Fire Loss of Profit (FLOP) Policy – Consequential Loss Fire Insurance

Q: What is FLOP's relationship to BLUS+ Cover V (Business Interruption) and IAR Section II-A?

All three are Business Interruption / Loss of Profits covers that share the same underlying insurance principle — covering income loss from physical damage caused by fire or allied perils. But they are delivered differently: SFSP + FLOP (this product): → Two separate policies: SFSP for material damage + FLOP as standalone companion policy → Must be deliberately purchased together → FLOP is optional — many SFSP buyers don't know they need it → Available for ANY SFSP policyholder, any SI size → Indemnity periods: 3–36 months → Material Damage Provision: explicit separate condition BLUS+ Cover V (Business Interruption): → BI as an optional cover WITHIN the BLUS+ product → Designed for SMEs with ₹5–₹50Cr SI → Cover V is one of 12 optional covers you can toggle on/off → Indemnity periods: 12–36 months → Same GP formula; same concept IAR Section II-A (Fire Loss of Profits): → MANDATORY section within the IAR package → For ₹100Cr+ industrial enterprises → Cannot buy IAR without Section II-A FLOP → Same formula; same GP concept; same 3-day waiting period deductible (not 7 days) If you currently have SFSP and do NOT have FLOP: call 022 4302 0000 today. Your fire protection is incomplete.

The SFSP Companion Policy — Consequential Loss (Fire) Insurance

What is the Fire Loss of Profit (FLOP) Policy?

The Fire Loss of Profit (FLOP) Policy — also called Consequential Loss (Fire) Insurance or Business Interruption Insurance — is a separate policy that must be purchased alongside a Standard Fire & Special Perils (SFSP) policy. It covers the income loss and financial consequences that follow a fire or allied peril event: the losses that SFSP explicitly excludes.

The Critical Gap — Why SFSP Alone is Incomplete Fire Protection

🔥 Standard SFSP Covers (Physical Damage)

✔Building / structure damage — repaired or rebuilt

✔Plant & Machinery — repaired or replaced (New for Old if RVB)

✔Stock loss — at cost or production value

✘Revenue loss while business is shut — EXCLUDED (SFSP Excl. 9)

✘Standing charges continuing during closure — EXCLUDED

✘Increased cost of working to minimise loss — EXCLUDED

💼 FLOP Covers (Consequential / Income Loss)

—Building (not FLOP's job — SFSP handles this)

—P&M (not FLOP's job — SFSP handles this)

—Stock (not FLOP's job — SFSP handles this)

✔Revenue / gross profit lost during closure — COVERED

✔Rent, salaries, EMIs, interest, rates — COVERED

✔Temporary premises, overtime, subcontracting — COVERED

⚠️

"My SFSP Will Pay for Everything If There Is a Fire" — This Is WRONG

Every Standard Fire & Special Perils Policy in India explicitly excludes consequential loss under Exclusion 9: "Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or damage of any kind or description whatsoever."

SFSP pays only for the physical damage. The income loss while the business is shut for repairs — which is often 2–5× the physical damage — is not covered by SFSP under any circumstances. FLOP is the only policy that covers this income loss.

💡

The Real Financial Picture — Why FLOP Is Often More Valuable Than SFSP

Physical damage (SFSP):Factory fire destroys building + machinery → ₹5 crore → SFSP pays ₹5 crore
Revenue loss (FLOP):Plant shut 8 months, 4 months partial → ₹8 crore revenue lost → without FLOP: ₹0
Standing charges (FLOP):Rent ₹8L/month, salaries ₹25L/month, EMI ₹12L/month × 8 months = ₹3.6 crore continuing costs → without FLOP: ₹0
Total impact:₹16.6 crore total. Without FLOP: only ₹5 crore covered. You personally absorb ₹11.6 crore.
With SFSP + FLOP:Physical damage ₹5Cr + Income loss ₹11.6Cr = ₹16.6Cr total recovery. Complete financial protection.

🔗

FLOP Across the the insurer Product Family — Same Concept, Different Delivery

SFSP + FLOP (this product):Separate companion policy — must be deliberately purchased alongside SFSP; available for any SFSP policyholder
BLUS+ Cover V:Business Interruption as an optional cover within the BLUS+ product package; SME ₹5–₹50Cr scale
IAR Section II-A:Fire Loss of Profits as a MANDATORY section within the IAR policy; ₹100Cr+ industrial enterprises; cannot buy IAR without it

The same underlying insurance concept — covering income loss from fire/allied peril physical damage — delivered in three different ways depending on which fire product you have. This standalone FLOP is for any SFSP policyholder.

6 Reasons Every SFSP Policyholder Needs FLOP

💰

Revenue Loss — Covered

SFSP pays for the factory rebuild. FLOP pays for the revenue lost while you're rebuilding. Without FLOP, the income gap can be 3–5× the physical damage.

The Core FLOP Cover

🏢

Standing Charges Continue

Rent, salaries, EMIs, interest — these don't stop because your factory is on fire. FLOP covers these fixed costs continuing during closure.

