A Mumbai-based textile firm owner was alarmed when his insurance broker informed that he would have to write to his insurer about continuing his fire (property) insurance for the commercial establishment that stored products worth Rs 15 crore amid the novel coronavirus, or COVID-19, pandemic and the ensuing lockdown across India. The belief was that insurance cover would continue since this individual had recently renewed the fire and allied perils policy. But that is not the case.
According to insurance terms, property insurance cover ceases to exist in case a commercial property/factory/warehouse is unoccupied for 30 days. COVID-19 has led to a temporary shutdown of manufacturing across commercial establishments from March 25 onwards (till May 3) due to a lockdown being announced.
“Considering the extraordinary circumstances presented due to COVID-19, all non-life insurers have decided to offer an extension subject to certain terms. For large business owners with sum insured of Rs 5 crore, individual insurance companies will take a decision on whether to provide coverage or not. However, in case these businesses don’t inform us in advance about the need for a cover, claims are likely to be rejected,” said a senior claims official at a private general insurer.
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What this means is that if you have a cover above Rs 5 crore, your property is at potential risk of theft, fire and other conditions. Property insurance covers a commercial establishments from losses arising due to fire and allied perils and incidents like theft and burglary.
General insurance companies have clarified to business owners that explicit request for extension of the cover during lockdown (May 3 or later) has to be sent in writing to the respective non-life insurer in case the sum insured is above Rs 5 crore. The insurance company will take a decision to extend the cover on a case-to-case basis.
For those with sum insured of Rs 5 crore, the extension will be given for the retail and SME sector automatically.
But even here, there is a pre-condition that the insured company has to take all safety precautions including fire and smoke detection, burglary protection, among others.Big hit due to business interruption by COVID-19
While during a regular scenario, any interruption in business and losses due to temporary disturbances are covered by insurance, financial loss due COVID-19 will not be covered.
Generally, while business interruption due to fires, earthquakes and other natural disasters are covered, COVID-19 has been specifically excluded. This means that companies will lose several crores in finances, which would have been otherwise covered in a non-pandemic scenario.
In a series of communications sent to individual business owners, non-life insurers have clarified that business interruption cover is not operative during the period of non-occupancy. Moneycontrol has reviewed the documents sent to businesses.
Separately, general insurers have also said in their communication that for cessation of work, cover will not be extended for advance loss of profit or delay in start-up.
A risk is called a silent risk when there is no manufacturing or storage activities of 30 days and above. Even in factories where production has been stalled it is likely that there would some storage in operation. If there is no storage, then insurer will decide whether to cover the premises for claims during lockdown or not.What about construction industry?
As far all risk policies for construction is concerned, non-life insurers have said that all the companies have agreed to waive the Cessation of Works (CoW) exclusion under the above policies up to May 3.
But this is only where such CoW is a direct result of any government order aimed at controlling the COVID-19 outbreak. Any further extension of this period will be reviewed based on further government orders.
However, insurers have said that individual businesses have to do their due diligence and maintain minimum safety standards including fire alarms, flood protection and burglary protection.
Moneycontrol had reported earlier that the fire insurance rates for 291 occupancies have been revised from January 1 onwards. With General Insurance Corporation of India (GIC Re) mandating that a host of new industries be covered under the annual rate revision, fire insurance premiums had been revised upwards between 10-50 percent for most companies.Follow our full coverage of the coronavirus pandemic here.