Fire ins.


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Fire ins.

  1. 1. FIRE INSURANCE _____________________________________________________ _ 1. INTRODUCTION TO INSURANCE 1.1 Meaning of Insurance As stated in the very beginning, insurance companies bear risk in return for a fee called premium. Thus, insurance companies are risk bearers. They accept or underwrite the risk in return for an insurance premium. Accordingly, the term insurance may be defined as a co- operative mechanism to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against that risk. Risk is, in fact, an uncertainty of a financial loss. Risk must not be confused with loss itself that is the unintentional decline in or disappearance of value arising from a contingency. The function of insurance include providing certainty, protection, risk sharing, prevention of loss and capital formation. Wherever there is uncertainty with respect to a probable loss there is risk. The insurance is also defined as a social apparatus to accumulate funds to meet the uncertain losses arising through a certain hazard to a person insured for such hazard. Insurance has been defined to be that in which a sum of money as a premium is paid by the insured in consideration of the insurers bearing the risk of paying a large sum upon a given contingency. The insurance, thus, is a contract whereby: - _______________________________________________________________________ _ 1
  2. 2. FIRE INSURANCE _____________________________________________________ _ • Certain sum, termed as premium, is charged in consideration • Against the said consideration, a large amount is guaranteed to be paid by the insurer who received the premium. • The compensation will be made in a certain definite sum, i.e., the loss or the policy amount whichever may be, and the payment is made only a contingency. 1.2 Introduction To Insurance Insurance is a tool by which fatalities of a small number are compensated out of funds (premium payment) collected from plenteous. Insurance companies pay back for financial losses arising out of occurrence of insured events, e.g. in personal accident policy death due to accident, in fire policy the insured events are fire and other allied perils like riot and strike, explosion, etc. Hence, insurance is safeguard against uncertainties. It provides financial recompense for losses suffered due to incident of unanticipated events, insured within policy of insurance. Moreover, through a number of Acts of parliaments, specific types of insurance are legally enforced in our country, e.g. third party insurance under Motor vehicles Act, public _______________________________________________________________________ _ 2
  3. 3. FIRE INSURANCE _____________________________________________________ _ liability insurance for handlers of hazardous substances under Environment Protection Act, etc. Insurance, essentially, is an arrangement where the losses experienced by a few are extended over several who are exposed to similar risks. Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance companies collect premium to provide security for the purpose. As loss is paid out of the premium collected from the insuring public and the insurance companies act as trustees to the amount so collected. Insurance companies have standard proposal forms, which are to be filed up giving the details of insurance company. Depending upon the answers given in proposal form insurance companies assess the risk and quote the premium. On payment of premium and acceptance thereof by insurance company the insurance is affected. Nonetheless, there is no insurance cover if premium is not paid. _______________________________________________________________________ _ 3
  4. 4. FIRE INSURANCE _____________________________________________________ _ 2. INTRODUCTION TO FIRE INSURANCE 2.1 Meaning Fire insurance is a contract to indemnity, to the insured for destruction of or damage to property caused by fire. The insurer undertakes to indemnify the insured against loss due to fire caused to the property insured against, not in excess of the maximum amount stated in policy. A contract of indemnity, and not against accident, but against loss caused by fire. For example, if a person has insured his house of Rs. 1.00 lakh against loss by fire, the insurer is not liable to pay the sum, unless the house is destroyed by fire, but actual loss subject to the maximum limit of Rs. 1.00 lakh. 2.2 Definition _______________________________________________________________________ _ 4
  5. 5. FIRE INSURANCE _____________________________________________________ _ Section 2(6) of the Fire Insurance Act, defines, “Fire insurance business means the business of affecting, otherwise than in evidently, to some other class of business, contacts of insurance against loss by or incidental to fire or other assurance customarily included among the risks insured against in fire insurance policies.” 2.3 Characteristics or Nature of Fire Insurance  It is a means of security against risk of fire on any material or property.  It is an indemnity contract.  The insurer undertakes to indemnity the insured against actual loss subject to the maximum limit of sum insured.  It is contract of utmost good faith; the insurer and the insured must disclose all material facts relating to the subject matter of insurance.  A fire insurance policy is usually issued for one year only with option to the parties to renew it for a further period on payment of stipulated premium. _______________________________________________________________________ _ 5
  6. 6. FIRE INSURANCE _____________________________________________________ _  If the property is insured with more than one insurer, and on loss by fire, all the insurers are called upon to contribute towards the claim.  The insurer is not liable for payment of any claim if the fire is caused deliberately.  In British Law, the fire insurance policies can be assigned only with prior permission of the insurer, but under Indian Law the consent of the insurer is not necessary to make valid assignment of policy, only a notice of information is sufficient.  On occurrence of fire, a notice of fire should be given to the insurer so that the insurer may take prompt steps forthwith to safeguard his interests, in dealing with salvage and also judge the cause and nature of fire, and the extent of the loss.  It is the duty of the insured to act as a man of ordinary produce to take necessary steps to save the property from loss of fire, as in the absence of any insurance against the property. _______________________________________________________________________ _ 6
  7. 7. FIRE INSURANCE _____________________________________________________ _ 2.4 Meaning of Fire The word fire means “loss by fire” and in literal sense means a fire has broken bounds. Therefore fire, which is used for ordinary domestic purposes or even for manufacturing, is not fire. ‘Fire’ in fire insurance must have the following two features:  Production of ignition, light and heat.  Fire by accident. 2.5 Definition of Fire According to Justice Boyles (in Everett vs. London Association Company 1885) “Fire means the production of light and heat by combustion and unless there is actual ignition there is no fire within the mean sing of term in ordinary policy.” 2.6 The various loss caused by fire The losses by the following instances or losses subsidiary to fire are as follows: Damage, which occurs as a result of smoke or of putting out the fire, would be covered by the fire risks. _______________________________________________________________________ _ 7
