Optima Insurance Brokers Pvt. Ltd.

Archive for the ‘Financial Risks’ Category

Credit Insurance

Posted on: November 8th, 2019 by shiv No Comments

The Credit Insurance Policy is designed for companies that are selling their goods and/or services on credit to domestic and/or overseas buyers. Credit Insurance provides companies with coverage for outstanding receivables that are within approved credit terms, protecting the Insured against risk of non-payment by its buyers.

The Policy covers loss due to any or all of the following risks in the domestic and international market:

  • Insolvency of a buyer
  • Non-payment or protracted default by a private (i.e. not a State-owned) buyer

Main Exclusions

  • Sales to an associate company
  • Non-payment arising due to trade disputes
  • Sales to State-owned buyers
  • Consequences of a decision taken by the government that hinders the execution of the sales contract or prevent the payment of the debt by the buyer
  • Deliveries, shipments or performance of services made after the company has refused or cancelled a credit limit
  • Non-payment arising from a failure, by the policyholder or any one acting on its behalf, to fulfil its obligations under any clause or condition of the sales contract

Sum Insured

The insurer, based on its credit assessment of the buyers, determines the insurable turnover and the credit limit(s) per buyer.  The insurable turnover is the Sum Insured.

Costs and Charges

In addition to the premium on the Policy, the following additional costs and charges are payable by the Policyholder: –

Main Exclusions

  • Credit Limit Charges: as mentioned above, credit limit charges are payable for every buyer evaluated for coverage under the Policy, as per rates stipulated in the NBO
  • Contribution to Recovery Costs: this contribution is payable for each initial notification of overdue account (i.e. for every claim) that the Policyholder sends to the insurer, requesting intervention by the insurer for recovery of debts

Policy Underwriting and Issuance Procedure

  • The Proposer submits information on its sales and buyers in the format stipulated in the Application Form.
  • Based on a preliminary assessment of the credit quality of the Proposer’s buyers, a Non-Binding Offer (NBO) will be made to the Proposer, specifying the part of the Proposer’s turnover that the insurer is willing to insure.
  • If the terms and conditions of the NBO are acceptable to the client, a detailed assessment of the Proposer’s buyers is undertaken and credit limits are assigned per buyer.
  • The credit limit for a buyer denotes the maximum limit of indemnity that the Company is willing to provide to the Proposer for that buyer, for sales to that buyer in the ordinary course of business.
  • The insured pays the premium and the policy is issued by the insurer.

Business Interruption Policy

Posted on: November 8th, 2019 by shiv No Comments

Popular insurance products like Fire Insurance, Machinery Breakdown Insurance cover the risk of physical damage to the assets. However the financial loss due to stoppage of work following a physical damage is not covered by these policies.

Business Interruption policies cover financial losses due to stoppage of work, which follows a physical damage either due to risks covered under a fire insurance or under a machinery breakdown insurance. These policies are also called Loss of Profit Insurance or Consequential Loss Policies. These policy provide financial relief only if the affected assets are also covered under a Fire Insurance policy or Machinery Breakdown Insurance, as the case maybe.

The policy covers:

  • Loss of gross profit. Gross profit is defined as the net profit plus insured standing charges (fixed expenses).
  • Increased cost of working
  • The gross profit of the indemnity period selected is the sum insured under the policy.

The indemnity period is the maximum period required to put the business back into normal operation after damage to insured property by an insured peril. The indemnity period commences with the date of damage and lasts till such a time as the business is restored to its pre damaged level or the period stipulated in the policy, which ever comes first. The indemnity period could vary from 6 months to 3 years.

Extensions:

  • Wages Lay – Off and Retrenchment Compensation and Notice Wages Liability
  • Auditor’s Fees
  • Supplier’s Extension
  • Customer’s Extension
  • Insured’s Property stored at other locations
  • Public Utilities Extension

Advance Loss of Profit (ALOP) Insurance

Posted on: November 8th, 2019 by shiv No Comments

This policy is particularly important for large greenfield projects where delay in project completion could have a substantial impact on the expected revenue of the Company, potentially impacting the sponsors’ ability to service debt and other fixed expenses.

The policy pays for Anticipated Net Profit plus Standing Charges (Fixed Expenses) during the period of delay, from the scheduled date of commencement of commercial operation up to the actual date of commencement of commercial operation, subject to a time excess and the Indemnity Period.

The delay must have occurred due to a loss during construction, and payable under the Construction/Erection All Risks policy.

The policy does not cover delay due to:

  • Inventory losses
  • Delay in shipment of supplies
  • Normal project schedule slippages
  • Non -availability of funds for repairs/replacement to damaged items
  • Cancellation of license or Govt. restrictions etc.