Insured Standing Charges

💡

Increased Cost of Working

Renting a temporary warehouse, subcontracting orders, overtime — expenses to keep business running during repairs. FLOP reimburses these.

ICOW Coverage

⏱️

3–36 Month Indemnity Periods

Choose the period that matches your realistic rebuild + revenue recovery time. Pharma plants need 24–36M. Small shops may need 6M.

Right-Size Your IP

🔗

Mandatory SFSP Companion

FLOP cannot exist without an underlying SFSP. But every SFSP policyholder should have FLOP — fire insurance is incomplete without it.

Must Have Together

🌐

Supplier / Customer / Utilities

FLOP extensions cover income loss even when YOUR premises is undamaged — supplier's plant flooded, utility power cut, neighbouring fire cordon.

Contingent BI Extensions

Who Needs FLOP — By Industry

🏭

Factory / Manufacturing

Revenue during rebuild; market share loss; continuous process shutdown catastrophic

IP: 12–24M

🧬

Pharma / Chemical

GMP re-certification, imported reactors, API re-qualification — the longest recovery

IP: 24–36M

🏨

Hotels / Hospitality

Revenue during closure; soft launch time; seasonal recovery; corporate account attrition

IP: 18–24M

🏥

Hospitals / Healthcare

Referral doctor attrition; re-accreditation; medical equipment lead times

IP: 18–36M

🎓

Educational Institutions

Academic year disruption; student transfers; faculty attrition during closure

IP: 12–18M

🏬

Retail / Malls

Seasonal revenue gaps; anchor tenant obligations; footfall recovery post-reopening

IP: 12–18M

💻

IT / Data Centres

SLA penalties; client contract termination; server rebuild and data recovery

IP: 12M

🏗️

Cement / Paper / Glass

Specialist OEM machinery (12–18M delivery from Germany/Japan) — most critical IP

IP: 30–36M

FLOP Covers Exactly Two Items — Both Are Income-Based

What FLOP Covers — The Two Policy Items

Unlike SFSP (which covers physical damage to property), FLOP covers only the financial/income consequences of that physical damage. FLOP has exactly two insured items.

Item 1· Primary Coverage

Loss of Gross Profit

Item 1(a) — Reduction in Turnover

✔GP Rate × Short Sales (Standard Turnover − Actual Turnover during indemnity period)
✔Standard Turnover adjusted for trend and seasonal factors
✔Only covers GP lost due to the fire/allied peril — not business downturn from other causes

Item 1(b) — Increased Cost of Working (ICOW)

✔Rent for temporary alternative premises
✔Overtime wages to speed up production/repairs
✔Higher-cost subcontracting to maintain customer supply
✔Express delivery costs, emergency repair surcharges
✘ICOW capped by Memo 2 — cannot exceed GP loss avoided (see Key Clauses)

Item 2· Optional Wages Item

Standing Charges (Insured)

Fixed costs continuing during closure

✔Rent and rates (property rent continuing during shut)
✔Salaries of management/staff (if insured)
✔Interest on loans and debentures
✔Depreciation charges
✔Auditor fees, director remuneration, insurance premiums
✔Rates and taxes

Wages — Two Methods Available

✔Dual Basis: 100% for first X weeks + 50% for next Y weeks — protects trained workforce
✔Included in GP: Wages treated as insured standing charge within Item 1 — simpler

⚠️

Variable Charges Are NOT Covered — Only Insured Standing Charges Are

NOT covered (variable — cease when production stops):Raw material / stock cost· Power and fuel· Piecework and casual labour· Packaging costs· Variable selling expenses· Shipping and distribution variable costs
COVERED (fixed standing charges — continue regardless):Rent· Management salaries· Interest on loans· Depreciation· Directors' remuneration· Insurance premiums· Rates and taxes

Only standing charges specifically selected at policy inception are covered. Unselected standing charges are not covered — choose carefully at the time of buying FLOP.

📘

FLOP "Gross Profit" ≠ Accounting Gross Profit — A Critical Distinction

In accounting, Gross Profit = Revenue − Cost of Goods Sold (which includes raw materials and direct labour).

In FLOP policy terms: Gross Profit = Turnover LESS only the variable/uninsured working expenses (raw materials, fuel, packaging, piecework wages that cease with production).

The FLOP GP is therefore HIGHER than accounting GP — because it includes fixed standing charges like management salaries and rent that accounting gross profit does NOT include.

→ If business is in PROFIT: FLOP GP = Net Trading Profit + Insured Standing Charges
→ If business is in LOSS: FLOP GP = Insured Standing Charges − Net Loss

Rate of Gross Profit (for claim calculation) = (Annual FLOP GP / Annual Turnover) × 100
This rate is applied to Short Sales to calculate Item 1(a) claim.