  8. 8. FIRE INSURANCE _____________________________________________________ _ Any loss resulting from apparently necessary and bona fide efforts to put out a fire, whether it be by spoiling goods by water, or throwing articles of furniture out of the window, are covered by the fire risks. Even by damages to a neighboring house by explosion done for the purpose of arresting fire, would be covered by the fire risks. Every loss directly, or if not directly at least consequently resulting from the fire is within the policy (In Stanley vs. Western ins. Co., 1968). Loss by theft during a fire is covered as a fire risk (In Levy vs. Bailey, 1831). Even loss by fire caused by the insured’s negligence is covered by the policy (In Harris vs. Poland, 1941). 3. NATURE AND USE OF FIRE INSURANCE _______________________________________________________________________ _ 8
  9. 9. FIRE INSURANCE _____________________________________________________ _ 3.1 Definitions and Nature Fire insurance is a device to compensate for the loss consequent upon destruction by fire. Thus the fire insurer shifts the burden of fire losses from their actual victims over to all the members of the society. It is a cooperative device to share the loss. It relieves the insured from the horror of the fire losses to which he is exposed. 3.2 Functions It is a well-known fact that the fire causes huge losses every year. The individual owner by taking fire insurance can prevent the fire waste to some extent. The insurer acts as a middleman between all the members of the society who are exposed to the fire risk on the one hand and the members who will be the actual victims of the fire losses on the other. The insurer changes the premium from all the insured members and makes good the losses when they occur to any of them. The system of fire insurance cannot save the society from the economic loss to the community to the extent of the property lost by fire, but it compensates someone and this saves him from a ruinous loss, at the cost of group of some others. 3.3 Causes of Fire _______________________________________________________________________ _ 9
  10. 10. FIRE INSURANCE _____________________________________________________ _ Fire waste is the result of two types of hazard viz., ‘physical’ and ‘moral’. a. Physical Hazard It refers to the inherent risk of fire in the property, which may occur due to inflammable nature, construction, artificial lighting and heating, lack of extinguishing apparatus use of the property etc. b. Moral Hazard The moral hazard depends upon the man as physical hazard depends on the property. The property may be set on fire by the owner or by any person with his willingness, carelessness and lack of sense of duty may also increase the fire waste. Sometimes, when market price is going down the owner can willingly set fire on the property and gain from the payment of insurance money. Thus, where the property was destroyed with the willingness of the property owner, moral hazard exists. c. Prevention of Loss: Insurance is meant for indemnification of loss and not for prevention of loss although every reasonable step can be taken to eliminate it or minimize it through the agencies engaged in prevention of loss. Thus, insurance may help in two ways: _______________________________________________________________________ _ 10
  11. 11. FIRE INSURANCE _____________________________________________________ _ I. Indemnification and II. Preventive Efforts. I. Indemnification or Curative Efforts: - According to doctrine of indemnification, the financial loss suffered by the perils insured against will compensated in full, not more than this and not less than this. The insurance provides protection by indemnifying the financial loss suffered by insured person, which occurred beyond the control of insured and insurer. II. Preventive Efforts: - The loss cannot be prevented by insurance. But, the insurers help those who are engaged in the preventive efforts by granting financial and other assistances. This will benefit insurers as well because if the loss of society is reduced, they can charge lesser premium, which will stimulate the public of insurance. Fire insurers stimulate the installation of protective devices and better types of construction through granting credit. They help in installation of fire-fighting apparatus, water supply and engineering services. _______________________________________________________________________ _ 11
  12. 12. FIRE INSURANCE _____________________________________________________ _ Preventive efforts are divided into two parts:  Private activities and  Public activities  Private Activities: Private Activities are those which include those activities which the property owner may engage in for the purpose of preventing fire loss. Insurers give sincere advice of financial help to property owner on the following factors.  Construction In construction of building, fire resistive materials, fireproof construction, greatest care in exercising selection of the type and planning of the construction, availability of fire extinguisher, water supply, etc.  Fire Services The important thing is to extinguish fire before it reaches large proportions. The owner should consider equipping his building with an automatic sprinkler system. Similar fire fighting equipment may be established. Insurers with the help of fighting associations can provide such services. _______________________________________________________________________ _ 12
  13. 13. FIRE INSURANCE _____________________________________________________ _  Occupation There are considerable hazard in certain occupation e.g. in oil or coke or chemical industry. Insurance in these concerns is available at higher rate. Insurance help by stimulation and charging lesser premium in fire fencing occupation.  Management Good management of property may reduce the chances of fire. Carelessness and indifference cannot be over emphasized because these increase the chance of fire.  Exposure Fire insurance rates are determined on the basis of possibility of exposure. Fireproof services may reduce the chances of exposure to a greater extent.  Public Fire Prevention Activities: Fire insurers have performed numerous important services to reduce the fire waste with the help of public institutions, which are engaged in fire fighting activities.  Community Surveys _______________________________________________________________________ _ 13
  14. 14. FIRE INSURANCE _____________________________________________________ _ Engineering survey of the cities and localities is made. As a result of its investigation many have improved their fire departments, water supplies and other facilities involved in the protection against fire.  Standard Schedule For Grading Cities Under this schedule a number of cities, town, or Mohall as are divided, according to fire preventive devices. The deficiencies in each party sorted out and attempts are made to remove them.  Underwriter’s Laboratories The laboratories are to find out the possible causes of fire losses. Every time research or investigation is made to find out the possible attempts to prevent fire losses.  Equipment Fire can be properly checked only through the possession and maintenance of adequate equipment, personnel fire alarm system and water supply. The Fire Protection Association can determine fire fighting apparatus and equipment for any city or town.  Salvage Corps and Salvage Works By Fire Departments The chief aim of the corps is to protect property from unnecessary smoke and water damage. The protective benefits are extended to all those who suffer fire damages regardless of _______________________________________________________________________ _ 14
