period in consequence of the
incident. But such expenditure should not exceed the sum produced by applying
the Rate of Gross Profit to the amount of the reduction thereby avoided.
EXAMPLE:
This limit is clearly equitable but there are occasions when expenditure is incurred
with the agreement of insurers, which proves later to have been uneconomic.
Insurers must then stand by their original agreement.
SAVINGS
Any sum saved during the indemnity period in respect of such of these charges
payable out of gross profit insured based on the past records, may be used to set off
against the standing charges that are constant in nature.
ANNUALTURNOVER
It is the Turnover during the twelve months immediately preceding the incident. It
is not the Turnover taken from the Audited accounts, as the figures shown in the
Audited Final accounts must have become outdated. The rate of Gross Profit is
applied to the Annual T/o and the proportion of the loss to be borne by the insured
is
Sum Insured
= Amount payable
Rate of Gross Profit x Annual T/o
Those cost which should continue wholly or in part or deducted from the Gross
Profit amount.
PROVISION FOR UNDERINSURANCE
The sum insured by this item is less than the sum produced by applying the Rate of
Gross Profit on Annual T/o, the amount payable shall be proportionally reduced.
EXCESS CLAUSE
Every claim under the Fire Loss of Profits policy is subject to compulsory
deduction as under:
Other than Petrochemical Risks: 7 days Gross Profit
Petrochemical Risks : 14 days GrossProfit
ACCUMULATED STOCKS CLAUSE.
If stocks of finished goods which is accumulated is used to maintain the turnover
when production is affected adversely, during indemnity period, account is to be
taken of this use and turnover figures are adjusted accordingly.
SUM TO BE INSURED
The sum insured should be at least one year's gross profit, even if
indemnity period is less that 12 months.
If indemnity period is more than 12 months, the sum insured will be a
multiple (i.e. proportionate) of the annual G.P.