✔Loss of Gross Profit from reduction in turnover during the indemnity period — calculated as GP Rate × Short Sales
✔Increased Cost of Working (ICOW) — necessarily and reasonably incurred to avoid or reduce the turnover reduction (subject to Memo 2 cap)
✔Insured Standing Charges — rent, interest, salaries, depreciation, directors' remuneration, audit fees (as selected at inception)
✔Wages protection if insured separately (Dual Basis or included in GP item)
✔Accountants'/auditors' fees for preparing the FLOP claim (if Claims Preparation extension opted)
✔Income loss from Denial of Access, Utilities failure, Customer/Supplier damage (if respective extensions are opted)
✔Business Interruption from ALL perils covered under the underlying SFSP material damage policy

✘Interruption from any peril NOT covered under the underlying SFSP — if SFSP doesn't pay, FLOP doesn't pay (Material Damage Provision)
✘Restrictions by public authority on reconstruction or operation (regulatory delays after fire)
✘Lack of capital for restoration — BI covers income loss; reconstruction cost is SFSP's job
✘Loss of business from cancellation of lease, licence, or order following the fire
✘Permanent loss of market / competitive disadvantage beyond the indemnity period
✘Variable charges (raw materials, fuel, packaging — these cease when production stops)
✘ICOW beyond the Memo 2 cap (ICOW cannot exceed GP loss thereby avoided)
✘Time Exclusion — first 7 days (non-petrochem) or 14 days (petrochem) GP equivalent per claim
✘War, nuclear perils, wilful damage (same as underlying SFSP policy)
✘Utilities disruption, supplier/customer damage — unless respective extension is specifically added

The Most Critical FLOP Decision — Choose Based on Full Recovery, Not Just Rebuild

Indemnity Period — The Right Choice Can Save Your Business

The Indemnity Period is the maximum duration from the date of damage for which FLOP pays income loss. Choose it once at inception. Once the IP expires, FLOP stops paying — even if your business hasn't fully recovered.

🚨

Most Indian Buyers Choose Too Short an Indemnity Period — And Pay the Price

The single most common FLOP mistake: choosing a 12-month indemnity period when your business actually needs 24 months to fully recover. After your factory reopens in month 13, your FLOP cover has expired — but revenue is still at 40% of pre-fire levels because customers have moved to competitors during your 13-month absence.

The indemnity period must cover BOTH:
(a) The physical rebuild/repair time, AND
(b) The time to recover revenue after reopening (customers return; referrals rebuild; market share regained)

(b) is often longer than (a). Do not underestimate it.

📅 Dislocation Period vs Indemnity Period — Key Difference

Scenario A: Dislocation = 6M; IP = 12M → FLOP pays for 6 months only (good)

Dislocation 6M (FLOP pays)

Scenario B: Dislocation = 18M; IP = 12M → FLOP expires at month 12 (dangerous)

IP Covered (12M)

You absorb (6M)

Scenario C: Dislocation = 8M; IP = 24M → FLOP pays for 8M; 16M unused (ideal)

Paid (8M)

→ Scenario A: Dislocation shorter than IP — FLOP pays only for actual dislocation. Safe.
→ Scenario B: IP too short — FLOP expires while business is still recovering. Most common mistake.
→ Scenario C: IP generous — small unused buffer after recovery. Ideal choice.

Indemnity Period Guide by Sector

Business Type	Rebuild Time	Recovery Time	Recommended IP
Small shop / bakery	2–4 months	2–4 months	6–12 months
Factory (local machinery)	6–12 months	6–12 months	12–18 months
Hotel / resort	8–14 months	6–10 months	18–24 months
Hospital / clinic	10–16 months	8–12 months	18–36 months
Pharma / API plant	12–18 months	6–12 months	24–36 months
Cement / paper / glass	18–24 months (OEM)	6–12 months	30–36 months

How to Calculate FLOP Sum Insured + Premium Rating Structure

Sum Insured + FLOP GP Calculator + 7-Day Exclusion + Premium Rating

⚠️

Average Clause on FLOP — Same Risk as SFSP

If your FLOP Sum Insured is less than the Gross Profit for the indemnity period at the time of loss, the Average Clause applies proportionally. Annual Turnover for the 12 months preceding the fire is the benchmark. Review and update SI annually as your business grows. Under-insuring FLOP is as dangerous as under-insuring SFSP.

Premium Rating Slabs (% of Basis Rate)

Basis Rate = 125% of average fire contents rate. 25% loading added for Continuous Process plants (cement, distillery, sugar, chemical, vegetable ghee).

Indemnity Period	Continuous (%)	Non-Continuous (%)
3 Months	89.06	72.50
6 Months	93.75	75.00
9 Months	112.50	90.00
12 Months	125.00 ★	100.00 ★
15 Months	121.87	97.50
18 Months	118.75	95.00
24 Months	112.50	90.00
30 Months	106.25	85.00
36 Months	100.00	80.00

★ 12-month IP has the highest rate — risk of a large claim is statistically greatest at 12M. Longer IPs have slightly lower rates as full use of cover becomes less likely.

Standard Clauses That Affect FLOP Settlement

Key Clauses — Understand Before You Claim

🔑

Material Damage Provision (MDP) — The Master Condition: No SFSP Payment = No FLOP Payment

The Material Damage Provision is the most important FLOP condition. FLOP can only pay if the underlying material damage policy (SFSP) has paid, or would have paid, for the triggering physical damage.