  15. 15. FIRE INSURANCE _____________________________________________________ _ whether they are insured or not. Training school and colleges are, sometimes, engaged in giving general education to all and particular education to few students to train them in fire fighting methods and fire preventive methods.  Legislation and Regulation National Board of fire underwriter’s fire brigade and other such associations are engaged in fire preventive and protective efforts under a certain law. The property owner and the fire protection engineer must keep in mind the numerous legal requirements relating to the various phases of fire prevention.  General Devices Apart from the above contribution to prevention protection, the following devices are utilized for preventing the losses. i. The insurer compensates loss at a reasonable cost. ii. Serious hazards are to be cooperatively reinsured. iii. Loans are provided for better construction and building. iv. Fire insurers stimulate the installation of protective devices to reduce losses. v. Fire fighting methods are organized with public utility concerns. vi. Insurers investigate the causes of loss and attempts ate made to reduce the causes. Insurers study various devices for fire proof, protection and problems of special processes. Periodical examination of _______________________________________________________________________ _ 15
  16. 16. FIRE INSURANCE _____________________________________________________ _ insured property is made and instructions are issued for the purpose of investigation. 4. SCOPE FOR FIRE INSURANCE A contract of fire insurance is a contract whereby the insurer agrees, in consideration of a sum of money called premium, to compensate another person known as the insured for any loss or damage to the insured property. The contract specifies the period during which the indemnity is to last and also the maximum amount to which the insurer can be held liable. _______________________________________________________________________ _ 16
  17. 17. FIRE INSURANCE _____________________________________________________ _ The need for fire insurance arises out of the following facts: There exists material property susceptible to damage or destruction by fire or other peril. 1) That such material property has intrinsic value measurable in terms of money. 2) The occurrence of fire will result in not only loss or damage to material property, but also other consequential loss such as loss of production, etc. in order to make the insurer liable for the loss under the fire policy the following two conditions must be satisfied: I. There must be fire in actual sense or ignition, and II. The fire must be accidental. Ignition There must be actual ignition. This means that loss or damage must be by fire. The cause of fire is not important but it should be proved that loss was caused by fire. Ignition means burning and therefore the presence of flame is a precedent condition. Fire Must Be Accidental Any loss caused by willful consent does not come under the term ‘fire’. There must be an accidental fire and not intentional. This applies only to the insured. _______________________________________________________________________ _ 17
  18. 18. FIRE INSURANCE _____________________________________________________ _ Section 2 of the Indian insurance act, 1938, states the scope of fire insurance to include: 1. Fire insurance business is different from other insurance business in operation and covers the risk caused by fire. 2. In addition to the risk caused by fire, it also includes other risk and occurrences, which can be customarily, be included among risks insured under fire insurance contracts. 3. Thus we can divide the total scope of fire insurance into two parts, or the scope of fire insurance may be studied from two angles, viz.,  Ordinary scope of fire insurance  Comprehensive scope of fire insurance 1. Ordinary Scope Of Fire Insurance Ordinary fire insurance products includes those risks, which define the narrower scope of fire insurance viz., the losses caused by fire only. As such, under the fire insurance contracts the claims for losses by fire must fulfill two basic conditions. a. There must be actual fire or ignition _______________________________________________________________________ _ 18
  19. 19. FIRE INSURANCE _____________________________________________________ _ b. The fire must be incidental, not intentional c. Risks covered under fire insurance The risks causing losses must be mentioned under fire insurance policy and only those risks are indemnified by the insurer incase of loss. Usually, the following risks caused by fire are covered under fire insurance. i. Fire or ignition. ii. Blasting of boiler used for household purposes. iii. Blast of gas cylinder used for household cooking. iv. Blast of gas etc. used for the purposes of lightening and heating in any building. d. Risks not covered under fire insurance policies These are the risks for which insurance company do not indemnify the insured in the case of loss. i. Some goods and properties are not eligible for insurance under fire insurance policies such as: precious stones and metals, articles, maps, stamps, cheques, goods or properties kept under trust, account books and records, archives, and rare documents and writings, etc. ii. Losses caused by certain uncertain events such as riots, civil disturbances, revolutions, wars, aggression, internal emergencies, marital law etc., natural calamities like _______________________________________________________________________ _ 19
  20. 20. FIRE INSURANCE _____________________________________________________ _ earthquakes, storms, cyclones, floods, drought, excessive heat or cold eave. iii. Spontaneous fire in jungles or bushes. iv. Spontaneous combustion caused by chemicals. v. Theft during fire or after the breakout of fire. 2. Comprehensive Scope of Fire Insurance: Various types of policies are available in the form of fire insurance policies, which cover various types of risks allied to the risk of fire. Coverage of such risks under the purview of fire insurance has widened the scope of fire insurance. Some special policies have helped in a great way in broadening the scope of fire insurance in the following manner: (i) By including the excluded perils and risks. (ii) By including consequential losses and other indirect fire risks. In the first category, such excluded risks, which cannot be insured under general insurance schemes or policies, have been included under the cover of fire insurance. Such policies are called special perils insurance relating to spontaneous combustion, earthquakes, blasts etc. In the second category, such indirect risks and losses are covered. These are called consequential losses or risks. _______________________________________________________________________ _ 20
  21. 21. FIRE INSURANCE _____________________________________________________ _ 5. SIGNIFICANCE OF FIRE INSURANCE _______________________________________________________________________ _ 21
  22. 22. FIRE INSURANCE _____________________________________________________ _ The industry, trade and commercial articles have been developing and diversifying at faster rate in India. Along with the growth of industrial and commercial articles the infrastructure fields like transport, communication, finance, advertising, stock marketing, etc., have also been developing continuously so as to cope with the pace of economic development. The importance of foreign trade also has been very much for a developing country like India. All these developments in various fields brought in much risks and uncertainties in business activities. Insurance is the only field that provides security, against business risks. The role of fire insurance has been increasing day-by-day as a means against destruction or damage of business property caused by fire. The significance of fire insurance can be discussed under the following points: • As A Source For Minimizing Losses: Fire can destroy property in goods and fixed assets of crore of rupees or can create damages to the business property. Fire insurance indemnifies losses or damages done to fire and resources the mental worries of businessmen. • Decreases In Probabilities of Fire Losses: The increasing uses of energy petrol like electricity, gas and other such items have increased the probability of losses or _______________________________________________________________________ _ 22
