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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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15 O&M Issues in Solar Farms

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

Damage caused to the perimeter fence can immediately have a negative effect on facility operations. Whether the damage was due to vandals, a storm or even an animal, this is an item that needs immediate attention. Not only can people be injured due to the high voltage produced by the system but the expensive equipment is at risk if intruders enter the area with intent to destroy or steal items. Regular inspection and quick response to this is crucial for all solar farms.

Perimeter Fence Damage

Damage caused to the perimeter fence can immediately have a negative effect on facility operations. Whether the damage was due to vandals, a storm or even an animal, this is an item that needs immediate attention. Not only can people be injured due to the high voltage produced by the system but the expensive equipment is at risk if intruders enter the area with intent to destroy or steal items. Regular inspection and quick response to this is crucial for all solar farms.

Ground Erosion

A naturally occurring process in nature, soil and ground erosion are caused by water and wind. Expected as a gradual occurrence 15 O&M Issues in Solar Farms Optima Insurance Brokers and planned for at a certain periodic rate, sudden erosion can have a deleterious effect on a PV plant. Loss of topsoil can lead to reshaping of the ground and the creation of channels, holes and slopes in earth. This could cause racking to shift affecting the ability of panels to generate the energy. It could also lead to flooding and destruction of equipment. Proper and frequent site monitoring will alert asset managers to anything out of the ordinary happening that could put operations at risk.

Transformer Leakage

Routine maintenance that certifies that transformers are in good condition every year helps avoid transformer leakage. A
transformer leak can cause land contamination and other safety risks. Knowing if a leak is present and planning for
maintenance to repair or replace it can be key in keeping energy generation at a maximum. There several ways to carry
out preventive maintenance in transformers. Monitoring transformer oil temperature, pressure and level to prevent a
transformer from leaking in the first place is the best way to avoid down time issues. To prevent fatal errors, a parameter
range is set and automatic alarms can be issued to check on site before the problem scales.

Various Inverter Damage

Taking the low voltage, high current signals from PV panels and converting into the voltage compatible with the utility grid, inverters are core components of grid-connected systems. Monitoring of inverters is of high importance, since
changes to voltage and frequency may occur that affect performance as well as the safety of those in proximity. Inverter
damage may lead to the complete failure of the PV plant or Optima Insurance Brokers partial string outages as a result of defective inverters. Inverter failures are responsible for roughly 80% of PV system downtime. Clearly a response to any inverter damage must be taken quickly.

Broken Conduit

A broken conduit poses danger of shock as well as chaos on the operating system as charges are uncontained. When the construction of a site is finished and the plant goes into operation, earth movements may happen as the ground stabilizes. These movements can cause broken conduit and other issues with cables. Measuring isolation on cables ensures underground runs are damage free. This is important because broken conduit can cause a cable to break or damage the insulation that can cause a fire and personal hazards.

Combiner Box Damage

With the ability to simplify wiring, combiner boxes combine inputs from multiple strings of solar panels into one output circuit. Normally 4 to 12 strings are connected to a combiner box. If damaged, they pose a safety risk as well as a major decrease in productivity.

Vegetation Overgrowth

Although, majority of the solar projects in India are situated on barren land still vegetation in some cases can transform from a benign nuisance in to a major issue very quickly. In addition to attracting animals that then cause their own brand of destruction, vegetation can shade cells, interfere with wiring and affect structural integrity.

Cell Browning/Discoloring

In addition to providing power, UV radiation will lead to aging in Optima Insurance Brokers panel cells, seen as browning and discoloration. This degradation in the film leads to impaired output and productivity

Panel Shading

When designing a PV plant, it is critical that trees and other obstructions are cleared. PV cell electrical output is very sensitive to shade. If shaded, cells do not add to the power produced by the panel, but they absorb it. A shaded cell has a much greater reverse voltage compared to the forward voltage of an illuminated one, it can absorb the power of many cells in the string and the output will fall drastically. Removal of any trees or structures causing shading will help optimize power output.