If the physical damage is not covered under SFSP (because the peril is excluded, or because the SI is too low, or because SFSP was not in force), then FLOP cannot respond either — regardless of the income loss suffered.

Practical implications:
→ SFSP and FLOP must cover the same perils — if you deleted RSMD from SFSP for a premium discount, a RSMD event will trigger neither SFSP physical payment nor FLOP income loss payment
→ SFSP must be adequately insured — severe underinsurance in SFSP can reduce FLOP recovery
→ Both policies should ideally be with the same insurer to avoid cross-policy disputes
→ FLOP follows the fortunes of SFSP — it cannot be broader than the underlying fire policy

Departmental Clause

Multi-Department Businesses

If the business has departments with independently ascertainable trading results, Item 1(a) and 1(b) applies separately to each affected department. Average clause is applied department by department. Critical for multi-brand retail, hospital departments, hotel revenue centres (rooms, F&B, spa).

Memo 2 — ICOW Cap

Increased Cost of Working Limit

ICOW recoverable under Item 1(b) cannot exceed the gross profit loss that was thereby avoided. If you spend ₹10L on overtime to avoid a ₹6L GP loss, only ₹6L of ICOW is recoverable. The ICOW must "economise" the GP loss — spending must be commercially justified.

Trend Adjustment

Standard Turnover and Annual Turnover Adjustment

Both Standard Turnover (same period last year) and Annual Turnover (preceding 12 months) are adjusted for the general trend of the business and seasonal factors. Prevents over-indemnity if business was declining and under-indemnity if business was growing before the fire.

Return of Premium (50%)

If Business Does Better Than Expected

If actual turnover during the indemnity period exceeds the Standard Turnover (business grew above pre-fire levels), a return of up to 50% of the FLOP premium may be made — because the actual BI risk was lower than anticipated. Rewards growing businesses.

Accumulated Stocks Clause

Stock Buffer Delays the Financial Impact

If there is a buffer of finished goods at the time of fire, the insured can still fulfil orders from stock for a period — deferring the financial impact. This clause accounts for the stock buffer delay in calculating when the GP loss actually begins. Relevant for manufacturers with seasonal inventory.

Other Insurances

Contribution Between FLOP Insurers

If FLOP is in force with more than one insurer (which is unusual but possible for large risks), the Contribution principle applies — each insurer pays a ratable proportion of the total FLOP claim. Prevents double-recovery.

Optional Extensions — Broaden Your FLOP Beyond Your Own Premises

FLOP Extensions — Cover Income Loss Even When Your Premises Is Undamaged

Standard FLOP covers BI only when your OWN premises is physically damaged. These extensions cover income loss from events at other premises — neighbours, suppliers, customers, utilities.

🔗

FLOP's Suppliers' Premises Extension = The SFSP+FLOP Equivalent of BLUS+ Cover XI (Contingent BI)

In the BLUS+ series, Cover XI (Contingent BI) was the most sophisticated optional cover — covering income loss when YOUR premises is undamaged but your SUPPLIER's or CUSTOMER's plant is hit.

The same concept exists for SFSP+FLOP policyholders as an optional extension:
→ BLUS+ Cover XI = Contingent BI within the product
→ IAR Section II-A Contingent BI = within the IAR package
→ FLOP Suppliers'/Customers' Extension = the same concept as a standalone FLOP extension

If your pharma plant depends on 2 approved API suppliers, and one is damaged by flood — your own plant is fine, but production halts. The Suppliers' Premises Extension covers your FLOP GP loss in this scenario.

🚧

Denial of Access Extension

BI from being denied access to your OWN PREMISES by a public authority (police cordon, fire brigade evacuation) following an insured peril at a NEIGHBOURING property. Your premises is undamaged but inaccessible.

🏨 Example: Hotel in Bandra inaccessible for 12 days due to police cordon after neighbouring building fire → hotel revenue loss covered even though hotel is undamaged

⚡

Public Utilities Extension

BI from failure/interruption of public electricity, gas, or water supply caused by damage at the utility's premises from an insured peril. Your property is undamaged but cannot operate without power/gas/water.

🏭 Example: Power substation near industrial estate damaged by lightning → factory without power for 10 days → factory BI covered even though factory building is fine

🛒

Customer's Premises Extension

BI from your CUSTOMER's premises being damaged by an insured peril, causing a reduction in orders placed with you. Your plant is undamaged but you have fewer orders as a result of the customer's damage.

🔧 Example: Auto component supplier's BI because their largest OEM customer's assembly plant burns → OEM cancels 4 months of component orders → supplier's FLOP covers the revenue loss

📦

Supplier's Premises Extension

BI from a KEY SUPPLIER's premises being damaged by an insured peril that prevents them from supplying you. Your own plant is undamaged but cannot operate without the key input.

🧬 Example: Pharma manufacturer's approved API supplier floods → API supply halts → pharma manufacturer's production stops → FLOP covers pharma manufacturer's GP loss despite own plant being fine

👷

Wages Protection (Dual Basis)

Full wages protection on a Dual Basis — 100% for the first X weeks + 50% for the next Y weeks (as selected). Enables the business to retain its trained workforce during closure without the financial strain of paying salaries from own funds.