  23. 23. FIRE INSURANCE _____________________________________________________ _ damages to goods and property. In order to minimize this calamity, various types of fire extinguishing devices have been destroyed throughout the world. Moreover, the fire insurance is another device to indemnity the losses thus removes mental worries by extending financial support. • Increase In Production of Fireproof Materials: Fire insurance cannot prevent occurrence of fire, but can reduce the losses. Today various devices are produced in the country like fire extinguisher. Fire brigades are set up at every cities and towns to extinguish fire by the government and local bodies. • Decrease In Social Loss of Fire: Social awareness has been created in the country to put out fire and to reduce the effect of fire. The social organizations provide training to the people in the use of such items given below. i. Assets Valuation: Assets are valued for obtaining a fire insurance policy. It requires the insured to be more cautious in protecting his property or goods. _______________________________________________________________________ _ 23
  24. 24. FIRE INSURANCE _____________________________________________________ _ ii. Loss Preventing Efforts and Advice By The Insurer: An insurer not only indemnity against fire losses, but also advices the insured to reduce the incidence of fire. Fire insurance companies establishes, ‘salvage corps,’ to extinguish fire so that the extent of loss can be minimized. iii. Helpful In Business Progress: Due to the facilities provide by the insurance companies, the business enterprises undertake large-scale production, and invest in business and marketing activities without any botheration. This lead to continuous progress in industrial and commercial activities, leading to extinguish fire so that the extent of loss can be minimized. iv. Beneficial For New Industries: The new industrial units usually face complex problems of production, finance, competition and sales etc. In such a situation, they cannot afford the losses/damages due to fire. The fire insurance relives such entrepreneurs from worries, by indemnifying the loss/damages, if any, from the occurrence fire. _______________________________________________________________________ _ 24
  25. 25. FIRE INSURANCE _____________________________________________________ _ v. Credit Facility: Where the assets are secured by fire insurance, it becomes easier for such enterprises to get credit from banks and other financial institutions. This will increase the credit worthiness of the enterprise. vi. Distribution of Risks: Fire insurance is effective device to distribute the risks in a group, enabling the individual or the institution to maintain its efficiency. _______________________________________________________________________ _ 25
  26. 26. FIRE INSURANCE _____________________________________________________ _ 6. PROCEDURE OF FIRE INSURANCE The steps to be followed in connection with affecting fire insurance are as under: I. Selection of Insurer: The selection of the insurance company is the first step. The insured is required to select a suitable company for this purpose amongst a large number of companies engaged in this business. The proposer can select any of these companies according to his convenience, rationality, goodwill of the company, its financial soundness, premium rates, policies and service provided etc. _______________________________________________________________________ _ 26
  27. 27. FIRE INSURANCE _____________________________________________________ _ II. Presentation of Proposal In The Prescribed Form: After the selection of the insurance company a proposal form is obtained and furnished with the insurer or his agent. The particulars about the name, address, occupation of the proposer, value and nature of the subject matter of insurance, type of policy required, amount of sum insured, etc. are to be furnished with care and utmost good faith. All the facts about the subject matter should be clearly disclosed. III. Evidence of Goodwill: The proposer is required to furnish a certificate as evidence of his goodwill along with the proposal. The formal of this certificate is given with the proposal form itself. Usually, the insurance agent certifies that he knows the proposer for a period time and his reputation is good in the society. In case the proposer will be asked to furnish such evidence from any reputed person in the society. IV. Recommendations By Agent: The agent also gives his recommendations in the proposal form at the place provided for this purpose. The insurer takes the decision to accept a proposal keeping in view of the recommendations given by the agent. _______________________________________________________________________ _ 27
  28. 28. FIRE INSURANCE _____________________________________________________ _ V. Survey of The Subject Matter: When a proposal for fire insurance is received in the office of the company, it makes a thorough study of the proposal and if necessary, a survey of the subject matter of insurance is conducted. Such a survey is conducted by expert surveyors, who will go into enquire about the conditions of the subject matter, surrounding situations of the subject matter, risks involved etc. The surveyors also verify the accuracy of the details furnished in the proposal. VI. Report by Surveyors: After the survey, the surveyors present a report to the insurance company. This report will state the physical and moral hazards involved in the proposal. This report serves as an important base for determining premium. VII. Acceptance of Proposal: After determination of premium on the basis of risk involved, the proposal is accepted and intimation is sent to the proposer asking him to pay the premium within a specified period of time. If the surveyors present an adverse report, the proposal is rejected and a regret letter is sent to proposer. VIII. Depositing of Premium Money: A lawful contract between the insured and the insurer is entered into, when the premium money is deposited by the insured. The risk commences as soon as the premium is remitted. _______________________________________________________________________ _ 28
  29. 29. FIRE INSURANCE _____________________________________________________ _ IX. Issue of Cover Note: As soon as the premium money is deposited, the insurer issues a cover note (a provisional policy) indicating there is that the insured has deposited the premium and the insurer has accepted the proposal. On issue of absolute policy the legality of the cover note ends. A cover note can also be insured pending the process of survey of the subject matter and the premium has not been determined. X. Issue of Insurance Policy: When all the requirements under the risks have been complied with, the insurer issues the policy duly stamped and containing all terms and conditions. These terms and conditions define the mutual rights and liabilities between the insurer and the insured's. _______________________________________________________________________ _ 29
