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Archive for the ‘Knowledge Series’ Category

Dos and Don’ts for Buying Health Insurance

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

Healthcare costs are going up everyday and illness and hospitalization affect our finances, our earning capacity and our daily lives. Here are some Dos and Don’ts for buying Health insurance.

Do’s.

When you buy a health insurance policy you should:

1. Know that there are restrictions on coverage.

2. Pay special attention to terms and conditions in the policy like:

  • The clause excluding pre-existing diseases
  • Waiting period before certain diseases can be covered
  • Restrictions or limits on various expenses relating to hospitalization
  • Co-payment, which means you have to share a part of the claimWaiting period before certain diseases can be covered
  • Pre-conditions for renewal
  • Upper limits for age at entry and for renewal

3. Disclose details of all pre-existing health problems including

  • Major ailments
  • Conditions like high blood pressure or diabetes

4. The company may want medical test reports depending on age at entry, you should comply with all procedures and documentation requirements.

5. Check where and how the medical tests will be carried out.

6. Check who should bear the cost for the tests

7. Pay the premium only after the insurer accepts your proposal.

8. Renew the policy meticulously for the rest of your life

Don’ts.

When you buy a health insurance policy you should:

1. Conceal facts or you could face a dispute at the time of a claim

2. Allow a gap of even one day in your policy renewal or your cover may be insufficient or useless


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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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Central Locking and CNG A Lethal Combination

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

Within a couple of decades of the urban transportation revolution brought in by Maruti and its iconic product – the Maruti Suzuki 800, cars have shifted from being a plaything of the rich into a necessity of the masses. A requirement of every family today, they come in all sizes, shapes and styles, suited according to tastes and pockets.And with this rush in demand and competitive pricing, a host of new and fabulously attractive features come into the market every year. One of the earliest such features is the central locking system. While early versions locked and unlocked the doors with the press of the car key itself, the introduction of the remote locking system on the car keys in 1982 soon created a new norm in the industry. Once considered a novelty available only in high priced cars, today the sight of a man locking/unlocking his car at the push of a button on his key fob is commonplace.

However, this most mundane and necessary feature has recently gained notoriety by acting as a death trap during road accidents. There have been numerous cases of central lock malfunctioning leading to death of car owners in recent years. In a tragic incident on 3rd of October this year, five persons, including two women and one child, were burnt alive after their car fitted with a CNG engine caught fire immediately after an accident. The car had rammed into a stationary tractor trolley on the National Highway in Haryana’s Palwal and the unfortunate passengers could not get out of the car as the central locking system got jammed because of the impact of the accident. This is not the first case of its kind. Consider the following cases: In May 2012, a 22-year-old man was charred to death in Najafgarh when the car he was driving caught fire and he got trapped inside due to a malfunctioning central locking system. In July 2012, four members of a family, who were trapped in a car that plunged into a rivulet near Idukki district, lost their lives because the central locking system prevented the passengers from getting out of the car. The general manager of BMW’s Gujarat business partner, Parsoli Motors, and three technicians were killed in 2009 when their BMW on an inspection run crashed. The crash caused a short circuit and the BMW caught fire. They were all burnt to death, trapped in the car after its central locking system reportedly failed. It is the first such incident in the world involving a BMW.

The reason behind these tragic incidents is a very basic feature of the central locking system.The system locks and unlocks the car doors and windows at the push of a button. Similarly the driver can lock all doors and windows through a set of buttons at his fingertips.An accident will most definitely result in a major fire and since the fire’s heat will affect the car cables and electronics first, the chances of a central locking system malfunctioning in a CNG kitted car increases. The ultimate result of being trapped in a burning metal box with no means of escape can only be death, as is so tragically brought to notice by the details of the accidents discussed earlier.

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.

There exists no mechanical way of addressing this problem. Any tampering with the system’s functioning will only result in a serious compromise on your car’s everyday security. There is only one way out of this problem. And that is good old common sense. There exist some very simple methods of ensuring that in the event of an accident you do not become a prisoner in your own car.

  • Always keep the number of the Local authorities handy. All major highways now display the emergency phone numbers of the police, ambulance and fire stations. Make sure that these are noted down and kept in an easily accessible place in your car
  • Remember that the windows are glass. Carry a small hammer that can be used to shatter the panes in case of any malfunction. Carrying the tool kit under the driver’s seat is also a good option as its heavy spanners can perform the same task effectively.
  • Cars with manual windows do not suffer with the same problem as a fully automated car. Even if the locking system fails, remember that the windows in
  • Always carry a small fire extinguisher inside the car cabin where it can be easily reached.
  • Be careful with CNG cars. The fire extinguisher is an absolute necessity. And never fit an LPG cylinder in your car. This modification has no safety features at all. A fitted CNG kit is worth every penny you will pay for it.
  • Maintenance of your car is also vital. Not every accident leads to a fire and those which do can almost always be traced back to a faulty wiring or mechanical glitch that could have been detected and resolved by good car servicing.
  • Lastly, remember not to panic. Your fear imprisons you far more effectively than any malfunctioning machine.


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Claiming Health Insurance Can Be Harrowing. You Can Make it Hassle Free

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

Do not make false declarations while taking the policy. The proposal form is the basis of the contract with the insurer. Obviously, insurance companies can’t be expected to honor a claim if the claim is not made in accordance with agreed terms.
5 POINTS TO REMEMBER

Proposal Form is Sacrosanct

Do not make false declarations while taking the policy. The proposal form is the basis of the contract with the insurer.
Obviously, insurance companies can’t be expected to honor a claim if the claim is not made in accordance with agreed
terms.

Fill the complete form yourself and sign it yourself. Do not leave it upon your agent

Read the Policy Document

It is important to read and understand the terms and conditions of a policy well. Ask your insurance broker to explain any term that you do not understand. Be clear about the policy you plan to take to avoid any hassle or heartburn in the future. Insurance companies will honor a claim if the claim is.

Check for Co-Payment Clause

Many policies impose co-payment if treatment is taken in a hospital outside the insurer’s network. It is, therefore, important to know the existence of this clause and to check whether the hospital of your choice is in the network or not. This payment should not come as surprise and a disappointment to you.

Submit All Documents

The documentation checklist required for health insurance claims usually includes first prescription of the doctor, any treatment related documents, investigation reports (X-rays, ECG, lab reports etc.), original medical bills and receipts of the hospital, labs, doctors etc., besides an admission and discharge summary form from the hospital. In case of an accident-related hospitalization a copy of the FIR will also be typically required. Original documents have to be submitted. Insurers will not reimburse bills that are photocopies.

If it Still Happens

If an insurer repudiates a claim, insist on a repudiation letter that explains the basis on which the claim is repudiated. If you do not agree you can represent the claim again as per the escalation matrix in the grievance redressal machinery. If you are still not satisfied, you may approach the insurance Ombudsman, whose decision is binding.


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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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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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Crime Inusrance

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.

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 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 formermanaging 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, well-known 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 non-customers 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 by employees and by 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 about these policies is severely limited thereby exposing them to the serious financial ramifications of perpetrated crimes. It is vital that private businessmen and corporates alike educate themselves of these policies for their security.

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 risk management program.


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