Manufacturing has been given a major impetus with the “Make in India” campaign and is now emerging as a growing industry. The Small and Medium enterprises contributes hugely for the growth of this industry. SMEs face a wide-spectrum of operational risks that need protection to ensure their financial viability. There are various type of insurance SMEs need to buy for protecting their businesses.



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Property Insurance - Standard Fire insurance

Property insurance will ensure protection of physical assets (both moveable and immoveable) including buildings, plant and machinery, stock, furniture and fittings, spares, and tools etc. The insurance policy provides coverage for:

  • Fire and allied perils, accidental damage.
  • Acts of god Perils (AOG) i.e. earthquake, landslide/rockslide/subsidence, water damage, flood, inundation , storm, tempest, hurricane, tornado, typhoon, cyclone & other convulsions of nature.
  • Riot, strike, malicious damage (RSMD)
  • Leakages, bursting of pipes.

Stocks that can be covered include raw materials, finished goods, and in process. There are various types of policies available for covering the stock:

  • Floater Policy - This policy can be issued covering stocks in multiple locations. This will make it convenient for the business considering the difficulty in assessing the exact value of the stocks at each location.
  • Declaration Policy - A stock declaration policy is issued for business who stocks are seasonal and subject to frequent fluctuation during the policy period.
  • Floater Declaration Policy - Combination of both the above policies.
Selecting the Sum insured
  • Property (buildings), plant & machinery: were insured on market value basis. There is option available for businesses to insure these assets on “Reinstatement Value” basis. The sum insured would be the replacement cost (and not market value) of the insured property.
  • Stock: is always insured on market value basis.

Loss of revenue - Business Interruption (Consequential loss)

Property insurance provides protection in respect of loss of or damage to buildings, machinery, fixtures, goods etc. by fire and or other insured perils.
For healthcare companies, especially hospitals have their business activity uninterrupted and any loss to the building or material damage does not provide complete protection as the company will also suffer trading losses due to total or partial stoppage of business. The object of Business Interruption Insurance (also known as Consequential Loss) is to make good some of these losses.
Gross profit is to be calculated which will be the sum insured under this policy. The total of net profit and the amount of insured standing charges is the gross profit. As the coverage provided by this policy is in respect of loss of gross profits for the indemnity period, the sum insured should represent the gross profits of the indemnity period selected .

Employee Risks

Workmen Compensation

Workmen Compensation insurance is one of the most important and critical insurance policy to be bought by all companies in the manufacturing industry. Accidents to employees during their course of employment can result in huge financial damages to both the employee and the employer and having this policy will help offset this loss.

What is a Workmen Compensation Policy?

The Workmen Compensation policy provides for required protection to employees against all accidents resulting during their course of employment. This insurance policy helps to pay for work-related injuries and occupational illnesses without the intervention of a lawsuit.
This policy pays for the following benefits to the employee involved in the accident:

  • Provides financial compensation for Death to the family.
  • Financial compensation for bodily injury resulting to permanent total and permanent partial disability.
  • Loss of wages due to temporary total disability
What are the Limits paid under the Workmen’s Compensation Insurance?
  • For fatal accidents (resulting in death) - 50% of the monthly wages of deceased multiplied by the relevant factor with a minimum value of INR 120,000/-
  • For Permanent Total disability - 60% of the monthly wages of deceased multiplied by the relevant factor with a minimum value of INR 140,000/-
  • For permanent partial disablement the amount of compensation depends upon the nature of disablement and the percentage of loss of earning capacity specified in the Act.

Product Liability

SMEs have a significant contribution in the manufacturing sector’s growth in the country. As per the annual report of Ministry of Micro, Small and Medium Enterprises, SMEs manufacture over 8,000 products for consumption.
The products manufactured, sometimes can turn out to be defective, or not in compliance with the agreed standards. Consumption of such defective products can result in a consumer suffer bodily injury or property damage, thereby causing huge financial losses to the business upon a legal suit.
A Product Liability Insurance is a must buy for SMEs to avoid any huge financial loss.

Coverage

Product Liability Insurance will cover for cost of compensation against financial losses suffered by a third-party arising out of use or consumption of a faulty product. The third-party has to suffer a bodily injury or property damage.
The policy pays for the following expenses:

  • Legal liability expenses including claimant’s costs, fees and Defense costs.
  • Damage costs – monetary sums pursuant to judgments or awards and settlements

One of the most important aspects in product liability insurance is to prove that the product was defective to trigger a claim for damages. Broadly, the defects can be classified as the following:

Marine Transit Insurance

Marine transit insurance is an essential component of a manufacturing company’s risk management program. Transit insurance provides the insurance for any loss or damage to the goods in transit from one place to another by all modes of transport viz. sea, inland waterways, rail, road, air. Various other interests associated with goods like freight and other interests are also covered.

The coverage of cargo is offered as per Institute cargo clauses (ICC). Depending on risks to be covered, there are three ICC clauses. ICC (C) and ICC (B) are named perils clauses. ICC (A) is on “All Risks with exceptions” basis, with no list of perils but covering all accidental losses in transit other than those caused by exclusions.
There are various types of marine policies, which a company can buy:

  • Annual TurnOver policy Sales Turnover policy (STOP) covers transit of raw material, semi finished & finished products pertains to the company covering movement from originating point to destination point on seamless basis.
    • Sizeable saving in premium, which is charged only on your sales turnover.
    • Seamless cover with all movement of goods automatically covered.
  • Specific policies cover specific transits only, on case to case basis and, as many policies are taken for as many dispatches. As per Indian market practice the cover is to be arranged before commencement of transit.
  • An open cover is issued to provide automatic and continuous insurance protection. The insurer undertakes to insure all shipments declared by the company (insured) which come within the scope of the open cover. Premium is payable on each declaration, against which specific stamped certificate/policy is issued covering the shipment declared.
  • An Open Policy also known as Floating policy are issued for companies having substantial turnover and large number of dispatches. This is only for inland transits.

Commercial General Liability Insurance (CGL)

Commercial General Liability Insurance can protect manufacturing companies from the following third-party liabilities. The policy pays if the business (manufacturing company) is legally obliged to pay damages for the following:

  • Bodily injury including medical expenses.
  • Property damage.
  • Personal advertising injury.

Manufacturing companies often have vendors, contractors and clients visiting their premises and their employees visiting premises of customers and suppliers. A Commercial General Liability policy will provide the required protection. A Commercial General Liability will provide necessary financial support to companies against any legal liabilities due to a bodily injury or a property damage by paying for:

  • Legal defense costs and judgement/settlement costs to defend the legal suit.
  • Personal advertising injury including false advertising, copyright infringement.
  • Medical expenses for bodily injury caused by an accident.