  30. 30. FIRE INSURANCE _____________________________________________________ _ 7. FIRE INSURANCE – RATE FIXATION Rate fixation on scientific basis in fire insurance is still not fully developed as in the case of life insurance. Under fire insurance, after the inspection of risk, physical hazards can be assessed but moral hazards cannot be assessed properly. Therefore, rate fixation is different. The past experience can only be used as a guideline for the estimation of risk. While fixing the rates of premium for different risks in fir insurance, the insurer must ensure that the calculation work is carried out as accurately as possible. _______________________________________________________________________ _ 30
  31. 31. FIRE INSURANCE _____________________________________________________ _ Thus, the rate so determined should cover the probable claims and the premiums must be equitable, stable and consistent. System of Rate Fixation Actual process of rating consists of two steps: • Classification, • Discrimination, and • Scheduled rating. • Classification: The classification rating method is based upon the experience of several years and of several persons and therefore can be considered as superior over the personal judgment method. Under this method, risks are classified according to their loss experience. Properties have been classified into three categories. i. Ordinary ii. Hazardous, and iii. Extra hazardous _______________________________________________________________________ _ 31
  32. 32. FIRE INSURANCE _____________________________________________________ _ Therefore different premium rates are to be fixed for each class. While fixing the rate the following points are to be taken into consideration:  Construction: The construction of the building has a great impact in the fixation of the rate. Buildings made of bricks are sound than wooden buildings. A fireproof building is considered better than a without fireproof building.  Occupancy: Occupancy means the use of the building. The building may be used for various purposes, as for example, general shop, hardware store, and go down and for residential purposes.  Flooring: The wooden floor in the building its an accidental hazard and is worst than stone flooring. In case of fire, wooden floor prove a bad risk.  Height: The height is an extra physical hazard for rating. The sky scrapper buildings have proved a very bad risk in case of fire. _______________________________________________________________________ _ 32
  33. 33. FIRE INSURANCE _____________________________________________________ _  Lighting, heating and power: Short circuits may lead to fire and faulty installation may result in combustion.  Situation: The location, the adjoining premises, the distance from the fire brigade station or water supply point and congestion are all-important sources for considering the fire risk rating. • Discrimination: Discrimination rate system is very old system of rate fixation in fire insurance. Under this method, premium rates are dependent upon the judgment of a person skilled in the fire field. All the bad factors and good factors are put together and the rate is to be calculated. The method has many shortcomings because personal judgment may differ and different rates may be determined to the same risk by the different companies. Under this method the most important factor, which influences the rate fixation in fire insurance, is the discrimination, i.e. differentiation. Every risk is considered individually. • Schedule Rating: _______________________________________________________________________ _ 33
  34. 34. FIRE INSURANCE _____________________________________________________ _ Under this system of rating a normal property is considered as ‘standard’ and for each standard risk a standard premium is charged. For any defect, addition is made in standard premium and for good feature deduction is made. The main advantage of the schedule rating is that it provides equitable treatment for all risks. A scheduled rate means a standard rate of premium or an average premium. The average premium rate for a particular class of risk is determined taking into the account the total loss and the sum insured during a period of years. For finding out the average rate percent, the following formula is applied: the average rate percent (R) = L/V x 100 where, R = average rate percent, L represents ‘Loss’, V represents the total sum insured of the subject matter. The gross or office premium is called the ‘Normal rate’ or ‘average rate’ of premium. As discussed above, each class of risk may differ from one another and therefore the principle of discrimination may also be applied. 8. FIRE INSURANCE CONTRACT Fire insurance contract may be defined as “an agreement whereby one party in return for a consideration undertakes to indemnify _______________________________________________________________________ _ 34
  35. 35. FIRE INSURANCE _____________________________________________________ _ the other party of certain defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount.” The party responsible to indemnify the loss is called the insurer, the party who is to be indemnified is called the insured, the consideration for the contract is termed ‘the premium’, the defined subject matter is termed ‘the property insured’ the sum set forth in the contract is called the assured sum, and the document containing the terms and conditions of the contract is known as ‘the policy’. 8.1ELEMENTS OF FIRE INSURANCE CONTRACT 1.Features of General Contract: All the features of general contract are also applicable to the fire insurance contract. A. Proposal: The proposal for fire insurance can be made either verbally or in writing. The proposer gives the necessary description of the property to be insured. In practice the printed proposal form is used for the purpose. Introduction, type of properties, value of properties, construction, occupation, etc., are the various information, which are required by the insurer. The answers to these questions must be completely correct. The assured must disclose all the material facts and should observe utmost good _______________________________________________________________________ _ 35
  36. 36. FIRE INSURANCE _____________________________________________________ _ faith. The description of the subject matter of insurance is the basis of the contract for assessing the risk and fixing the premium. B. Acceptance: On receipt of the proposal form, the insurer will assess the risk. Sometimes, when the contents and subject matters are not of very high amount, the insurer may accept on the basis of proposal forms only. When the subject-matters is of larger magnitude and where the hazard involved is of a variable or unknown nature, the insurer may send his surveyor to survey the property. The surveyors being expert in the field of insurance evaluation will consider the proposal in the light of this report. The unknown proposes are required to submit an evidence of respectability. The insured is required to submit a certificate from some known and respectable person about honesty and integrity. As soon as the proposal is accepted, the assured is informed about the decision. C. Commencement of Risk: The risk commences as soon as the contract is completed provided there is no specific time for the purposes. As soon as the proposal is accepted, risk will commence irrespective of the fact that no policy was issued and no premium was paid. Where risks are unknown and tremendous, the payment of premium will be the basis of the completion of the contract. The risk will be commence only when the premium has been paid and not before that; when the policy has been issued, payment of premium will not be the basis of commencement of risk. a. Cover Note: _______________________________________________________________________ _ 36
