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Protection From White Collar Crime

Posted on: November 7th, 2019 by shiv No Comments

Henry Ford, the genius entrepreneur of the last century, described his idea of doing business in a simple manner. “A business that makes nothing but money is a poor business”, he said and the behemoths of the financial world, both in India and abroad, had realised this statement to be true. Instead of short term goals and quick profits, a sound corporate philosophy, internal transparency and ethical practises make a venture successful in the long run. All the modern day business empires have ensured this vital internal health of their companies through an exhaustive grid of checks, audits and supervision but there always have been those who have been able to slip through the cracks in the system.

Corporate fraud has been an old enemy of every business house and in India where the economy has been growing rapidly in the last few years has reported a growing number of such cases not only raising anxiety in the mind of investors but also affecting the company’s reputation, confidence and its profit. In the past few years, the spate of crimes uncovered in the financial, banking and insurance sector shows some disturbing trends.

The biggest corporate fraud so far has been the one which shook Satyam Computer Services Limited, a scandal that caused loss to the investors to the tune of Rs.14,162 crore. The fraud was perpetrated by inflating the revenue of the company through false sales Protection From White Collar Crime Crime Insurance Corporate fraud has been an old enemy of every business house and in India where the economy has been growing rapidly in the last few years has reported a growing number of such cases not only raising anxiety in the mind of investors but also affecting the company’s reputation, confidence and its profit. In the past few years, the spate of crimes uncovered in the financial, banking and insurance sector shows some disturbing trends. Optima Insurance Brokers invoices and showing corresponding gains by forging the bank statements with the collusion of the statutory and internal auditors of the company. When the primary accused confessed to India’s biggest corporate fraud, Mahindra Satyam, formerly Satyam Computer Services, lost almost 25-30% revenue between January 7 and April 13, 2009- a shock that not many other firms would have been able to bear.

In another recent scandal saw a former managing director and chief operating officer of Reebok India being accused of setting up secret warehouses of stolen products in Delhi, fudging accounts and making fictitious sales causing a loss of Rs870 crore to the company. In the retail sector too, wellknown companies such as the kidswear brand Lilliput and grocery chain Subhiksha have also faced serious cases of accounting fraud.

Even financial powerhouses are susceptible to these crimes as seen by the case of a former relationship manager of Citigroup Wealth Management who had allegedly diverted funds to the tune of over Rs300 crore from customers and noncustomers of Citibank into personal accounts and had been investing in the equities market for over a year, before he was arrested in December 2010.

Since corporates do not like to report frauds for the fear of loss of reputation the exact amount of losses that corporate India faces is not clearly discernable. However, a latest report by Ernst & Young claims that the cumulative effect of the different types of frauds in the Indian economy in the last fiscal have caused losses amounting to a staggering Rs 6,600 crore. Around 63% of the total fraud cases in FY12 were reported in the financial services sector alone, banks being the most common victim of frauds followed by insurance and mutual fund companies. Earlier this year another study by a Pune-based company Indiaforensic claim Indian insurance companies have borne a loss of over Rs30,000 crore in 2011 due to different kinds of frauds. According to the first edition of Ernst & Young’s Fraud Indicators in India, the magnitude of frauds in the second half of FY2012 increased by 36% over the first half while the number of frauds rose by a mere 8% during the same period signalling that while the criminals may not be increasing in hordes but are certainly getting a lot smarter. In the recent Deloitte’s Banking Fraud Survey 2012, 83% respondents have indicated that fraud incidents will increase with 64% respondents indicating that the increase will be between 6-25%.

So, how do corporates deal with this menace? Since there is no way to completely eliminate frauds from the system, a robust corporate culture and institutionalised internal controls do act as a passive deterrent. Of the more active measures a company can take for insulation from the financial shockwaves of a major fraud is through the right kind of crime insurance. These insurance policies covers loss from frauds perpetuated both employees and third parties and are vital for the sustenance of not only major, multinational corporations but also smaller domestic businesses.

The threat of a financial fraud would be much more for a small scale, independent commercial venture but the awareness level of Indian businessmen and managemnts about these policies is severely limited thereby exposing them to the serious ramifications of any perpetrated crimes.

