The Indian Shopping Centre Industry is reeling under immense pressure as revenue streams have dried up and retail tenants are proposing various waiver/ rental models around license fees and CAM charges amid the coronavirus pandemic. This is expected to have a cascading effect on shopping centres as they will not be to able repay loans to banks, EMIs, interest on these EMIs, minimum electricity bills, property tax, municipal tax, water tax, salaries, and maintenance cost of the mall.
To add to their woes, the lockdown – resulting in zero footfalls and revenue – has unfavourably impacted the employment status and livelihoods of several people (direct and indirect - approximately 3,5005,000 per shopping centre). The overall working capital cycle has been adversely impacted and business losses of shopping centres are mounting.
And to top it all, now shopping centres are being plagued by insurance woes. In India, under traditional business interruption insurance policies, physical damage to property is the only criteria to trigger business interruption loss, while pandemics and epidemics are specifically excluded. Insurance companies, therefore, are refusing to accept any claims arising out of shutdown.
Explaining this, Sudhir Gudal, Promoter and Chief Distribution Officer, Xperitus Insurance Brokers Pvt Ltd, says, “Mall and retail store owners generally take the Standard Fire and Special Perils Policy, also called as Fire Policy or Package Policy to insure their properties including; Building, Plant and Machineries, Furniture, Fixture and Fittings, Electrical Equipment- HVACs, Escalators, Elevators, Office Equipment and stocks. They also opt for Add on, Loss of Profit (L.O.P) or Loss of Rent (L.O.R) cover to protect revenue income losses.”
“The Fire Policy provides owners indemnity against any material damage loss (physical damage) to their insured property due to any of the 12 insured perils. The L.O.P or L.O.R policy, protects the insured’s consequential loss of revenue, after a material damage loss,” he adds.
Unfortunately for shopping centres, the loss of business opportunity and profits is not covered under various insurance/risk policies which they have bought in the past.
According to Sachin Dhanawade, Chief Operating Officer - Retail & Real Estate, Grauer & Weil (India) Limited, the business interruption insurance covers lost revenues and also the recurring costs of the business while its shut or out of commission in cases of a disaster. “In India, under traditional business interruption insurance policies, physical damage to property is the only criteria to trigger business interruption loss, while pandemics and epidemics are specifically excluded. Insurance companies, therefore, are refusing to accept any claims arising out of shutdown stating that exclusion of pandemics and closure due to this direction does not constitute physical loss or damage.”
Force Majeure Clause
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