  37. 37. FIRE INSURANCE _____________________________________________________ _ The insurer issues a ‘Cover Note’ or ‘Interim Protection Note’ when the risk was accepted provisionally or subject to the condition of payment of premium. This note will cover the property so far the final policy has not been issued. If loss occurs before issue of policy cover note will be sufficient to prove insurance. The cover note, however, is not taken at par to the policy. b. Policy: The insurer issues a duly stamped policy which will bear all the terms and condition of the contract. Any contract of fire insurance comes within the meaning of the word ‘policy’. It is a different statutory and formal document of insurance contract. There are a standard form is also used. The policy contains the name and address of the insured, the subject matter of insurance, the sum insured, the term and the premium. There are various clauses governing the conditions of insurance contract. The terms and conditions of the policy can be changed. c. Period of Fire Insurance Policies: Usually fire policies are issued for one year and are called ‘Annual Insurance.’ Policies issued for a period shorter than one year are known as ‘Short-Term Policies’ and those issued for a period more than one year are called ‘Long- Term Policies.’ But in practice only annual policies are common. ‘Short-term’ and ‘Long-term’ policies are rarely used. _______________________________________________________________________ _ 37
  38. 38. FIRE INSURANCE _____________________________________________________ _ Long-term policies are generally issued in case of building. Alteration in the policy will be made according to the change in building and terms of insurance. The premium rate is determined according to the nature, location, and construction of the property. Moreover, the period of insurance is also taken into account for computing premiums. d. More Than One Fire During A Period: When there is more than one fire in respect of the same subject matter insured, the insurer is not bound to pay more than the sum assured. During the policy-life, payment of each loss, automatically, reduces the amount of the policy by the amount so paid. When, after payment of certain losses, the property insured is totally destroyed, the insurer will pay loss not more than the balance of insured amount remaining after compensation of the previous losses. However, if the insured is willing to get payment of full loss, he can reinstate the assured sum to the original amount by paying a fresh premium on a pro-rata basis to the date of expiry. e. More Than One Policy: If the same subject matter is insured with more than one insurer, he cannot realize more than the actual loss from all the insurers. Each insurer will pay his ratable proportion of loss _______________________________________________________________________ _ 38
  39. 39. FIRE INSURANCE _____________________________________________________ _ to the property insured against fire. If there is average clause, then the insurers will pay accordingly 9. PRINCIPLE OF FIRE INSURANCE A. Insurable Interest: Insurable interest is the general principle of insurance without which insurance cannot lawfully be enforced for an insurance unsupported by an insurable interest would be a gambling transaction. Insurable interest will be there where the subject matter should be in such a position that the insured may suffer loss at the time of damage and may gain by its protection. The insurable interest in fire insurance must be present at the time of contract and at the time of loss. Insurance contract will be invalid if the property is sold to another party. Similarly if there is no insurable interest at the time of insurance, the contract will be invalid. The following conditions must be fulfilled to constitute an insurable interest. • There should be a physical object capable of being damaged or destroyed by fire. • The object must be the subject matter of insurance. _______________________________________________________________________ _ 39
  40. 40. FIRE INSURANCE _____________________________________________________ _ • The insured must stand in such relationship as recognized by law where the insured is benefited by the safety of the subject matter or be prejudiced by its loss. The insurable interest is the ‘pecuniary interest’. The fire insurance is a personal contract between the insured and the insurer. So, the transfer of interest would invalidate the contract. The following persons have insurable interest in the subject matter concerned. The owner of the property or asset whether fixed or current has as insurable interest whether he is the legal owner or the equitable owner. The owner may be a single or joint holder. Partial owner can take policy for full value as trustee of all the property. A life tenant entitled to the use of the property during his lifetime only has an insurable interest.  An agent has insurable interest in the property of his principal.  A creditor has an insurable interest in the firm’s property.  A creditor has an insurable interest in property on which he has a lien for the debt.  An insurer has it in respect of risks underwritten by him for the purpose of reinsurance.  Where the subject matter is mortgaged, the mortgagor has an insurable interest in the full value thereof and the mortgage has an insurable _______________________________________________________________________ _ 40
  41. 41. FIRE INSURANCE _____________________________________________________ _ interest in respect of any sum due to become due under the mortgage.  A bailee can insure any article or property bailed. He may be a gratuitous bailer or bailee for reward.  A trustee has insurable interest in the property put on trusteeship. B. Principle of Good Faith: The contract of fire insurance is one in which the observance of the utmost good faith – uberrima fides – by both the parties are of vital significant. The utmost good faith in fix insurance has two aspects – first, disclosure of material facts and second, preservation of the property insured. The insurer and the insured must furnish detailed information regarding the subject –matter to be insured. The insured, since he has more information about the subject matter, must disclose all the information asked truly and fully. The assured is also required to disclose all the material information which are known to him although it was not asked by the insurer; material fact is one which influences the decisions of the insurance. The decision may be pertaining to the acceptance or declination or determination of the premium. In case of fire insurance the examples of material facts are construction of buildings. If the assured has not observed good faith, _______________________________________________________________________ _ 41
  42. 42. FIRE INSURANCE _____________________________________________________ _ other party can avoid the contract. It was immaterial to plead that the insured was unaware of the fact and could not disclose. In a given circumstance, it is expected from the insured to know all the material facts. The insurer has also to disclose such material facts as are within his knowledge. The second phase of good faith is preservation of property. Thus, the observance of good faith is necessary not only during the negotiations of the contract but throughout the term of the policy and in making claims. Any change after commencement of risk must be communicated to the insurer. The insured or his agents as well as the insurer must take all such steps as may be reasonable for averting or minimizing loss. Since the insured is near to the property, he must act to prevent the fire and if fire occurred, he must do his utmost to extinguish it. In such cases he must act as if he was not insured. C. Exceptions: In the following circumstances, the insured is not required to disclose information.  All those circumstances which diminish the risk.  All those facts, which are known or reasonably presumed to be known to the insurer.  Information, which are of common knowledge. _______________________________________________________________________ _ 42