A crime insurance policy protects employers from dishonest acts of employees and provides cover for direct financial loss of money, securities and property.

A lifeline in case of such eventualities, the policy coverage includes theft, disappearance and destruction, and a multitude of fraudulent acts which include forgery or counterfeiting of money & securities, fraudulent alteration of payment instructions, fraudulent use of corporate credit or debit card, Computer fraud and fund transfer fraud. Any action of a devious employee that earns him a benefit at the cost of monetary loss to his company is guarded against effectively by these policies.

The policy also covers a very wide spectrum of people including part-time or temporary employees, students or volunteers under the insured’s supervision, trustees, fiduciaries or an administrator of any plan or project.

In the modern global scenario of connected networks and threat of database hacking by anonymous cyber criminals, the policy can be customised to a great extent and can cover frauds perpetuated by not only employees but also third parties and unidentifiable employees. However, it would also serve the employer well to understand the certain grey areas where standard crime insurance doesn’t extend its cover. The insurance would not be able to come to your rescue if the accused employee’s actions have not earned him a financial benefit and has caused only consequential loss (i.e. delay or loss of future trading) and not direct financial loss to the company. Similarly, even in the case of direct financial loss to the company, if the malicious intent of the employee is not proved and he doesn’t make a direct benefit himself, the policy cover doesn’t apply. Also, proprietary information, trade secrets and intellectual property loss are not covered under the standard crime insurance policy and any corporation desirous of guarding against these singular threats must ask their insurers to design a more customized policy to suit their needs. Crime insurance policies are the last line of defense of any business entity against an attack from within.

They lend longevity to a business by enhancing its survivability and are thus a vital component of any operational philosophy governing


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Consequential Loss Insurance – II

Posted on: November 7th, 2019 by shiv No Comments

Carrying our mission forward to present the above Loss of Profit insurance (as it is normally called) in the simplest form, we give you a fair idea of some of the important terms being frequently used in this insurance.

Property Damage Proviso

This provides that there should be a property insurance policy in force and also the property damage insurer have paid or at least admitted liability for the said property damage. The reasons for the introduction of this provision are not far to seek. Firstly, it is not difficult to understand that instead of incorporating the terms or warranties related to Property damage insurance in consequential loss policy; it is much better to have this proviso for fulfillment of the same terms and conditions. Secondly, it is more convenient to have one investigation done for the cause of damage rather than have two separate ones which may lead to

complexities and last but not the least, it is significant for consequential loss insurers to know monies would be available from property damage insurers to enable the insured to speedily reinstate the property thus minimizing the interruption of business.

Adjustment Clause

This makes the consequential loss policy calculate the real indemnity in the truest sense. This also silences the critics of insurance policies that insurers are not rising to the occasion for industry and trade. It is done by incorporating the following wordings. The wordings are explained at length with suitable example.

(1) The trend of the business

In case the business in question was showing a rising turnover just prior to the fire, the insured should be duly compensated for that trend. Vice-Versa, in case the trend was declining, the true indemnity theory should account for that as well. While calculating the rate of gross profit, it would be therefore essential to accordingly make adjustments. An illustration to this effect would clarify the situation:

It would be therefore be seen that in an upward trend there is an under insurance and in a down ward trend, there is an over insurance. Therefore, care should be taken in selecting and evaluating the sum insured depending upon the correct trend as far as possible.

(2) Variations and Special Circumstances

If no definite trend is available from the books of accounts or some positive trend which has recently happened, then there workings enable the insurer to accordingly adjust for such a trend.

For example, if a firm has just completed installation of additional improved machinery, and it can be shown that, but for the fire, substantially increased turnover would have resulted, and that stocks of raw materials would have been available, and that sale of increased quantity of finished goods could have been achieved then, on the assumption of an adequate insurance to cover the greatly enhanced gross profit anticipated, the company will indemnity the insured accordingly, by operating the adjustment clause to allow for the variation from pre fire trading.

We now give below the steps that are prescribed for calculating the amount payable for a loss in the under mentioned chronological sequence:


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Right Sum Insured in Fire Policies

Posted on: November 7th, 2019 by shiv No Comments

It is generally seen that every corporate at some point of time, has felt the need to know the methodology of arriving at the correct sum insured so that the dreaded ‘under-insurance’ factor or the Average Clause is not applied when a claim is reported.


