Major Classes of Insurance

Consequential Loss Following Fire Policy

Loss Of Profit)

Overview

This covers against loss of earning ability following damages/loss caused by fire and special perils.

There are some costs/overhead that would still remain at their usual level after a loss has occurred. While the fire insurance will take care of the material loss the consequential loss policy will take care of earnings that would have been lost as a result of the fire incident. Additional expenses may be incurred in trying to carry on business after the fire, by taking up temporary premises, hiring equipment, purchasing goods to complete contracts etc.

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What Does It Cover?

  • It pays for the Net profit which would have accrued if the fire incident/special peril had not happened.
  • It covers such fixed charges as interest, rents rates etc which are compulsorily payable although no business activities is taking place in the premises again. These are called standing charges in the policy.
  • It makes good reasonable expenses which will help to facilitate the resumption of normal business and minimize loss of net profit e.g. hiring of temporary premises, engaging the services of extra staff or working overtime. This is called increased cost of working (ICW)
  • It takes care of the wages of staff whose services will have to stop immediately due to the fire damage – retained wages of skilled employees whose services are needed/for quick return of the business activities of the company.
  • It pays the fee of the auditor employed to prepare any claim under the policy.
  • Underwriting Considerations

    The under-listed factors should be taken into consideration before requests for cover in respect of con. Losses are granted by Insurance Company (ies).

  • Indemnity period– between 6 months and 36 months
  • Structure of wages
  • Gross profit– net profit plus standing charges
  • Auditors fees
  • The proportion of wages required to be paid for the selected first few weeks following the incident and the portion required for the remainder of the indemnity period. The completion of a proposal form is highly desirable as it forms the basis of contract.