Shorted Cell

A shorted cell can impact productivity if not addressed in a timely manner. Production defects in semiconducting material often go undetected before PV cells are put into solar panel assemblies. Identifying these defects through testing via infrared imaging has been used for more than a decade. This efficient, costeffective test and measurement methods for characterizing a cell’s performance and its electronic structure help ensure maximum energy production.

Natural Damage

A hailstorm, sand storm or high velocity winds can wreak havoc on a solar power plant. Damaged panels, or wind torn racking and other equipment can severely decrease output or completely put a system out of commission. Keeping a pulse on the severe weather and inspecting the equipment following a storm is necessary for the overall health of the solar farm.

Vandalism Damage

Vandals pose a major threat to any PV facility. Whether they are stealing or destroying wiring, panels or other equipment, system damage can occur. A solar farm in Uttar Pradesh suffered damages due to vandalism done by some local goons present near the project site. Detecting this damage through the use of solar monitoring equipment minimized outages and losses.

Racking Erosion

Eroding structures can be a nightmare for a PV facility. Once the structural integrity is degraded, risks to proper water and wind flow within the facility are elevated which can gravely impact the functioning of the facility. As racking moves, panels are moved from their optimal positioning and energy generation suffers.

Unclean Panels

Dust, snow, pollen, leaf fragments, and even bird droppings – all can absorb sunlight on the surface of a panel, reducing the light that reaches the cells. Clean surfaces result in increased output performance over the lifespan of the equipment. Routine cleaning should be a part of all O&M plans.

Animal Nuisance

No matter whether an animal burrows under a perimeter fence, jumps over it or goes right through it – animals need to be kept out of a solar farm. Once inside the perimeter, they seem to have a way of finding wires to chew and unknowingly destroy equipment.

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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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Free Covers in C.A.R. Insurance

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

Insurers give certain free covers in the C.A.R. policy if the sum insured is more than Rs 100 crores (INR 1 billion). Recently some insurers have started offering these covers even if the sum insured is more than Rs 50 crores (INR 500 million)

The important free covers and there description are given below for the insurance buyers’ easy understanding:

Waiver of Subrogation

This clause means that insurers will not be proceeding against any of the parties who are associated with the project and covered under policy, for recovery. e.g. If sub contractor’s negligence has resulted in loss, insurance company can normally proceed against them for recovery following payment to Principal. But if this waiver has been agreed, they will not

50:50 Clause

This clause comes into play, when there is a doubt whether the claim will fall under marine or erection. Under such circumstances, loss is contributed 50:50 by both the policies.

Waiver of Contribution

This clause provides for waiver of applicability of contribution clause between Principal and the Contractor (only) i.e. if there are more than one project policies covering the same interest, then the policy carrying this waiver would become the primary policy and in case of any loss, would pay up without waiting for contribution from the other policies.

Loss Minimization Expenses

Upto the limit specified on the face of the policy, the policy pays for all expenses incurred to reduce/ minimize the loss (over and above the main loss payable under the policy) e.g. there is water inundation in the project site, the client will incur expenses for removing sound equipment to a safer location. The policy will pay such expenses because if the equipment were allowed to remain on site then they would have suffered higher losses.

Automatic Reinstatement Of Sum Insured

Subsequent to the payment of a claim the insured is supposed to reinstate the sum insured to the extent of loss paid else it may suffer under insurance for future losses .Under this clause, upto the limit specified the sum insured is automatically reinstated , following settlement of a claim, without any additional premium being paid .

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Design Defect Cover in C.A.R.

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

There are five DE exclusions and they fall in three categories; Outright Exclusion, Cover for Consequential Damage, Exclusion for Betterment & Improvement

  • Table has a design defect in one of its leg The defective table leg buckles and the table falls on the computer. The table, vase, phone and the computer are damaged.
  • Flower Vase is placed on the table
  • Computer is installed next to the table
  • Leg is the defective item
  • Table is the defective property

The defective table leg buckles and the table falls on the computer. The table, vase, phone and the computer are damaged.