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Basis of Indemnity and Sum insured for Electronic Equipment

Posted on: November 7th, 2019 by shiv No Comments

This article endeavors to clear the confusion around how the Sum Insured for Electronic Equipment should be taken and what is the basis is of claims settlement.

It is generally seen that every corporate at some point of time, has felt the need to know the methodology of arriving at the correct sum insured so that the dreaded ‘under-insurance’ factor or the Average Clause is not applied when a claim is reported. This is an oft repeated question asked almost universally in all kinds of seminars, meetings and particularly at the time of renewals.

We have discussed Sum Insured methodology under Fire Insurance in an earlier article. In this edition we shall look at Sum Insured methodology under Electronic Equipment Insurance (EEI) and All Risk Insurance.

As you know EEI is extended to electronic equipment which is stationary while All Risk Insurance is extended to portable electronic equipment. The terms and conditions of both the policies can be the same.

Basis of Sum Insured

It has been observed that a lot of confusion and misconception prevails around the Sum insured to be taken for electronic equipment. A common fallacy is to take the depreciated value of the electronic equipment as the Sum insured. Such a practice leads to an under insurance charge at the time of a claim which can sometimes result into a substantial deduction from the claimed amount. The insured generally misreads this as fraudulent behavior on part of the insurer.

The Sum Insured clause under EEI says that “It is a requirement of this insurance that the Sum Insured shall be equal to the cost of replacement of the insured property by new property of the same kind and same capacity, which shall mean its replacement cost including freight, dues and customs duties, if any and erection costs.” The same basis should be adopted for portable electronic equipment also.

We know that the rate of obsolescence in electronic equipment is high. It is also known that the replacement models are generally in same price range (unless the technology has changed substantially) although with better features. Since putting a price to such enhancement in features is a tedious and an inaccurate task, it is advised that the purchase price of the equipment should be kept as the Sum Insured in the subsequent years also unless the price has increased in which case the increased price should be taken as the Sum insured.

The sum insured of the equipment insured should also include the value of ‘System Software’ if purchased separately.

Basis of Indemnity

A similar confusion prevails around the amount that will be paid by the insurer in case of a loss. Again clarity should be obtained from the tariff which defines the basis of indemnity as:

a) In cases where damage to an insured item can be repaired the Company will pay expenses necessarily incurred to restore the damaged machine to its former state of serviceability plus the cost of dismantling and re-erection incurred for the purpose of effecting the repairs as well as ordinary freight to and from a repair-shop customs duties and dues if any, to the Page | 3 extent such expenses have been included in the Sum Insured. If the repairs are executed at a workshop owned by the Insured, the Company will pay the cost of materials and wages incurred for the purpose of the repairs plus a reasonable percentage to cover overhead charges.

No deduction shall be made for depreciation in respect of parts replaced, except those with limited life, but the value of any salvage will be taken into account. If the cost of repairs as detailed hereinabove equals or exceeds the actual value of the machinery insured immediately before the occurrence of the damage, the settlement shall be made on the basis provided for in (b) below.

Simply put, in case of partial loss the insurer will reimburse the complete amount spent by the insured to restore the equipment to the condition it was prior to the loss. However if items with a limited life span are replaced then suitable depreciation will be deducted on them.

To avoid dispute it is advised that the rate of depreciation (depreciation schedule) should be finalized with the insurer at the time of policy issuance.

b) In cases where an insured item is destroyed, the Company will pay the actual value of the item immediately before the occurrence of the loss, including costs for ordinary freight, erection and customs duties if any, provided such expenses have been included in the sum insured, such actual value to be calculated by deducting proper depreciation from the replacement value of the item. The Company will also pay any normal charges for the dismantling of the machinery destroyed, but the salvage will be taken into account.

Simply put, in case of total loss the insurer will reimburse the new replacement cost of the equipment minus suitable depreciation.

Again it is advised that the rate of depreciation (depreciation schedule) should be finalized with the insurer at the time of policy issuance to avoid disputes.

c) In cases where the Insured item is subjected to total loss and meanwhile it becomes obsolete, all costs necessary to replace the lost or damaged insured item with a follow-up model (similar type) of similar structure/ configuration (of similar quality) ie low, average or high capacity – will be reimbursed.