🏭 Example: Factory with 200 skilled workers — even during 6-month closure, wages must be paid to retain trained workforce. Dual Basis wages cover protects this expenditure.

📋

Claims Preparation / Professional Fees

Covers the cost of appointing accountants or auditors to prepare and quantify the FLOP claim. Large FLOP claims require detailed financial analysis and multiple months of P&L reconstruction — professional fees for this work can be substantial.

📊 Example: ₹5Cr FLOP claim requires chartered accountant to prepare 18 months of financial records, trend analysis, and GP calculation — CA fee ₹4L → covered under this extension

How FLOP Claims Are Filed and Calculated

Claim Process — 6 Steps + Worked Claim Example

📊

Maintain Monthly Financial Records ALWAYS — Not Just After a Fire

FLOP claims require monthly P&L accounts, monthly turnover records, and standing charges documentation for the period before the fire (to establish Standard Turnover and GP Rate) AND during the indemnity period (to calculate actual turnover shortfall). Businesses that maintain poor financial records get under-settled on FLOP claims. Start maintaining monthly records now — before any fire event occurs.

🔑

Appoint a Chartered Accountant or Loss Assessor Early — Ideally from Day 1 of Any Claim

FLOP claims are the most financially complex claims in all of fire insurance. The GP Rate calculation, trend adjustments, ICOW justification, Memo 2 cap analysis, Departmental Clause application, and Average Clause calculation all require specialist financial skills. Appoint a Loss Assessor and/or Chartered Accountant as soon as any fire or allied peril event occurs that may trigger a FLOP claim. Call 022 4302 0000 for claim guidance.

📢

Notify Probitas Immediately

Call 022 4302 0000 as soon as any loss or damage occurs. Notify the FLOP insurer simultaneously with the SFSP insurer — both notifications required. For fire: inform fire brigade + police; lodge FIR. Both material damage and FLOP claims begin from this point.

📸

Preserve & Document Physical Damage

Photograph all material damage for SFSP claim. Do NOT carry out permanent repairs before surveyor inspection. The FLOP claim cannot proceed until SFSP surveyor has assessed and admitted physical damage (Material Damage Provision).

📋

Start BI Financial Records from Day 1

From the day of fire: maintain daily production records, record all increased working costs, document all standing charges paid during shutdown, note any orders lost or deferred. These become the basis of the FLOP claim calculation.

🔍

Surveyor + FLOP Accountant Assessment

IRDAI surveyor assesses physical damage for SFSP. Separately, FLOP surveyor/accountant assesses the financial loss — GP Rate, Standard Turnover, Actual Turnover, ICOW. May be simultaneous or sequential depending on complexity.

📤

Submit Documents

FLOP Claim Form + Policy + SFSP settlement confirmation + Audited P&L accounts (2–3 years) + Monthly turnover records + Standing charges schedule + ICOW invoices with justification (Memo 2 compliance) + Bank details for NEFT payment.

✅

Settlement — GP Formula Applied

GP Rate × Short Sales + ICOW (Memo 2 cap) − Savings in standing charges − 7-day time exclusion = FLOP claim amount. Average Clause applied if SI < Annual GP. IRDAI TAT: 30 days from complete documents. Monthly interim payments possible for long-duration claims.

Step-by-Step FLOP Claim Calculation Formula

Establish Rate of Gross Profit (R)

From audited accounts for the 12 months before the fire — the GP Rate is used to convert Short Sales into GP loss.

R = (Annual FLOP GP / Annual Turnover) × 100

Establish Standard Turnover (ST)

The turnover for the SAME calendar period in the preceding year — what the business WOULD have earned during the indemnity period in normal circumstances. Adjusted for trend (growing/declining business).

ST = Last year's turnover for same period (trend-adjusted)

Establish Actual Turnover (AT)

What the business ACTUALLY earned during the indemnity period — may be partially from pre-fire stocks, partial operations, or alternative arrangements.

AT = Actual sales during indemnity period

Calculate Short Sales

The turnover shortfall caused directly by the fire/allied peril event. Only the shortfall attributable to the insured event — not general business decline.

Short Sales = ST − AT

Calculate GP Loss — Item 1(a)

The gross profit lost from the turnover shortfall, using the GP Rate established in Step 1.

GP Loss = R% × Short Sales

Add ICOW and Deduct Savings — Item 1(b)

Add ICOW (subject to Memo 2 cap — max = GP loss avoided). Deduct savings in standing charges that ceased during interruption (power, fuel, etc.).

Net = GP Loss + ICOW − Savings in Standing Charges

Deduct 7-Day Time Exclusion

Deduct the compulsory time exclusion — 7 days for non-petrochemical; 14 days for petrochemical risks. Expressed as a financial amount (R% × ST/365 × 7).

Exclusion = (R/100) × (ST/365) × 7

Apply Average Clause (if under-insured)

If SI < Annual GP for the indemnity period, claim is reduced proportionally. Always insure at full GP for the chosen IP.