Excludes all damages due to design defect. Any damage to table leg, table, flower vase as well as the computer is excluded if these items were damaged due to design defect of the table legs.


Permits cover for damage to the property of the insured (which does not rely upon the defective property for support) surrounding the defective property. Hence damage to computer is covered but damages to table, vase and phone are not covered since they rely upon the defective property for support.


Permits cover for the damage to all the insured’s surrounding property whether relying upon the defective property for support or not. Hence damage to computer, vase and phone is covered. Damages to table are not covered


It is similar to DE3 but is intended to apply in respect of machinery rather than building work.


Covers damages to the defective property (table) also alongwith the coverage available in DE2 and DE3. But excludes any cost for betterment of the defective item (table leg) or improvement in the specification of the defective property (table).

For more information on Contractor’s All Risk Policy or other insurance products to cover construction risks, write to us on info@optima.co.in

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Financial Protection from Natural Calamities

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

Earthquakes across the world have been having a crippling effects on the assets and operations of business enterprises. The latest earthquake in Nepal is a grim reminder. Losses caused by natural disasters have a severe financial impact on businesses and therefore it becomes important for business to be adequately covered.

We want to remind managers to assess their:

  • Adequacy of the sum insured
  • Need for Business Interruption insurance

How to get my Sum insured right ?

Sum insured represents the maximum liability of the insurers in the event of the claim.

A common question which puzzles the managers / owners is “What would be the right value for which we should get the insurance for ?” It may not be always possible to get the sum insured 100% accurate, but the attempt should be to reach as close as possible to the actual value of the assets .

The insurance of assets ( Building, plant and machinery , furniture, fixture and fittings) are mainly done on either of the following basis; “Reinstatement Value Basis ( RIV)” or “Market Value Basis”. The option lies with the client to choose any of these Insurance on reinstatement basis would mean that the sum insured should represent the “new replacement cost” of the assets , whereas the market value would mean insuring the assets on “depreciated basis “. The sum insured would definitely be higher in the former and consequently the premium outgo will be higher , but in case of a loss the insured gets enough reimbursement to buy a new asset to replace the lost / damaged asset. If the assets are insured on depreciated value basis the insured will get a fraction of the actual expenses done to rebuild or reinstate the damaged assets.

Few common mistakes which need to be avoided are :

  • Insure on book value / capitalised cost
  • Depreciate the capitalised cost
  • RIV clause incorporated under the policy, but the sum insured is on depreciated basis .

Please keep in mind that stocks should always be insured on market value basis .

Do we need to have Business Interruption (Loss of Profit) insurance?

The effects of natural catastrophe do not end with the damages to the assets. Large scale damage can result in shutdown of operations. Loss of revenue due to such a shutdown is often much larger than the material damage losses. Such losses put a financial strain on the company, which can lead to insolvency of the enterprise .

Therefore it is important for a business to have a Business Interruption (Loss of Profit) policy also. The policy commonly called Fire loss of profit policy( FLOP) covers the reduction in turnover/ output due to shutdown of operations following a loss. The sum insured under the policy represents the anticipated gross profit during the year , which for the purpose this insurance should be the sum of “Net profit” and “Fixed Cost”. The loss is computed based on the reduction of turnover/ output during the interruption period (shutdown period) X rate of gross profit .

An important consideration for the BI policy is arriving at the correct “indemnity period”…this represents the insured’s guesstimate of the maximum period of interruption which can happen following a loss. Natural catastrophes like earthquake can result in devastating damages which may require long period to rebuild and restart the facility. Thus while arriving at the indemnity period , few things one needs to keep in mind are; the maximum period which might be required to reconstruct the building ( including time to be taken to get the necessary clearance ), lead procurement time for machinery , installation time for machinery (it would take more time to procure machines, if they are imported ) and lead time for repair/ procurement of critical spares.

Insuring the assets adequately and having a suitable business interruption cover goes a long way to protect an organisation in times of disaster

For any query or comments, write to us on info@optima.co.in

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