If the sum insured is less than the amount required to be insured as per Provision – 1 hereinabove, the Company will pay only in such proportion as the sum insured bears to the amount required to be insured. Every item if more than one shall be subject to this condition separately.

As mentioned above, it is better to err on the side of caution and take the purchase price as the Sum insured in the subsequent years also. However this should be suitably adjusted if the price of equipment has seen substantial increase in the preceding year.


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Consequential Loss Insurance (Fire) or Loss of Profit Insurance

Posted on: November 7th, 2019 by shiv No Comments

As in the past in our knowledge series, we shall endeavor to present the above insurance in the simplest possible way with a view to elicit interest and also to exemplify its importance.

As in the past in our knowledge series, we shall endeavor to present the above insurance in the simplest possible way with a view to elicit interest and also to exemplify its importance.

When a fire occurs at premises used for the purpose of conducting a business, whether industrial, mercantile or Professional, the owner of the business will usually be insured against damage to his property by fire etc and will in due course be able to recover his material loss. With the proceeds of his claim he can, in time, replace his lost or damaged property and resume his business but, until this can be done, the profits which he was previously earning will have ceased, wholly or in part.

In addition, there will almost certainly be fixed expenses arising from the business e.q. salaries, rent, municipal taxes, which be will have to continue to meet, even if his profits have entirely vanished.

Faced with the situation, he may find means to reduce or even eliminate the loss of his profits but this will call for expenditure perhaps substantial – which he may not have the funds to meet. It is to meet this situation that loss of profits insurance have been devised and subject to a suitable type of policy and an adequate sum insured, it affords an insured complete protection against the reduction or cessation of profits following a fire and place him in the same position as though the damage had not occurred.

In these circumstances, a loss of profit insurance should appeal to any businessman as an essential complement to Fire Insurance.

We shall proceed ahead to give a brief idea of important definitions and ingredients which needs to be understood before obtaining a policy:

a) Net Profit:

The net trading profit resulting from the business of the insured at the premises. This does not include all capital receipts and accretion. Provisioning for all fixed charges shall be made including depreciation but shall not include taxation chargeable on profits.

b) Standing Charges:

These are the fixed expenses whi ch wi l l never theless continue to accrue to the insured despite the cessation of business e.q. Rent, Municipal taxes, fixed interest on capital, Advertising etc

c) Indemnity Period:

The period commences when the damage by fire occurs, and ends when the business ceases to be affected there by, subject to the maximum period specified in the policy.

d) Turnover:

The money paid or payable to the insured for goods sold & delivered and for services rendered in course of the business at the premises.

e) Rate of Gross Profit:

The Gross Profit explained above divided by turnover during the financial year immediately before the date of the damage.

f) Annual Turnover:

The turnover during the twelve months immediately before the date of the damage.

g) Standard Turn Over:

The turn over during that period in the twelve months immediately before the date of the loss which corresponds with the Indemnity period. This st mean that if a fire occurs on 1 January and the business is affected during the following three months, January to March, then in ascertaining the shortage in turn over, the figures for those months are compared with January to March in the preceeding year. This is fairness personified especially in case of seasonal trades.

Measure of Indemnity:

With the aid of the above stated definition, it would now be possible to state in simple terms how the insured would be compensated in the event of a loss. The amount payable shall be under two heads, which are described as below:

(I) Reduction In Turn Over:

It shall be he sum produced by applying the rate of gross profit to the amount by which the turn over during the indemnity period shall, in consequence of the damage, fall short of the Standard Turnover.

(II) Increase In Cost of waking:

It shall comprise the additional expend it urenecessarily and reasonably incurred for the sole purpose of diminishing the reduction in turnover but the amount shall not exceed the sum produced by applying the rate of gross profit to the amount of reduction there by avoided. We shall go ahead by giving you a very simple accounting applicability of this policy and make you clearly understand how it fully compensates an insured. By this example, you will able to appreciate that all the aspects are duly taken care of by insurers.


