News of catastrophes such as hurricanes, earthquakes, floods or fires striking some distant place may not appear important to us. But natural calamities can happen anytime, anywhere, and they can inflict untold damage on people and property.
In the insurance industry, such natural catastrophes are often referred to as Act of God perils, and they can cause huge losses to individuals and potentially bankrupt businesses.
Estimating the risk factors and having a proper awareness of the potential losses is Risk Management. Every business concern has to have a Risk Management plan in place to understand potential risk factors and the methods to overcome them and safe guard their businesses.
Risk Management basically has the important factors
- Avoidance 2.Minimization 3.Transfer.
It is always considered that avoidance of any risk is the best policy. However, to remain competitive in today’s world, it is often necessary for businesses to take calculated risks and avoiding risks is often not possible.
Risk minimization is an excellent concept. Necessary safety measures, and necessary insulation can minimize the risk factors, however, some loss would definitely be incurred when a peril does occur. There also would be a need to incur huge expenditure to implement loss minimization techniques.
Ultimately Transfer of risk is the most important alternative available for effective Risk Management. Under this, the risk is transferred to a third party. This is the concept of Risk Insurance. The risks to a business can be offloaded to an insurance company by paying a small premium, thereby having all losses made good by the insurer.
Modern day insurance covers every risk that arises on a day to day basis. A risk insurance is a guarantee provided by the insurer to pay an indemnity towards the losses incurred due to various perils. Property such as buildings, plant & machinery, raw materials, finished goods, etc can be fully protected against any losses.
Insurance firms take it as a challenge to accept a variety of risks, with the lowest possible premium. Through Reinsurance arrangements, the risks and losses have a widespread reach without causing burden in one particular area or to one Insurance company.
Earlier the practice was that insurers would assess the risk factors and issue pre-designed policies such as Fire, Marine, Engineering, Burglary etc. Presently, with the growing risk factors, the business firms are unable to predict the reasons for the losses. Many times huge damages can occur from unexpected natural calamities, such as the recent rains and floods that caused huge losses in many places in Kuwait. Many individuals and businesses were put to losses, but those who had taken adequate insurance coverage for their property were safe.
To overcome these unprecedented situations, insurance companies are offering All Risk Policies, the policies that cover all losses except for those that are specifically excluded.
The following are a few of the most popular All Risk policies:
- Property All Risk policy (PAR)
- Contractors All Risk Policy (CAR)
- Erection All Risk Policy (EAR)
- Industrial All Risk Policy (IAR)
We shall now throw some light on PAR Policy, which is the most needed policy for the present day business operations.
Property All Risk Policy covers all risks of physical loss, destruction or damage to the insured property that occur during the policy’s period, subject to certain terms, conditions and exclusions. PAR policy provides a wider cover than the standard Fire and Allied Perils insurance policy. The policy can be tailor-made depending on the requirements of the client. Many add-on covers such as those mentioned below can be included with the basic policy.
- Loss of profits due to business interruption
- Damage or loss as a result of Robbery, Burglary or Theft.
- Loss of rent
- Loss of Money and Securities as a result of Robbery, Burglary or Theft.
- Third party legal liability including the landlord’s liability towards tenants and vice versa.
- Strikes, riots & civil commotions & Malicious damage
- Accidental damage to plate glass fixed to the building
- Expenses incurred on removing debris along with Fire brigade charges and extinguishing expenses
- Architects, surveyors, legal and consulting engineering fees.
PAR Policy is the best policy that every business firm should seek as a concrete protection for the losses that may occur due to natural calamities and accidents. Being a combo policy, it covers almost every risk, with a low premium. So perhaps it is time to call your insurance agent and speak to them about protecting your property with a PAR Policy.
By D. Ram Mohan Reddy,
Chief operating officer,
New India Assurance.