Highlights
Generally insurance policies cover only physical damage to property by insured perils. This, at best, covers the expenses incurred for repairing or replacing the damaged property. But what about the financial loss suffered due to interruption of business operations whilst the damaged property is being repaired or replaced?
This policy offers a solution by covering profit lost due to reduction in turnover arising from interruption of business following damage to the property insured.
This policy can be taken only in conjunction with Fire Policy or Machinery Breakdown policy.
This 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
The Fire Consequential Loss Policy can be extended to cover loss of profit to the insured due to :
1. Accidental failure of public electricity/gas/water supply
2. Damage to customer's premises due to perils covered under Fire Policy
3. Damage to Supplier's premises due to perils covered under Fire Policy
How to claim
The policy operates once there is a valid claim under the Fire Policy or Machinery Breakdown Policy.
The loss of profit is measured by comparing the turnover/output /revenue during the indemnity period with the turnover during the corresponding period in the previous year (known as the standard turnover).
Hence loss of gross profit = Rate of gross profit X Reduction in turnover = (Gross Profit/Annual turnover)X Reduction in turnover
The documents establishing reduction in turnover have to be submitted to the surveyor appointed by the insurance company.
In addition if any extra expenses have been incurred to minimize reduction in turnover the same are also payable subject to the overall sum insured.