Final Claim = Calculated Claim × (SI / Annual GP for IP)

📐 Illustrative Worked Example — Textile Mill Fire, Surat (12-Month IP)

Business: Ravi Textiles, Surat· Annual Turnover₹15,00,00,000

Annual FLOP Gross Profit (GP Rate = 30%)₹4,50,00,000

FLOP Sum Insured (12-month IP)₹4,50,00,000 ✔ (= Annual GP)

Fire destroys 3 looms + production hall. Plant shut 6 months, partial for 6 more months—

Standard Turnover (same 6M last year)₹7,50,00,000

Actual Turnover during dislocation (sales from pre-fire stocks)₹1,50,00,000

Short Sales (ST − AT)₹6,00,00,000

GP Loss — Item 1(a): 30% × ₹6Cr₹1,80,00,000

ICOW — Item 1(b): temporary premises + transport (Memo 2: GP avoided ₹40L > ICOW ₹30L ✔)+ ₹30,00,000

Savings in Standing Charges (fuel + power ceased)− ₹15,00,000

7-Day Time Exclusion: 30% × ₹15Cr / 365 × 7− ₹86,301

Average Clause: SI ₹4.5Cr = Annual GP ₹4.5Cr → No reduction ✔No reduction

Net FLOP Claim Payable~₹1,94,13,699

SFSP also pays: ₹6Cr (looms + building, New for Old basis). Total fire recovery: ₹6Cr (SFSP) + ₹1.94Cr (FLOP) = ₹7.94Cr. WITHOUT FLOP: only ₹6Cr recovered; ₹1.94Cr income loss absorbed personally.

FLOP in Action — Three Illustrative Scenarios

3 Illustrative FLOP Claim Scenarios

📐 Three FLOP Claim Scenarios Showing the Income Protection Gap

Parameter	Textile Mill Fire (Surat)	Pharma Plant Flood (Pune) — 24M IP	Hotel + Denial of Access (Mumbai)
Business	Ravi Textiles Pvt. Ltd., power loom factory, Surat	MediSynth API Mfg. Pvt. Ltd., Pune	Seabreeze Hotel (80 rooms), Bandra, Mumbai
Annual Turnover / GP	₹15Cr; GP ₹4.5Cr (30%)	₹60Cr; GP ₹18Cr (30%)	₹8Cr; GP ₹3.2Cr (40%)
FLOP SI / Indemnity	₹4.5Cr; 12-month IP	₹36Cr; 24-month IP (10M rebuild + 4M GMP + 4M ramp-up)	₹4.8Cr; 18-month IP
Event	Fire destroys 3 looms + production hall → 6M full + 6M partial shut	Flood damages clean rooms and reactors → 10M repair + 4M GMP re-cert → 18M until full revenue	Event 1: Neighbouring fire → police cordon 12 days (Denial of Access ext). Event 2: Own kitchen fire → 4M shut
SFSP Physical Claim	₹6Cr (looms + building, RVB)	₹22Cr (reactors + clean rooms, RVB)	Cordon: NIL. Own fire: ₹4Cr (kitchen + dining room)
FLOP Claim (Short Sales × GP Rate + ICOW − Savings − Time Excl.)	₹9Cr × 30% = ₹2.7Cr + ₹40L ICOW − ₹25L savings − ₹86K excl. = ~₹3.05Cr	₹90Cr short sales × 30% = ₹27Cr + ₹3Cr ICOW − ₹2.5Cr savings − ₹3.45L excl. = ~₹27.5Cr	Denial: ₹4.4L. Own fire: ₹10.9L. Total: ~₹15.3L
Total Recovery	₹6Cr (SFSP) + ₹3.05Cr (FLOP) = ₹9.05Cr	₹22Cr (SFSP) + ₹27.5Cr (FLOP) = ₹49.5Cr	₹4Cr (SFSP) + ₹15.3L (FLOP) = ₹4.15Cr+
Without FLOP	₹6Cr only; ₹3.05Cr income loss absorbed	₹22Cr only; ₹27.5Cr income loss absorbed — likely bankruptcy	₹4Cr only; cordon BI (₹4.4L) completely unrecovered — hotel had no physical damage yet still suffered income loss

* Illustrative only. Actual claims subject to policy terms, surveyor assessment, Material Damage Provision confirmation, average clause, 7-day time exclusion, and Memo 2 ICOW cap. FLOP GP Rate, Short Sales, and trend adjustments determined by surveyor and accountant. Denial of Access extension must be specifically opted.

Common Questions

Frequently Asked Questions

Fire Loss of Profit (FLOP) — also called Consequential Loss (Fire) Insurance — is a separate insurance policy that covers the income and financial consequences that follow physical property damage from fire or allied perils.

Your Standard SFSP fire policy explicitly EXCLUDES consequential loss under Exclusion 9: "Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or damage of any kind or description whatsoever."

When a fire destroys your factory, SFSP pays for the physical damage (building, machinery, stock). But while you're rebuilding, your revenue stops while your standing charges (rent, salaries, EMIs, interest) continue. This income loss can be 2–5× the physical damage. SFSP pays ₹0 of this income loss. FLOP covers it.

