Page 2 - Communique - Raghnall Insurance Broking 21.9.20

21.09.2020 / MONDAY Volume 1 I Issue No 3

BUSINESS INTERRUPTION PAGE 2

BUSINESS INTERRUPTION INSURANCE –

WHY DO YOU NEED IT MORE THAN EVER?

India's lockdown imposed from 24TH March, 2020 onwards to property damage and business interruption simultaneously. But
contain the new coronavirus outbreak has brought businesses Covid-19 is Not & Nowhere Covered as for the business
across the nation to a tremendous halt, causing losses to interruption cover to trigger, it is necessary for the property
everyone whether he/she is a proprietor or partner or insured to suffer physical damage due to a covered peril such as
Administrator of a company, etc. While companies do fire, flood or earthquake, hence, such policies would not cover
administration of a factory, buy insurance to protect them loss caused due to epidemics like coronavirus. These policies
against business interruption, according to insurers such don't cover any non-physical damage or resulting business
policies don't cover a pandemic like Covid-19. The hospitality interruption from a pandemic and business interruption losses
and travel sectors are among the worst affected industries arising out of shutdown due to the pandemic cannot be
requiring this type of cover. While the government has taken a reimbursed as no contributions have been made by way of
host of measures to boost liquidity, provide moratorium on premium for paying such a loss.
loans and ease compliance, these are like to only aid a recovery Many entities had taken insurance policies always to cover loss
and not help to recover loss thus sustained. So these arising due to certain unforeseen circumstances but the
Companies want the India's Sole Insurance Regulator (IRDAI) to question now is whether Coronavirus is covered by such
extend the Scope of Business Interruption Insurance to the policies. This is going to be a tricky issue and it would lead to
disruptions litigation in several cases. Most insurers will also fall back on the
c a u s e d b y Force Majeure, or “Act of God” clause. The question, whether
coronavirus loss of profit due to Covid-19 is Force Majeure, will require
outbreak. The looking into the fine print of the insurance arrangements. There
government could be carve-outs for situations like the Covid-19 pandemic as
should speak its impact will always be hard to assess. Industry trackers said
to IRDAI to top corporate have already reached out to insurers, looking to
allow loss of make a claim. This could also lead to litigation in the coming
p r o f i t months. Most companies are asking insurers to give clarity on
c o v e r a g e this as soon as possible as it will impact their financial
arising from statements. Most corporate will need this clarity by now as they
Covid-19 (dire need to specify this in their annual results. If they are certain
need now to be covered) as it's critical that it should be that their losses would be covered by insurance, they will have
permitted. Here's existing business interruption policies to account it as receivables. Insurers and top companies are
typically cover loss of profit for the period a business is likely in for a tussle regarding claims arising out of the Covid-19
disrupted as well as fixed expenses incurred during that period. outbreak as well as the Cyclone/Flood incidents creeping in all
But they are not as popular as the basic fire policies covering over India during this rainy season. Quite a few companies are
property damage. Business interruption policies are not widely eyeing claims under what is known as the “loss of profit” clause
sold in India like normal physical damage policies, covering in their insurance contracts. This typically covers losses due to
perils like fire and catastrophic or act of god perils like flood and factory shutdowns when unforeseen circumstances such as
earthquakes are sold widely. Business interruption is Fire/AOG perils or accidents occur. They have already reached
dependent and can only be issued along with a concurrent out to insurers seeking clarity about such claims. Corporations
Property Damage Insurance Policies/Coverages like, Standard usually take two types of insurance policies -- material damage
Fire & Special Perils Policies (SFSP) &/or Machinery Insurance policy and business interruption policy. So, Material damage
(MBD) &/or Project Policies like Erection/ Contractors All Risks policy is triggered if there is loss of property due to fire or flood
(EAR & CAR) Policies and BI Insurance is not sold standalone - so or machine breakdown.
if a claim is triggered on property damage, only then business The global impact of COVID-19 shall give rise to various claims
interruption cover triggered. Such a cover can be taken as a under commercial and household insurance such as travel,
separate policy only in conjunction with SFSP / MBD/EAR /CAR employment, health, life, business interruption – no doubt.
insurance. Or these can be taken as part of a package in Business Interruption Insurance basically covers Gross Profit
products such as Industrial All-Risk Insurance which covers both (i.e. Net Profit & Standing Charges) resulting from:
(a)Reduction in Production or Sales;