Fire Insurance : Fire Insurance An Insight . . . ?? is fire insurance ?? : ?? is fire insurance ?? Insurance against loss due to fire.
A fire insurance policy involves an insurance company agreeing to pay a certain amount equivalent to the estimated loss caused by fire to the insured, within the time specified in the contract. The indemnity is subject to change depending upon the policy. One should confirm with the insurer about the types of risks covered, since one cannot insure the property against all types of risks of fire. Fire Insurance Contract : Fire Insurance Contract In strict sense, a fire insurance contract is one:
Whose principle object is insurance against loss or damage occasioned by fire.
The extent of insurer's liability being limited by the sum assured and not necessarily by the extent of loss or damage sustained by the insured: and
The insurer having no interest in the safety or destruction of the insured property apart from the liability undertaken under the contract. Slide 4: Against risk of fire on any material or
An indemnity contract against actual
loss to the maximum limit of sum
Only issued for one year and renew
Can be insured from one or more insurer.
Contract of utmost good faith. CHARACTERSTICS Slide 5: On occurrence of fire ,its notice should be given to insurer so that they can take necessary step.
The rate of premium varies according to the degree of hazard.
Insured must have insurable interest both at the time of affecting the policy and at the time of loss.
The claim can be done for more than once but up to the sum assured.
A man of ordinary prudence
must take necessary steps to
avoid the loss by fire. Significance : Significance As a source of minimizing losses
Decrease in possibilities of fire losses
Loss preventing efforts and advice by the insurer
Helpful in business
Beneficial for new industries
Distribution of risk
Increase in production of fire proof materials Insurable Interest : Insurable Interest This means you can only insure something, if they benefit from its existence and will suffer if it ceases to exist. For example you can insure your own bicycle , but not your friend’s bicycle.
In the same way you can take out Assurance on your wife’s life, but not that of your neighbour. Utmost Good Faith (Uberrimae Fidei) : Utmost Good Faith (Uberrimae Fidei) It is assumed by the Insurance company that the facts you disclose on a Proposal Form are accurate.
However, if the loss occurs they will check the facts and if inaccurate details have been given they will not compensate you.
Failure by the insured to reveal certain details to the insurance company that affect the risk may make the insurance invalid. For example that the house is made of wood rather than concrete.
For example for vehicle insurance if you said you were 25 and were in fact only 18. When you had an accident they would ask for your birth certificate and you would get no compensation. Indemnity : Indemnity This means the insured cannot make a profit from an insurance claim.
If you have a four year old bicycle and it is stolen, the insurance company will only give you the current value of the bicycle not the cost of the bicycle when it was new.
It your vehicle is in an accident and damaged beyond repair, but the wreck is worth something for example the engine could be sold the insurance company will take this into consideration when giving the compensation.
With life assurance one may be financially better of, but it is only to compensate you for the loss suffered. X X Subrogation : Subrogation This means the insurance company has the legal right to claim compensation from any other party that caused the accident.
For example vehicle A hits B, which as a result hits C. C will claim of B’s insurance company, but that insurance company has the right to claim from A’s insurance company, as it was A that really caused the damage to C. Insurable object in Fire Insurance : Insurable object in Fire Insurance Building
Electrical installation in buildings
Machinery, Plant and equipment
Goods ( raw materials, stocks in process, semi finished, finished etc ) in factories
Godowns, Goods in open
Contents in dwellings
Shops, Hotels etc.
Furniture, fixture and fittings, pipelines located inside or outside the compound etc. Scopeoffire insurance What is Covered in Fire Insurance : Scopeoffire insurance What is Covered in Fire Insurance Fire : Fire lightening EXPLOSION/IMPLOSION RSMD ( Riot, Strike, Malicious damage ) : RSMD ( Riot, Strike, Malicious damage ) STFI ( Strom, Tempest, Flood, Inundation ) : STFI ( Strom, Tempest, Flood, Inundation ) Aircraft damage Missile testing Subsidence and landslide including Rock Slide : Subsidence and landslide including Rock Slide * Bursting and / or overflowing of water tanks, apparatus and pipes
* Leakage from Automatic Sprinklers Installations Bush fire
Excluding destruction and damage caused by forest fire Ordinary scope : Ordinary scope Accidental fires, lightning, explosion and implosion due to pressure vessels(used for domestic purposes)
By rioting mob, striking workers, malicious acts by third parties and damage by terrorists
Impact damage by any rail/road vehicle or animal by direct contact.
