Articles

While last week's flood claims threaten to cross the Rs 2,000 crore level - the largest in Indian insurance history - insurance companies say that they are equipped to settle the losses. But the bad news for businesses is that not all their financial losses can be recovered from insurance companies.

With bad weather continuing for almost a week after Tuesday, several manufacturing units have not been able to commence production. Besides, the bad weather has hampered salvage and loss minimisation operations. What most manufacturers do not realise is that while property insurance protects their balance sheet it does not insure their profits.

Some MNC's in India do have a 'loss of profits' cover, in line with their parent companies global policies. World over, companies buy 'loss of profits' cover in addition to property insurance to provide for claims on account of loss in production due to an insured event. In India, however, several companies do not buy this cover either due to lack of awareness of the product or due to lack of awareness of the risk. Exceptions are the energy companies, which usually have such covers.

However the benefit of such a cover may cause can be very well borne out by the recent notice by Asahi India Glass to the stock exchange. It stated that "While the actual cost of repair is unknown, and will not be considerable, what is certain is the three-four weeks it will take to bring the furnace back into production. This has a substantial cost in loss of sales, consequential profits, the continuation of bearing fixed costs, and the actual repair costs"

It is expected that especially after the havoc caused by the downpour in Mumbai, more & more companies will be considering this cover as an essential part of their risk mitigation plan. Reliance Industries & Bombay Dyeing have suffered losses in their Patalganga plant, Fiat India's plant at Kurla was flooded as was Century Textiles in Shahad, near Kalyan. Pharma companies & their distributors were especially hit as their godowns were filled with water. As a result stock worth crores has been destroyed. Smaller units are also hit hard as they are far more dependent on the insurance money to restart their business. Powerlooms in Mumbai & Thane suburbs are also lying silent. Small time transporters are also a worried lot with a majority of their vehicles in repair workshops thus resulting in a loss of income.

Many insurance experts feel that most consumers see insurance as a cost. As a result individuals & businesses are rarely optimally insured. In an obtuse way, nature's fury has once again underlined the necessity of proper insurance once again.