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10 Questions About Health Insurance

Posted on: November 7th, 2019 by shiv No Comments

It is the standard practice in all mediclaim policies to release the payment against the original bills only. This prevents duplicacy of payments and even frauds. However certain medical records can be returned to the claimant on request.
You Always Wanted to Ask, But Didn’t Know Whom To

1. Do we need to submit all the claim documents in original?

It is the standard practice in all mediclaim policies to release the payment against the original bills only. This prevents duplicacy of payments and even frauds. However certain medical records can be returned to the claimant on request.

2. Why pre-post hospitalization expenses are not covered for maternity?

Child birth is not a disease, illness or ailment and is therefore not covered under any standard medical insurance policy. However a maternity cover is granted in corporate policies as a value added benefit. But it is not treated at par with usual diseases treatment reimbursement parameters. Therefore insurers do not cover pre & post hospitalization expenses in the maternity cover.

3. What is the time limit for settlement of a reimbursement claim?

The standard time limit for settlement of any claim is 15 days from the date of submission of the documents to the approving authority or reply to last query raised whichever is later.

4. The insurance company deducted some amount from my reimbursement because a couple of reports
were not submitted. Can this amount be recovered by submitting the reports now?

Yes, you can submit these reports and get the reimbursement for them but if they are submitted immediately after the settlement. The insurer will not reimburse if there is a delay of more than 15 days in submitting such reports from the day of the settlement of the claim.

5. Why has the insurer not reimbursed the bills for non medical items?

They were prescribed by the doctor.

In a health insurance policy, the focus is on actual expenses made strictly towards treatment and other expenses are excluded under a written stipulation mentioned in the policy document. Expenses on non-medical items like Disposable Pads, Cotton, Baby Oil, Soap, Glucose, Foot Pad, Tissue Paper, Sanitary Paper etc. are not reimbursed by the insurers.

6. Certain tests were prescribed by the doctor before the operation. However I was not hospitalized because of favorable test reports. Why were the tests disallowed as ‘Observation & Investigation’ and not paid?

Expenses are generally made under following 3 categories:

  • OPD Expenditure
  • Tests for evaluation
  • Hospitalization

The medical policy is mainly designed to cover 24 hour hospitalization and not those covered under point 1 & 2 above. However the tests for evaluation done within 30 days prior to hospitalization and within 60 days after discharge from the hospital are paid as pre & post hospitalization part of the claim. Tests which do not lead to hospitalization are not paid. This is a universal feature of the medical policy.

7. Why has the insurer not reimbursed the bills for medical instruments? They were a part of the treatment.

To keep the premium of the policy affordable insurers do not include medical instruments like thermometers, disposable syringes, insulin pump etc. for reimbursement. Accommodation of the cost of such items will increase the cost of the policy phenomenally and will make it beyond the reach of the common man.

8. Is it possible to re-claim a rejected cashless through reimbursement?

During a cashless approval the insurance company’s (or TPA’s) doctor has to evaluate the merits of the claim within an hour and send a response to the hospital. Sometimes the doctors are not able to decide in favour of the claimant due to lack of information or clarity of information. In such cases the cashless approval is not granted. However it does not mean
a rejection of the claim. Such claims should be sent for reimbursement. When all the documents reach the insurer after hospitalization, they are able to take a well informed decision and such claims are generally paid on merits.

9. The insurer deducted some amount from the claim. The reason mentioned was ‘Limit Exhaustion’. However there was sufficient balance in my sum insured. Why was the entire amount not reimbursed?

In addition to the overall limit of Sum Insured there are sublimits in the policy under different heads like room rent, doctor’s fees, and medicines. Sub limits on sum insured are also enforced by the insurer on treatment of certain diseases like cataract, hernia etc. The insurer will not reimburse more than the sub-limited sum insured for such treatments. This is done to control the claims and also to ensure that the balance sum insured can be utilized for another treatment if required.

10. Why acknowledgement of payment on the letter pad of the hospital is not acceptable in absence of proper numbered bills or a receipt?

All financial transactions are governed by standard accounting practices which require numbered stationary in standard format. Such procedures also help the insurers in controlling frauds.


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Protection From Protectors

Posted on: November 7th, 2019 by shiv No Comments

Companies have shown strong predilection towards out sourcing of blue collared jobs. Peons, office boys, pantry staff, drivers, cleaning staff and guards etc. are now routinely being hired from specialized companies that provide such man power.

