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Shriram General Insurance, a part of Shriram Group, has received the regulatory sandbox approval for its latest product – Fire Loss of Profit insurance cover. 

The product covers loss of gross profit or income, and/or increase in the cost of working due to reduction in business turnover/output caused by covered perils. 

Under the offering, liability will be admitted under the loss of profit policy when such loss is caused because of the mentioned perils without any compulsion of material damage policy.

Traditionally in India, Fire Loss of Profit Policy (FLOP) is contingent upon material damage (fire) policy. This means that liability under FLOP can only be admitted if material damage policy is in force and material damage policy has been paid or admitted liability for the said property.

As a result, loss of profit policies – also known as Business Interruption Insurance or Consequential Loss Insurance – are usually sold alongside Fire or Machinery Breakdown Insurance policies.

According to the company, "Insurance Regulatory and Development Authority of India (Irdai) launched the regulatory sandbox on 26 July 2019 under the Irdai (Regulatory Sandbox) Regulations, 2019. Shriram General applied for the product under the second cohort, which was open for applications between 15 September 2020 and 14 October 2020."

Shriram General Insurance said in a statement that it has received regulatory sandbox approval for a testing ground for the new business model, processes and applications for a time period of six months for FLOP. The sandbox approach is needed in the insurance industry to provide a more convenient process and protection to policy holders’ interests. While the current approval is for six months starting 15 November, an extension is likely based on achieving the target of 50 lakh total premium or 10,000 policies sold regulatory requirements of IRDAI.

How is the policy different from fire insurance cover?

Fire insurance is meant to cover property risks viz building, plant and machinery, furniture, fixtures and fittings and stocks, possibly at multiple locations. This is also called a material damage policy. While the FLOP policy will help protect the insured from loss of income, the standing or fixed charges and help lower costs of working in case of a fire. At present, no insurer is offering FLOP cover on a standalone basis. In current practice, liability under FLOP can be admitted only if the material damage policy is in force and admitting liability for insured property. In our offering, liability will be admitted without any compulsion of material damage policy, said the insurer in a statement.

Some key features:

1. The standalone FLOP insurance policy provides coverage against all the 12 perils covered under the standard fire and special peril policy.

2. The validity period of the product as per sandbox approval is six months commencing from 15 November 2021 to 14 May 2022.

3. The policy can be availed without any material damage (fire) cover.

4. There is no such binding of the first-hand admission of liability under the material damage policy.

5. This product is specially designed for shopkeepers, hotels and restaurants, small scale manufacturing units, automobile workshops, etc.

How it will benefit buyers:

Shriram General Insurance says demand for the product already exists and now buyers will be in a position to opt for this cover without any compulsion of material damage policy. It means the restriction that Fire Loss of Profit (FLOP) policy triggers, if a claim payable under fire policy, is no more applicable under this cover. 

This standalone FLOP cover will protect buyers from financial losses due to interruption in business and consequential losses resulting from the occurrence of any peril of Standard Fire and Special Peril Policy. 

This will help business units, especially small businesses, tide over temporary cash flow volatility owing to operational disruptions. The beneficiaries can be shop owners, restaurant owners, engineering workshops, storage warehouses etc, said the insurer in a statement.

What is the coverage and premium for this policy?

The policy compensates the insured against the loss of gross profit/income in case of the occurrence of any peril of the fire policy. Premium rate applicable is as per the existing Insurance Information Bureau of India rate + storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation rate + earthquake rate + terrorism (if required). One can apply for coverage based on the gross profit. 

The premium for the policy depends on the income. For instance, for a shop with a gross profit of 20 lakh, the total premium can be approx 2,800 (excluding tax), while for a workshop with a GP of 50 lakh, the total premium can be 4,500 (excluding tax), said the insurer in a statement.

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