Page 346 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

The insured gross profit is obtained by eliminating all
direct variable expenses. The figure is the same as would
have been arrived by adding net trading charges to
specified standing charges. The difference basis method
is a simpler method and has several advantages.
(i) Since there is no need to list out specified standing

charges, the chance of any of the standing charges
being getting omitted is eliminated.
(ii) Again, the problem associated with the periodical
review of the standing charge to does not exist,
though review is necessary.

Q7. Eliminate the concept of new business clause.

Ans. Profits insurance is sometimes effected on new business
for which past annual results would not be available for
comparison in case of loss in the first twelve months.

A clause is then added to the following effect - For the
purpose of an claim arising from damage occurring
before the completion of the first year's trading of the
business at the premises, the terms 'Rate of Gross Profit',
Annual Output/Turnover, and Standard Output/Turnover

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