Optima Insurance Brokers Pvt. Ltd.

Archive for the ‘Policy Type’ Category

Product Recall Policy

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

It is a part of any commercial contract that the seller gives to the buyer what the seller has represented that it will provide. Hence while selling a product it is implicitly agreed that the product will perform the function for which it has been bought by a buyer, without problem and to the buyers satisfaction as reasonably understood.

If such a product does perform the stated function, threatens the buyers life or property or is does not perform upto the reasonably expected efficiency the seller should replace or repair it. Product recall is part of such an implicit guarantee given by the seller. 

Product recall is an expensive affair and companies end up spending millions of dollars, but it is an integral part of good business ethics and management of corporate image.  A product recall policy covers the expenses incurred a corporate to manage the recall and the cost of replacing / repairing the defective parts. The policy can be taken to cover recall internationally or in a particular region.

Premium is linked to the global experience the insurers have had with:

  • The product category. E.g. auto recall policy is more expensive compared to a refrigerator recall policy
  • The company. Previous case of recall increase the premium
  • The region. Litigious regions tend to have higher premium. E.g. companies operating in USA have to pay more that companies operating in India
  • The cost of recall. E.g. Recalling cars is more expensive compared to recall toasters.

Recalling company will have to setup a recall system that entails the following.

  • Track buyers if possible and send communication to them. Else issue broad media based notifications
  • Train local dealers to replace / repairs. If not possible then create a system whereby local dealer accept the defective product and send it to a central repair facility
  • Send an inventory of parts to the local dealers if they are going to repair.
  • Create a system to collect defective parts
  • Create a system to monitor and destroy defective parts
  • Create an audit system to monitor the percentage of replacements that have taken place
  • Create a system to manage residua liability that can arise from customers who have not got the defective part repaired inspite of reminders.

Transaction Liability Insurance

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

Need for Transaction/M&A Insurance

Every transaction whether stake sale or merger and acquisition carries risks and liabilities whether known or unknown. Representations, warranties and indemnification provisions provide security for the buyers. The indemnities provided in the Sale and Purchase Agreements (SPA) can be short term or long term depending on the negotiation between the buyer and the seller. Distribution of these risks and liabilities is always a contentious issue. The structuring of representations, warranties and associated indemnities can often threaten an otherwise mutually beneficial deal. Representation and warranties insurance can provide a viable solution to both the parties in reaching an amicable agreement and thereby consummate the deal.

What does the insurance cover?

The insurance provides cover for breach of express warranties and representation made in the SPA. The insurer steps into the shoes of the seller and indemnifies the buyer. The policy can be taken both by the buyer or the seller.

Buyer Side Policies

Provides compensation to the buyer in case of any loss arising out any breach arising out of representation and warranties given by the seller thereby freeing the buyer from pursuing the seller and his assets.

Seller Side Policies

Reimburses the seller for any losses that may accrue to the buyer on account of any inaccuracies in the representation and warranties made by seller.

Benefits for Sellers

  • Clean cut from the transaction without any long tail liabilities
  • Funds are available for immediate use and may not be parked in escrow accounts
  • PE/VC funds may want to redistribute the funds to their investors

Benefits for Buyers

  • May not get the desired level of protection/indemnities from the seller
  • May find it difficult to pursue the seller and recover losses on a future date
  • Enhanced protection in cases where the sale is a distress sale
  • May not want to pursue indemnities against principal employees who may continue to work with the buyer post acquisition.

Main Insurance Products

W&I insurance is designed to cover breach of representations and warranties and losses arising as a consequence.

Tax opinion insurance is designed to cover tax treatment of a particular transaction which the tax authorities may challenge at a later date.

Main Exclusions

  • Actual knowledge of a breach or fact which may lead to a breach
  • Frauds of the insured
  • Matters already disclosed

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.

Group Health Insurance

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

The policy covers expenses incurred by an insured person during hospitalization. The main benefits in the policy are:

  • Self, Spouse, Two Children and Parents (1+5) can be covered under family floater.
  • Maternity expenses are covered from the day the policy starts or from the day an employee joins.
  • New born baby covered from the time of birth
  • Pre-existing Disease is covered.
  • All expenses can be covered from the 1st day of the policy. i.e. waiver of all waiting periods
  • Cashless treatment at more than 3000 hospitals across India and all major hospitals in all cities.
  • Expenses incurred 30 Days before and 60days after hospitalization are also reimbursed.

Insurance Companies:

The policy is available from all non-life and health insurers in India. However we have observed that the four government companies give better prices and better services for group larger than 500 persons.

Why should Optima be a Preferred Partner for Group Health Insurance:

  • More than 4 lakh lives covered through us
  • More than 150 large companies are covered through us.
  • Strong relationship with TPAs, insurers and hospitals

We would provide the following services if we are given an opportunity to manage your health portfolio:

  • Sessions with employees on policy benefits
  • E-Enrollment of dependents to reduce HR work load.
  • Manage additions and deletions of employees, issuance of TPA cards and reimbursement claims
  • Provide SOS support for cashless claims
  • Maintain and provide updated MIS of various activities like – cards, claims, endorsements 
  • Help in claims control
  • Periodic review of the portfolio with the management team

Some of our value added services are:

  • Organizational Health mapping
  • Doctor on call / chat service
  • Pre defined SLAs with penalty clauses for all our deliverables to bring accountability.

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