  43. 43. FIRE INSURANCE _____________________________________________________ _  Those facts, which the insurer in the ordinary course of his business ought to know, or which the insurer ought reasonably to have inferred from the details given.  Those facts, which are superfluous to disclose by reason of a condition or warranty. D. Principle of Indemnity: The doctrine of indemnity aims to compensate the insured for a loss sustained, and the compensation should be such as to place him as he occupied immediately before the occurrence. The insured cannot claim anything in excess of the amount required to recoup the actual loss sustained. The insurers undertake to make good the insured's loss by monetary payment or by reinstatement or replacement so that the insured shall be fully indemnified, but this is subject to the sum insured. The law does not sanction any insurance, which would enable the insured to profit by the destruction of the thing destroyed. It will check the temptation to destroy the property insured thereby to secure the money. The assured amount is not the measure of indemnity but it sets an upper limit up to which the loss can be indemnified. The actual amount of indemnity will be the market value of the subject matter destroyed or damaged by fire at the time and place of the occurrence of fire. It will never exceed the assured amount. When the actual loss is more than the assured amount then only the insured sum will be paid and nothing more is paid. But, this principle does not hold _______________________________________________________________________ _ 43
  44. 44. FIRE INSURANCE _____________________________________________________ _ good when the policy is valued policy. Here, the basis of indemnity will not be the actual cash value of the property at the time of loss but the insured value, which is named in the policy when it was taken. In a valued policy, no consideration is given to the actual loss. Thus, the amount of claim may be greater or less than the actual loss at the time of fire in case of valued policies. E. Interpretation of Indemnity: The insured is entitled to perfect indemnity subject to the sum assured being sufficient. But, in practice such perfection may be difficult to attain. Previously, the meaning of the word ‘indemnity’ was understood in the sense of material indemnity only, i.e., tangible and material property only. The intangible loss, i.e., loss of profit, rent, etc., was not compensated. It worked as a great hardship to the honest insured persons. Now, the insurance is extended to cover not only the material loss of property insured but also to cover the ‘consequential loss’. When a business property is burnt not only the material loss on account of the destruction of building, plant and stock are covered but the consequential loss of profits on account of cessation of sales, salaries, taxes, rent, rates, etc., are also indemnified. Now-a-days tangible and intangible losses are insured and the consequential loss is also within the meaning of indemnity. F. Consequences of Indemnity: _______________________________________________________________________ _ 44
  45. 45. FIRE INSURANCE _____________________________________________________ _ The consequences of the doctrine of indemnity are as below:  The insured may claim only the amount of the loss sustained.  In case of partial damage, the insured may claim compensation only for the amount of damage done.  The insured must transfer to the insurer may rights which he may possess against a third party in respect of the loss.  If the insured have affected more than one policy, he is precluded from obtaining more than one complete indemnity. Measure of indemnity varies with the type of properly. For damaged buildings, the measure of indemnity is the cost of repairing or reinstating the buildings to their pre-loss condition. Similarly, for machinery, the measure of indemnity is the market value, which is arrived at after taking into account wear and tear and depreciation. For stock in trade, the measure is the net cost to the insured. For stock in trade, the measure is the net cost to the insured. The indemnification may be in the form of cash, repair, replacement and reinstatement. G. Doctrine of Subrogation: Subrogation means the right of one person to stand in the place of another and to avail him of the latter’s rights and remedies. The principle of subrogation is just a corollary to the principle of indemnity. The insured can realize only the actual value of the loss or damage to the property according to the principle of _______________________________________________________________________ _ 45
  46. 46. FIRE INSURANCE _____________________________________________________ _ indemnity and it follows that if the damaged property has any right against a third party regarding that property. These must pass on to the insurer. If the assured is allowed to retain them, he shall have realized more than the actual loss, which is contrary to the indemnity principle. The assured can proceed against the third party, if he so desires, and if he recovers damages the insurer is relived of liability. If the insured has received the full amount of loss any sums obtained from the third party belong to the insurer up to the amount of their disbursement. The right of subrogation is exercisable at common law after the insurer has paid the claim made against him. H. Warranties: The contents of proposal form are expressly incorporated in the policy, which form warranty. Warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts. Warranties, which mentioned in the policy, are called express warranties and those warranties, which are not mentioned in the policy, are called implied warranties. Warranties must be complied with literally and the effect of a breach of warranty is to render void the relevant item of the policy, even if no increase in risk is involved. Every warranty to which the property insured or any item thereof is, or may be, made subject, shall from the time the whole currency of the policies, and _______________________________________________________________________ _ 46
  47. 47. FIRE INSURANCE _____________________________________________________ _ non-compliance with any such warranty, whether it increases the risk or not, shall be a bar to any claim in respect of such property or item. The condition states that every warranty is attached during the whole currency of the policy and if during this period a warranty has not been complied with, the insured will not entertain any claim in respect of the property or item affected. However, if the policy is renewed and there was breach of a warranty before the renewal is affected, in such a case the claim can be made. Non-compliance with a warranty prior to the current renewal period of a policy is not a bar to a claim. The non-compliance with a warranty avoids a cover only during the period of insurance in which the breach occurred. I. Proximate Cause: The rule is that the immediate and not the remote cause is to be regarded – cause proximate non-remote spectature. Proximate cause is very important in fire insurance. The principle of proximate cause has already been discussed in detail. The insurer _______________________________________________________________________ _ 47
