Page 22 - RMAI July-September 2018

July - September 2018

into account the potential for property losses which costly shut-down that can result from fire or other
may result into either… peril. Where such a shutdown – or business
interruption – occurs the Management then has to
I. Physical damage to property, or
II. Loss of use of property, or deal with –
III. Criminal Activity I. The loss of use of building (measured by the loss of
revenue while the store is closed for repairs), and
Property Losses : Physical Damage :
II. Extra expenses to speed repairs or to rent space at
Property may be damaged by many common perils another location in order to avoid closing.
like fire, storm, hail, earthquake, subsidence, These two business interruption possibilities – loss of
earth/rock movement, avalanche, snow, frost, revenue and extra expenses frequently are over
volcanic eruption, flood, inundation, effects lightning, looked.
explosion/fires spreading from neighborhood/forest,
bushfire, impact of vehicles/aircraft, sonic boom, A firm's operations also may be interrupted even
smoke, arson, malicious damage, riots, theft, though no physical damage has occurred to its
burglary, robbery and such other perils. Most firms facilities. This can happen when an important
buy insurance to protect against the losses caused by supplier or customer suffers a severe accidental loss.
such perils. However, to cope effectively with a firm's Consider, for example, the cause of a retailer who gets
property loss exposures a business person must 50 per cent of revenue from the sale of high fashion
consider others perils which are less common. jeans manufactured by one supplier. The retailer's
income will be severely affected if the jeans maker
A complete analysis of potential losses must taken had a fire and could not ship inventory to the retailer
into account the indirect as well as the direct for nine months.
consequences. For example, a fire can not only
destroy a building but result in a costly shutdown, LIABILITY LOSS :
lawsuit by injured customers or employees, or even A firm may be legally liable, that is, responsible to pay
an inequity which would put a key person out of for bodily injury or property damages suffered by
action. another person or firm. This liability may arise from :

Property Losses : Loss of Use of Property :
I. A court decision (such as in a lawsuit charging
A business can also lose the use of property without negligence), or
suffering physical damage. For example, a number of II. Provision of a Statute (Such as Employee's
governmental agencies have the authority to close Compensation Law), or
down a business in certain circumstances. A
restaurant can be closed by a local board of health III. A violation of a contract provisions (such as a
because of unsanitary conditions, a manufacturer can contract that makes one party responsible for certain
be closed for violations of occupational safety and kinds of losses).
health regulations. Liability to General Public :
Property Losses : Criminal Activity : A Court may find a business firm liable for injuries or
Almost every firm is exposed to loss by robbery, other losses, which the firm or its employees can
burglary and other crimes – and not just from cause to a member of general public, through
outsiders. Of great concern to mean and women is negligence or other fault. For example, a customer
the risk of “Cyber crimes “and “white collar crime” to trips on a broken step, or a user of the firm's product is
alarming levels. A firm which operates with limited injured because of a def3ect in that product. Or the
profit margins may be forced to close if one “trusted” community as a whole is adversely affected by air or
employee is able to pocket part of every day's sales. water pollution in violation of a statute protecting
Even if this criminal is caught the money or water and air quality.
merchandise illegally taken seldom is recovered. Liability to Employees :

Business Interruption Loss : Employees can be injured or even contract disease as
An important consideration for any business person is a result of job-related activities. To protect the

RISK MANAGEMENT ASSOCIATION OF INDIA 21