Commodities damaged by water used for extinguishing fire.
Loss\damage caused by pulling down of adjacent buildings by the fire brigade to prevent the flames from progressing.
Breakage of commodities in the process of their removal from the premises where fire is intense. Ordinary scope contd… : Ordinary scope contd… Aircraft and other aerial and and/or space devices and/or articles dropped there from, excluding destruction or damage occasioned by pressure waves caused by such devices
Payments made to people employed in extinguishing fire.
Subsidence and landslide, including rock slide.
Natural calamities like storm, cyclone, typhoon, hurricane, tornado, flood and impact damage.
Damages caused due to bursting or overflowing of water tanks, apparatus and pipes
Bush Fire GENERAL EXCLUSIONS : GENERAL EXCLUSIONS The first 5% of each and every claim subject to minimum of Rs.10,000/- in respect of Act of God only perils such as lightning, STFI, Subsidence, Landslide and Rockslide.
The First Rs.10,000/- for each and every loss arising out of other perils.
The excess shall apply on the basis of per event per insured. However this does not apply to policies covering dwellings. EXCLUDED PERILS : EXCLUDED PERILS War and War like perils : Loss, destruction or damage caused by war, invasion, act of foreign enemy, hostilities or war like operations( whether war be declared or not ), civil war, mutiny, civil commotion assuming the proportions of or amounting to a popular rising, military rising, rebellion, revolution, insurrection or military or usurped power. OTHER EXCLUSIONS : OTHER EXCLUSIONS Loss or damage caused by ionizing radiation or contamination
Loss or damage caused by pollution or contamination excluding a) Pollution or contamination which itself results from a peril hereby insured against, b) any peril hereby insured against which itself results from pollution or contamination.
Loss or damage to stocks in cold storage premises caused by change of temperature. OTHER EXCLUSIONS contd… : Loss, destruction or damage to any electrical machine, apparatus, fixture or fittings arising from or occasioned by over running, excessive pressure, short circuiting, arcing, self hearing or leakage of electricity from whatever cause.
Loss, destruction or damage to bullion or unset precious stones, any curious or works of art for an amount exceeding Rs.10,000/-, goods held in trust or on commission, manuscripts, plans, drawings, securities, obligations or documents of any kind, stamps, coins or paper money, cheques, books of accounts or other business books, computer system records, explosives unless otherwise expressly stated in the policy. OTHER EXCLUSIONS contd… Special scope : Special scope The fees paid to the architect, surveyor or consultant engineer, if such fees exceeds more than 3% of the claim money.
The expenses incurred in connection with removal of wastages from the construction site, if that amount exceeds more than 1% of the claim money.
Loss to the goods kept in the cold storage due to fluctuations in electricity/power but within the causes stated in the policy.
Loss arising out of earth-quake, fire or combustion.
Loss due to falling the goods from fork lifts, or from own vehicle of the insured, etc.
Loss due to spontaneous combustion. Comprehensive scope : Comprehensive scope Risks of standard policies.
Special risks which can be insured by paying extra rate of premium.
Excluded perils in the standard policy.
Consequential losses or risks arising consequent to fire.
Loss of net profit
Loss of fixed expenses, e.g., salaries to employees, building rent, interest on loans, etc.
Increased cost on account of problems arising out of fire.
Rent of the building taken on hire, till the time of getting the damaged building repaired or renovated, etc. Procedure of effecting fire insurance : Procedure of effecting fire insurance Selection of insurer.
Presentation of proposal in the prescribed form.
Evidence of goodwill.
Recommendation by agent.
Survey of the subject matter.
Report by surveyors.
Acceptance of proposal.
Depositing of premium money.
Issue of cover note.
Issue of insurance policy. Types ofFire Insurance Policy : Types ofFire Insurance Policy Slide 27: In this policy the indemnity is a fixed amount agreed upon at the time of signing the contract.