Dealing with Theft by Guards

Companies have shown strong predilection towards out sourcing of blue collared jobs. Peons, office boys, pantry staff, drivers, cleaning staff and guards etc. are now routinely being hired from specialized companies that provide such man power.

Although such outsourcing provides economical and administrative benefits, it also opens companies to new risks, which
insurance and risk managers many times fail to take into account.

A manufacturing company in Gurgaon had hired guards from a reputed security services company. One of the guards drugged his colleagues one night and allowed his partners in crime to come inside the company warehouse to steal goods worth Rs. 1 crore. Although the company had taken a burglary and theft policy, the insurer could not pay the claim as the loss had happened with the complicity of the guard employed by the company. A clause in the burglary policy specifically excludes losses due to connivance of the staff. The company tried to recover the loss from the security company that had provided the guard. After much acrimony and negotiation they could recover only 20% of the loss amount.

This is a very relevant risk that almost all organizations face today but unfortunately very few have taken steps to mitigate this risk. Most organizations take a Burglary and Theft insurance, however this policy covers losses due to burglary or theft done by any party not connected with the insured in any way. Loss of company property due to complicity of the insured’s employees either directly employed or hired from an outsourcing agency, are not paid under a Burglary and Theft policy.

If this is so then how can such a risk be mitigated? The subsequent paragraphs would provide an insight into the alternative solutions to the risks of employee dishonesty.

Risk Transfer in the Form of an Insurance Cover

Fidelity Insurance (more commonly known in India as “Fidelity Guarantee insurance”) is designed to provide cover to the employers against dishonesty of the employees. The policy covers theft of not only the money but also goods/ stock belonging to the insured. Both, an opportunistic theft or misappropriation of funds over a period of time, are covered under this policy. Thus a loss because of a security guard stealing stocks of garments from a retail store in connivance with outsiders,will not be covered under a Burglary policy. However a Fidelity Guarantee policy will cover this loss.

Certain Key Words Used in the Operative Clause of the Policy

  •  “Loss of money or goods” – The policy covers loss of money or goods.
  • “Belonging to or held in trust by the insured” – Goods and money belonging to insured ( employer) or which he is
    responsible for are covered under the policy e.g. if the employee runs away with the money or personal property of a visitor/ or a neighbour , for which the insured is not responsible , the loss will be not be covered under the policy.
  • Caused directly by fraudulent and dishonest act” – The policy covers only direct losses. Consequential financial losses are covered.
  • “In connection with his employment with his/ her employment with insured” – The policy will not cover theft by an employee outside the course of his/ her employment.

From the above discussion, it gets established that any direct losses of money and material due to the dishonesty of employees can be covered under Fidelity Guarantee Insurance. This will also include any thefts with the complicity of the employees.

Now the next question to be tackled is that guards provided by a manpower outsourcing organization like a security agency are not employees of a company. Therefore, will any thefts done by them or with their complicity be covered?

Insurers do not cover outsourced staff under Employee Fidelity Insurance. Hence it should not be implicitly assumed that all persons working on the premises of the insured would stand covered under the fidelity policy. However insurers have covered outsourced guards, peons, pantry boys etc. in the past, on payment of extra premium. Therefore the best course would be to specifically declare such staff and negotiate the terms of cover with the insurer.

In our next publication we will deal with another emerging risk, financial liability arising from theft of material or data by employees from a client.


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Cyber Liability for Hospital

Posted on: November 6th, 2019 by shiv No Comments

Digital data collection, storage and transmission are a must today. But these activities present new risks and challenges for the healthcare industry.

With the growth of electronic record keeping and digital communications, it is common for hospitals and other healthcare operations to amass a great deal of confidential information about their employees, patients, procedures, research, and financial status. Most of this information is collected, processed, and stored on computers and transmitted digitally to other computers across networks both internal and external

The integrity of computer systems can be breached even with firewalls, virus detection, and many other safeguards in place. A breach can even result from a simple mistake such as a misplaced laptop or inadvertently unprotected back-­‐up media. An email could result in the crash of another party’s network or transmit a computer virus or other type of malware. Such breaches can lead to large-­‐ scale theft, pilferage or alteration of sensitive data.