SFSP and FLOP must be bought together — FLOP cannot exist without an underlying SFSP policy (Material Damage Provision). They are essential complements: SFSP covers the brick and mortar; FLOP covers the business income.

The FLOP policy uses a specific insurance definition of Gross Profit that is DIFFERENT from accounting Gross Profit:

FLOP Gross Profit = Turnover LESS variable/uninsured working expenses
(Variable expenses = raw materials, fuel, piecework wages, packaging that STOP when production stops)

In accounting terms: GP = Revenue − Cost of Goods Sold (which deducts both variable AND fixed manufacturing costs)
In FLOP terms: GP = Revenue − ONLY the variable costs that cease with production

The FLOP GP is therefore HIGHER than accounting GP — because it includes your fixed standing charges (rent, management salaries, interest, depreciation) that accounting GP deducts.

If operating in profit: FLOP GP SI = Net Trading Profit + Insured Standing Charges
If operating at loss: FLOP GP SI = Insured Standing Charges − Net Loss

Rate of Gross Profit = (Annual FLOP GP / Annual Turnover) × 100. This rate is applied to Short Sales to calculate the FLOP claim. Use the FLOP GP Calculator on this page to derive your correct SI.

12 months is rarely enough for most medium-to-large businesses. This is the single most common FLOP mistake in India.

The indemnity period must cover TWO things:
(a) The time to physically repair/rebuild the insured property
(b) The time to recover revenue AFTER reopening (customers return, market share regained)

(b) is often longer than (a) and is most commonly underestimated.

Even after a factory reopens, customers who moved to competitors during a 12-month closure may not immediately return. Revenue recovery can take 6–12 months after reopening.

Sector-specific guidance:
→ Small shop/bakery: 6–12 months
→ Factory with local machinery: 12–18 months
→ Hotel: 18–24 months
→ Hospital: 18–36 months
→ Pharma plant (imported reactors + GMP re-certification): 24–36 months
→ Cement/paper/glass (OEM machinery with 12–18M delivery): 30–36 months

Use the Indemnity Period Recommender widget on this page to get a sector-specific recommendation. Choosing too short an IP is just as dangerous as buying no FLOP at all — when the IP expires, FLOP stops paying even if you're still not at full revenue.

The Material Damage Provision (MDP) is the master condition of every FLOP policy. FLOP will only pay if the underlying material damage policy (SFSP) has paid, or would have paid, for the physical damage that triggered the business interruption.

FLOP follows the fortunes of SFSP. If SFSP doesn't cover the physical damage, FLOP cannot cover the resulting income loss.

Practical examples:
1. If you deleted RSMD from SFSP for a premium discount, and a riot damages your factory → SFSP doesn't pay (RSMD deleted) → FLOP doesn't pay the income loss either
2. If SFSP is severely underinsured and pays only 60% of the physical damage → the remaining 40% of physical damage is "not paid" → some surveyors may argue FLOP should also be reduced
3. If your SFSP lapses (premium not paid) and a fire occurs → SFSP not in force → FLOP cannot respond
4. If the peril is an excluded cause (war, nuclear) → SFSP excluded → FLOP excluded

This is why SFSP and FLOP must always be coordinated together — same perils, same insurer (ideally), same policy conditions. Never delete a peril from SFSP without understanding its impact on your FLOP cover.

The compulsory time exclusion is NOT simply 7 calendar days of no cover. It is expressed as a financial amount — the Gross Profit equivalent of 7 days' trading:

Formula: Time Exclusion = (GP Rate / 100) × (Annual Turnover / 365) × 7

Examples:
→ Small bakery: Turnover ₹50L/year; GP rate 25% → 7-day excl. = 25% × (₹50L/365) × 7 = ₹2,397
→ Mid factory: Turnover ₹5Cr/year; GP rate 30% → 7-day excl. = 30% × (₹5Cr/365) × 7 = ₹28,767
→ Large factory: Turnover ₹50Cr/year; GP rate 30% → 7-day excl. = 30% × (₹50Cr/365) × 7 = ₹2,87,671

For petrochemical risks: same formula × 14 days (not 7).

Use the 7-Day Time Exclusion Calculator on this page to calculate your specific amount. Plan for this first-loss amount in your cash reserves. The time exclusion applies to every FLOP claim separately.

Standing charges are fixed costs of your business that continue to accrue regardless of whether production is happening. These are the costs that do NOT reduce or stop when your factory is shut.

Insurable Standing Charges (commonly selected):
→ Rent and rates (property rent — keeps running even during shutdown)
→ Salaries of management, supervisory, and administrative staff
→ Interest on business loans, debentures, and EMIs
→ Depreciation charges (accounting depreciation still runs)
→ Directors' remuneration and retainers
→ Auditor fees and legal retainer fees
→ Insurance premiums
→ Rates and municipal taxes
→ Fixed advertising commitments

Variable charges (NOT standing charges — do not insure under FLOP):
→ Raw material costs (cease when production stops)
→ Fuel and power costs (reduce significantly when production stops)
→ Piecework and casual labour wages
→ Variable packaging and shipping costs

You must specifically SELECT which standing charges to insure at policy inception. Unselected charges are not covered. Discuss with Probitas at 022 4302 0000 to ensure all material standing charges are insured.