The insurance company pays that amount regardless of the actual loss due to fire.
The insured is benefited when the market value of the property declines , but suffer loss when the market value appreciates.
It is also known as insured policy.
The valued insurance policy is usually offered for such items like jewellery, furs, or paintings, which value is difficult to estimate once they are damaged or destroyed by fire. Valued POLICIES Slide 28: The policy indemnifies the cost of replacement of machinery to a condition equal to but not better or more extensive than its condition when new. Hence this policy is new for old.
This policy can be issued for Building, Plant and Machinery, Furniture Fixture & Fittings only. After the World Wars, when inflation was high, the indemnity on market value basis was grossly inadequate to rebuild the factories/ plants.Hence this policy was launched on public demand
Any technical improvements will go to the account of the insured.
Reinstatement must be carried out by the insured in order to obtain the benefits of the special basis of settlement.
The work of reinstatement must be completed within 12 months from the date of loss, failing which the claim will be settled on market value basis.
The insured also needs to pay higher rate of premium. replacement POLICIES Slide 29: It is taken out for those goods which are frequently changing in a warehouse. This policy can be taken on those goods which are lying on different localities or godowns.
Since quantity of goods lying in the warehouse or at different places fluctuate from time to time, it becomes difficult for the owner to take a specific policy.
Floating policies are suitable to those traders or products whose raw-materials or merchandise are lying at different localities or godowns.
For example:-Some of the goods of other trader are kept in one godown, and few kept in another godown, some kept in the railway godown or some at the sea port open. To cover the risk of goods lying at different places under one policy. floating POLICIES Slide 30: Many insured may have stocks which frequently fluctuate in value. To take care of such fluctuation in quantity/ value , a declaration policy is issued.
The sum insured will be the maximum possible value at any point of time during the policy period. The minimum sum insured will be Rs. 1 cr. in one or more locations and shall not be less than Rs.25 lacs in atleast one of these locations.
Monthly declarations based on
a) The average of the values at risk on each day of the month or
b) The highest value at risk during the month.
must be submitted by the insured before the end of the succeeding month. declaration POLICIES Slide 31: On maturity of the policy, average value of the stock is taken out and on average value the final premium money is find out. If it is less then initial charged premium then insurer will return excess amount.
If declaration is not received for a particular month, the sum insured will be treated as the declaration for the month.
Reduction in sum insured is not allowed. Increase in sum insured can be done with prior agreement.
Basis of value for declaration will be the market value.
Declaration policy cannot be issued for stock in process/ retail stores /short period insurance. declaration POLICIES contd… adjustable POLICIES : It is issued for existing stock.
In this policy premium rate shall be adjusted according to increase or decrease in the value of stock, this change will be notified to the insurer by the insured.
In case of loss by fire, the amount notified by the insured at the maturity of the policy is taken as final and indemnified upto that limit.
It is a contract limited to merchandise or stock in trade other than farming stock. adjustable POLICIES Slide 33: A specific policy is a type of policy in which the property is insured for a specific sum irrespective of its value.
If there is loss, the stated amount will have to be paid to the policyholder.
But the actual value of the subject matter is not considered in this respect.
For example, if a property is insured for Rs. 10000 though its actual value is Rs. 20000. In the event of loss to property, not more than Rs. 10000 can be recovered. Specific Policies Slide 34: Where a property is insured for a sum which is less than its value, the policy contain a clause that the insurer shall not be liable to pay the full loss but only that proportion of the loss which the amount insured for, bears to the full value of the property.
Amount of Indemnity = Policy money x Actual amount of loss
Market value of the property insured
For example A value of the property is Rs.1,00,000. It is insured for Rs.60,000 and the amount of loss is Rs.60,000. The insurance company will not pay Rs.60,000 to the policyholder but will pay Rs.36,000 . AVERAGE POLICIES Slide 35: The insurance is affected on the maximum value of stock remains throughout the year and accordingly premium charged.
In the case of no indemnity, one third of the premium paid is return to the insured at the end of the year. It can be treated as a discount in consideration of variations in value of goods. discounted POLICIES with maximum value Presented by : Presented by Aanchal Somani
Arwa Kanchwala Slide 37: THANK YOU