Such challenges to a system can come from distant hackers or those close to facility’s operation. Even if state-­‐of-­‐the-­‐ art security controls are in place, there is still a risk from a determined criminal element that can bring operations to a halt. However, a large proportion of data breaches are not unknown hackers with criminal intent or a desire to cause vandalism to the system, but employees, former employees, or even business partners. Whether because of internal incompetence, malicious intent, or the desire to extort money, computer systems and the information they hold can be damaged, pilfered, or held hostage.

Protecting the privacy of patients is basic to the operations of any healthcare facility. That privacy can be compromised; personal information can be obtained in many ways and used inappropriately. The risks are not only that the information will be damaged, stolen, or misused but the actual or implied theft of improperly protected electronic data also can result in an extortion threat. The financial cost and cost of distraction of a hacker’s extortion demand that threatens to shut down an entity’s system or to expose confidential information can be enormous.

Hospitals and their risk managers should assess their cyber liability exposure and explore suitable insurance products for comprehensive risk coverage.

Other cyber risks include inadvertent wrongful disclosure of confidential information, an email, web file, or blog or forum posting t h a t could result in allegations of defamation. Legal actions against healthcare entities can also be related intellectual property theft, trademark or copyright infringement, libel or other defamation, and even product disparagement.

Risk Mitigation and insurance Coverage Are Essential

Organizations often fail to realize that exposure to cyber liability affects the bottom line as well as damages relationships with customers, vendors, and partners. Confidential information, content, knowledge, and business intelligence are vital information assets that must be protected. The establishment of an information security policy, constant vigilance, and the use of sound practices and industry-­‐recognized safeguard processes and technologies create a balance between the technological and procedural aspects of information security management. But the ongoing process of exercising due care and due diligence to protect information and information systems from unauthorized access, use, disclosure, destruction, modification, or disruption is not the only indispensable part of protecting 4 2 operations.

Business interruption resulting from a security failure, a cyber extortion threat and the costs related to privacy notification, the management of an information security failure, and the resulting disaster recovery costs are all challenges to a facility’s continued viability.

A cyber liability insurance policy is an indispensable part of any healthcare operation’s risk management program. With coverage’s tailored to meet the unique and evolving cyber insurance needs of hospitals and other healthcare organizations, appropriate insurance and the accompanying risk management services eliminate gaps in insurance coverage and position an entity for continued productivity.

Cyber Liability Coverage

A Cyber Liability policy covers the following:

  • Disclosure injury: lawsuits alleging unauthorized access to or dissemination of the plaintiff’s private information.
  • Content injury: legal actions arising from intellectual property infringement, including patent, trademark, and copyright infringement.
  • Reputational injury: allegations of the disparagement of products or services or of libel, slander, defamation, and invasion of privacy.
  • Conduit injury: demands for remedies for harm to third-­‐party systems allegedly resulting from system security failures.
  • Impaired-­‐access injury: suits, civil fines, and penalties arising from system security failure resulting in the computer systems of business partners or others being unavailable for use.

The policy can also provide the following riders:

  • Forensic costs: costs to determine how the breach occurred.
  • Crisis management and reward expenses: 3 including the cost of public relations consultants to maintain the reputation of the business.
  • E-­‐threat or cyber extortion: including the cost of a professional negotiator and ransom payment to stop cyber attacks caused by malicious hackers.
  • E-­‐Vandalism expenses: paying the costs of malicious damage even when an employee causes such vandalism.

Optima Insurance Brokers Pvt. Ltd. is a leading insurance broking company based in Delhi and has a pan –India presence.

Optima manages insurance for more than 125 well-­‐known companies including GE, Honeywell, Nat Geo, E&Y, India Bulls etc. With a team of more than 100 accomplished professionals we are geared to handle the most complex insurance needs of our clients. For more information on this policy, contact us on info@optima.co.in


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Increasing Risk of Professional Indemnity in Hospitals

Posted on: November 6th, 2019 by shiv No Comments

A sudden and unpleasant attention has been focussed on the Indian healthcare sector with reports of high numbers of sepsis cases being reported in the ICUs of our country’s hospitals. A leading cause of deaths in hospitals globally, the infection caused by sepsis is not something commonly known in our country.