Increased Cost of Working (ICOW) — Item 1(b) — covers additional expenditure you NECESSARILY and REASONABLY incur for the sole purpose of avoiding or reducing the turnover shortfall caused by the fire.

Examples of covered ICOW:
→ Rent for a temporary alternative warehouse or production facility
→ Overtime wages paid to speed up repairs or production
→ Higher subcontracting costs to fulfil customer orders (maintaining supply to prevent losing accounts)
→ Express freight costs to source materials faster
→ Emergency repair premiums to restart production sooner

The Memo 2 Cap:
ICOW is subject to a critically important cap under Memo 2: the ICOW recoverable CANNOT exceed the gross profit loss that was thereby avoided.

Example: You spend ₹10L on overtime and subcontracting. As a result, you avoided ₹6L in GP loss (maintained ₹6L worth of sales that would otherwise have been lost). The ICOW recoverable is only ₹6L — not ₹10L. The additional ₹4L was commercially inefficient (you spent ₹10L to save ₹6L — the ₹4L excess is not covered).

The ICOW must "economise" the GP loss. Every ICOW expenditure should be documented with evidence of what GP loss it avoided.

Standard FLOP only covers BI when YOUR OWN PREMISES is physically damaged. However, the optional Suppliers' Premises Extension (and the related Customers' Premises and Public Utilities extensions) broadens this to cover income loss from events at other premises.

Suppliers' Premises Extension:
Covers your income loss when a KEY SUPPLIER's premises is damaged by an insured peril, preventing them from supplying you — even though YOUR plant is completely undamaged.

Example: Your pharma company has 2 approved API suppliers. One supplier's Gujarat plant floods. API supply stops for 3 months. Your own plant is fine but cannot produce without the API. The Suppliers' Premises Extension covers your gross profit loss during the 3-month API shortage.

Customers' Premises Extension:
Covers your income loss when your CUSTOMER's premises is damaged, causing them to cancel orders from you.

Public Utilities Extension:
Covers income loss from power/gas/water supply interruption due to damage at the utility's infrastructure.

These extensions are the FLOP equivalent of BLUS+ Cover XI (Contingent BI) and IAR's contingent BI provisions — the same underlying concept delivered as a FLOP extension for SFSP policyholders. Strongly recommended for supply-chain-dependent businesses.

A FLOP claim uses the following formula:

1. GP Rate = (Annual FLOP GP / Annual Turnover) × 100
2. Standard Turnover = Same period last year (trend-adjusted)
3. Actual Turnover = What you actually earned during the indemnity period
4. Short Sales = Standard Turnover − Actual Turnover
5. GP Loss (Item 1a) = GP Rate × Short Sales
6. Add ICOW (Item 1b) = Justified increased costs (Memo 2 cap applies)
7. Deduct savings in standing charges that ceased
8. Deduct 7-day time exclusion (GP Rate × Annual Turnover / 365 × 7)
9. If SI < Annual GP for the IP: Average Clause reduces claim proportionally

Financial records you need:
→ Audited P&L accounts for 2–3 years before the fire
→ Monthly turnover records for 12 months before fire AND during indemnity period
→ Standing charges breakdown (monthly rent, salaries, EMIs, interest)
→ All ICOW invoices and evidence of what GP loss they avoided
→ Documentation of any savings in standing charges during shutdown

Businesses with poor financial records get under-settled. Maintain monthly financial records always — not just after a fire. Appoint a Chartered Accountant from Day 1 to prepare the FLOP claim. Call 022 4302 0000 for claims guidance.

All three are Business Interruption / Loss of Profits covers that share the same underlying insurance principle — covering income loss from physical damage caused by fire or allied perils. But they are delivered differently:

SFSP + FLOP (this product):
→ Two separate policies: SFSP for material damage + FLOP as standalone companion policy
→ Must be deliberately purchased together
→ FLOP is optional — many SFSP buyers don't know they need it
→ Available for ANY SFSP policyholder, any SI size
→ Indemnity periods: 3–36 months
→ Material Damage Provision: explicit separate condition

BLUS+ Cover V (Business Interruption):
→ BI as an optional cover WITHIN the BLUS+ product
→ Designed for SMEs with ₹5–₹50Cr SI
→ Cover V is one of 12 optional covers you can toggle on/off
→ Indemnity periods: 12–36 months
→ Same GP formula; same concept

IAR Section II-A (Fire Loss of Profits):
→ MANDATORY section within the IAR package
→ For ₹100Cr+ industrial enterprises
→ Cannot buy IAR without Section II-A FLOP
→ Same formula; same GP concept; same 3-day waiting period deductible (not 7 days)

If you currently have SFSP and do NOT have FLOP: call 022 4302 0000 today. Your fire protection is incomplete.

Protect Your Income, Not Just Your Property —with Fire Loss of Profit (FLOP) Policy