Some ALOP basics are:

  • The insured person in ALOP is the owner only. A contractor cannot be the insured.
  • Concurrent Material Damage (MD) insurance (EAR / CAR)  is a prerequisite 

  • Insurance period is identical to MD erection period



Marine Delay in Start Up (MDSU)

Posted on: November 8th, 2019 by shiv No Comments

Provides insurance coverage for the principal’s financial loss resulting from a delay in commencing commercial operation due to a material loss or damage covered by the underlying Marine Cargo policy.

Crime Insurance

Posted on: November 8th, 2019 by shiv No Comments

Crime insurance covers the losses resulting from criminal acts such as robbery, burglary and other forms of theft either by employees or third parties. It is a superior replacement for ‘Fidelity Guarantee Insurance’.

It covers acts by employees, third parties, temp or seasonal staff, contractors and outsourcing operations. Other than compensation for established losses the policy can reimburse fraud investigations costs.

This policy can cover any or all of the following risks:

  • Employee Theft
  • Forgery or Alteration
  • Inside the Premises – theft of money and securities
  • Inside the Premises – robbery or Safe burglary of other property
  • Computer Fraud
  • Funds Transfer Fraud
  • Money Orders and Counterfeit money

Some insurance companies can also provide the following extensions:

  • Client loss
- Where the insured is responsible for the care, custody and 
control of clients’ money, securities or property; and such 
has been lost under the main cover
  • Fees, costs and expenses
    • Auditor fees or investigation costs to identify covered losses
    • Legal fees in defense of demands or claims resulting from 
a covered loss
    • Fair and reasonable costs to restore the insured computers 
following a covered loss
  • Automatic Cover for Acquisitions 
- Cover provided if gross turnover and number of employees is each less than 15% and the business is not materially different from the insured’s current business
  • Discovery period
- If an insured decides to discontinue a commercial crime 
policy a discovery option is available to cover unknown loss

Money Insurance

Posted on: November 8th, 2019 by shiv No Comments

Highlights

Money Insurance policy provides cover for loss of money in transit between the insured’s premises, bank, vendors, customers, post office or other specified places due by robbery, theft or any other fortuitous cause.

The policy also covers loss by burglary or housebreaking whilst money is retained at Insured’s premises in safe(s) or strong room.

Scope of Cover

  • Section I: Covers money in transit including cash like instruments like Bank Drafts, Currency Notes, Treasury Notes, Cheques, Postal Orders and current Postage Stamps.
  • Section II: Covers money in safe, counter, till or on premises

Basis of Sum Insured

Two amounts are specified in the policy for the purpose of premium computation and liability:

  • Limits of liability for any one loss (i.e. maximum liability of the Company)
  • Estimated amount that will be carried between any two points during the year

Extensions

This policy can be extended to include

  • The risk of embezzlement by employees
  • Terrorism
  • Compensation to employees if they are injured in an assault resulting in looting of money been carried by them

Exclusions

  • Shortage due to errors or omission

Keyman Insurance

Posted on: November 8th, 2019 by shiv No Comments

What is Keyman Insurance?

Keyman Insurance is a Term Life Insurance cover affected by the company to compensate for the financial loss suffered following the death of a Key Member or Staff of the Organization. Keyman Assurance does not provide for indemnification of loss incurred but only for the benefits as per the plan of assurance selected.

Purpose of Keyman Cover:

It provides a financial cushion to the company for:

  • The loss of customers or sales affected by the keyman’s ability and personality.
  • The loss of day-to-day specialized skills.
  • The cost of recruiting and training a suitable replacement.
  • Delay or cancellation of any business project that the keyman is working in.
  • The loss of opportunity to expand in the future.
  • The loss of stable management and good labor relations.
  • Reduction of credit worthiness – recall of loans guaranteed by the keyman.

Who can be a Keyman?

Anybody with specialized skills, whose loss can cause a financial strain to the company are eligible for Keyman Insurance. For example, they could be:

  • Directors of a Company
  • Key Sales People
  • Key Project Managers
  • People with Specific Skills

Benefits to the Company

  • Insulate the risk of financial loss against loss of a Keyman.
  • Premiums paid under keyman insurance are fully allowed as Business Expenses under Section 37(1) of the Income Tax Act, 1961, subject to satisfaction of the assessing authority.
  • Interest on loans taken against a keyman insurance policy may also be allowed as business expenses.
  • Premiums paid by the company on the life of a keyman would not be treated as perquisites in the hands of such a keyman when the company’s request is accepted by the assessing authority.
  • Keyman Insurance policy is a positive measure to improve the retention of the keyman in the company.


Optima’s core group has more than 100 man-years of experience in insurance. Our experience has trained us in reading the fine print of insurance policies, understanding it and applying it for the benefit of our clients.

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