However, a recent nationwide study on the subject throws up some shockers. It claims that sepsis is contracted by one fourth of all patients admitted in ICUs. More jarring is the claim that half of those who contract the infection in India ultimately lose their battle with this deadly disease which induces massive organ failure. Interestingly the same study reveals that the major causes of theinfection are poor hospital hygiene and misuse of antibiotics.

Hospitals have been traditionally viewed with a sense of awe and utter dependency by the ordinary Indian. The hand of the doctor was almost equal to the hand of god and rare was the case when an Indian medical practitioner was accused for the death of a patient let alone held guilty and punished for it. However, growing awareness levels and the general economic upswing in the life of the average Indian has changed the traditional doctor-patient relationship in the Increasing Risk of Professional Indemnity in Hospitals Optima Insurance Brokers country. According to a newspaper report in January, the average number of cases dealt by Consumer Disputes Redressal Forums related to medical negligence and malpractice has seen a surge in the recent years. In some states it has arisen by a staggering 26 times within a timespan of merely five years. Hospitals and medical practitioners are not only being questioned and challenged by those dependent on their skills but are also being held accountable for their actions with repercussions that can be extremely trying both professionally and financially. A recent example was seen in the month of May this year, when AMRI hospitals of Kolkata, already reeling under the effects of the disastrous fire on their premises that killed 90 patients, paid a sum of Rs 1.7 crore in damages for the death of a visiting NRI more than 14 years ago in a case of medical negligence. What is more, despite this staggering sum, which is incidentally the highest in Indian medico-legal history, the hospital is being sued further in the highest court of the land for a sum of over Rs 200 crore.

Traditionally such cases are covered by the hospital management under Professional Indemnity Insurance(PI). This insurance covers legal liabilityarising from errors and omissions on the part of Registered Medical Practitioners while rendering professional service. It applies to claims arising out of bodily injury and/or death of any patient caused by or alleged to have been caused by error, omission or negligence in professional service rendered or which should have been rendered by the insured. Medical establishments and their staff including doctors, consulting doctors, management and even the unqualified staff like peons and sweepers are protected against legal claims made by any of their patients by this Optima Insurance Brokers policy. PI also pays for the cost incurred in defending the case. However the PI policy, on which many hospitals depend, can have some shortcoming and loopholes which if not addressed may not provide financial protection desired by the hospital management.

Firstly, many hospitals neither assess the value (sum insured) of the policy to be taken nor is this value revised periodically in line with inflation and the recent court awards. This leads to a dangerous situation where in most hospitals today have nominal PI policies of not more than Rs 25-50 lakhs whereas any future litigation against them in modern India is bound to run up in several crores.The traditional PI policies are woefully inadequate in these times of increased social awareness, close media scrutiny and increasing individual incomes

Secondly, the PI policy treads a thin line when dealing with negligence on the part of the insured, in this case the hospital or the doctor. It covers for negligence but states that if the insured is guilty of wilful negligence the claim will not be reimbursed. Any non- complaince with laid down norms or generally accepted industry practices can be construed as wilful negligence. Any cost cutting by the hospital that can be linked to reduction in patient safety can be termed as wilful negligence. A low doctors or nurses to bed ratio can be considered as wilful negligence.

Thirdly, the insurance policy demands that the insured party continues to behave as if “not insured”. Almost every case pending in courts of law today claims that the doctor/hospital resorted to unnecessary procedures and thereby the increased risk in handling of the patient. If the Optima Insurance Brokers insurer is able to prove in the court that the increased risk was taken by the insured because he was being given financial protection by insurance, the insurer can refuse to reimburse the claim.

With changing socio-economic profile of patients and their families it becomes important for the hospitals and health professionals to review their risk periodically.

Optima Insurance Brokers Pvt. Ltd. is a leading insurance broking company based in Delhi with a pan India presence.We manage insurance for hospitals, clinic chains, healthcare consultants, ambulance services and NGOs in healthcare sector.

With a team of more than 150 accomplished professionals we are geared to handle the most complex insurance needs of our clients. For any query please contact us on

For any query please contact us on info@optima.co.in. Visit us at www.optima.co.in for more information on us.


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