  48. 48. FIRE INSURANCE _____________________________________________________ _ always takes the proximate cause while paying the claim. If the property insured is burned but the fire was preceded and brought into operation by an excepted peril, the legal position depends upon whether the expected peril was the proximate. The remote cause is when an incendiary bomb damaged the property; the proximate cause is enemy action. 10. TYPES OF FIRE INSURANCE POLICIES _______________________________________________________________________ _ 48
  49. 49. FIRE INSURANCE _____________________________________________________ _ There are different types of fire insurance policies keeping in view of the various needs of business enterprise. The important types of policies are described below: -  Average Policy: - It is policy containing ‘Average Clause’ Average policy refers that if a person insures his property for an amount lesser than its value, the insurer is not bound to indemnify for the total loss of the property, even if the claim is not more than the sum insured by the policy. This way, the insurer shall be liable to pay in proportion to the actual loss, in which proportion the policy amount and the real value of the subject matter exists. The formula is an under: Amount of indemnity = Policy money * actual amount of loss Market value of the subject matter at the time of fire. For example: _______________________________________________________________________ _ 49
  50. 50. FIRE INSURANCE _____________________________________________________ _ ‘A’ has insured his property in a fire insurance policy containing ‘Average clause’ for Rs. 5.00 lakh. After some time, the property partially burned by fire causing a loss of Rs. 6.00 lakh. The claim payable to him against the loss of Rs. 3.00 lakh, by the insurance company is calculated as under: Amount of indemnity = Policy money * Actual amount of loss Market value of the property insured. = 5,00,000* 3,00,000 = Rs. 2,50,000. 6,00,000  Valued Policy: - In an ordinary fire insurance policy, the insurer simply indemnifies the insured. In the case of valued policy, the property is valued at the time of affecting the policy and the insurer agrees to pay the insured sum on occurrence of fire irrespective of the loss. Here in this case, the contract is not an indemnity. Under the valued policy the insured can recover a fixed amount, agreed at the issue of policy without the necessity for any further proof of value at the time of fire. This is because that the valuation was done at the time of affecting the policy. The valued policy also is known as ‘insured policy’.  Specific Policy: - _______________________________________________________________________ _ 50
  51. 51. FIRE INSURANCE _____________________________________________________ _ It is a policy under which the property is insured for a fixed or a specified sum without taking into account the actual value of the property. The sum assured shall be usually less than the actual value of the insured property. The insurer’s liability under this policy arises only when the losses reach to the extent of certain specified sum. However, the insurer shall not be liable for indemnity more than the policy money.  Reinstatement or Replacement Policy: - This a policy in which a clause is inserted in the policy under which the insured can recover not the value of the buildings or the plant as depreciated, but the cost of replacement of the property destroyed by new property of the same kind or the insurer may reinstate the property instead of paying in cash. In both the cases we have the example of “New lamps for old”. Reinstatement or replacement policy is issued for new plant and machinery of buildings, of reputed companies.  Floating Policy: - This type of policy is useful for the goods kept at different places and for floating goods. For example, some of the goods of other trader are kept in one go down, and few kept in another go down, some are kept in the railways go down or some at the sea port. This way, for the goods kept at different places, such a trader to cover _______________________________________________________________________ _ 51
  52. 52. FIRE INSURANCE _____________________________________________________ _ the risk of goods lying at different places can obtain a floating fire insurance policy under one policy. The major advantage of this policy is that the insured need not obtain different policies for the goods kept at different places. The insured needs to declare all his goods for which the floating policy is issued. The disadvantage for the insurer is that his risk increases. Sometimes one can make under insurance, by which the loss will be higher for the insurer. The policy is suitable for those traders whose goods are lying at different go downs, railway station or seaport for a long period, and the possibility of risk of fire is much. The touring companies like Circus Company, Theatre Company, and Auctioneers etc. this floating policy is beneficial.  Declaration Policy: - This policy is specifically aimed for wholesalers and distributions of goods whose stocks usually fluctuate. However, this policy is not issued for the goods lying in go downs or which are used in manufacturing process. At the time of effecting the policy, it is estimated that how much of the goods are to be covered by risk during the tenure of policy. On the basis of this estimate insurance is affected on _______________________________________________________________________ _ 52
  53. 53. FIRE INSURANCE _____________________________________________________ _ maximum value of goods. The insurer shall be liable up to this limit only. At the beginning, the insurer charges three-fourth of the premium fixed on the basis of maximum values of stocks. Thereafter, insured declares after certain time interval (monthly or quarterly according to the duration of premium become, due) the value of his actual stock. In the case of loss by fire, indemnity is calculated on the basis of value of goods declared by insured, in the above manner. On maturity of this policy, the average value of stock is ascertained and on the basis of this average the premium is more than the initial premium charged, the excess is claimed from the insured. On the other hand, the initial premium charged is more than the average premium determined at the maturity of the policy, excess amount be returned to the insured. However, the insurance company retains 50 per cent of the initially paid premium. This way, the insure is effected on the maximum value of the stock and the payment of premium is made on the average stock. The declaration policy is issued for not less than Rs. 20 lakh, in India.  Adjustable Policy: - This policy is issued for existing stock. A condition a attached with this policy that the premium rate shall adjusted according to _______________________________________________________________________ _ 53
  54. 54. FIRE INSURANCE _____________________________________________________ _ increases or decrease in the value of stock. At the beginning this policy is issued like an ordinary policy and the premium is paid in full at the rate prescribed. It is a contract limited to merchandise or stock- in-trade, other than farming stock. When there is variation in the value of stock, this change is notified to the insurer by the insured. On basis of this information, a suitable endorsement is made on the policy and the premium is adjusted on a pro-rata basis. On the basis of endorsement made on the policy, it is assured that the policy is affected on such an amount. In the case of loss by fire, the amount notified by the insured at the maturity of the policy is taken as final and indemnified up to that limit. In this kind of policy insured can reduce or increase the policy amount according to his convenience and the premium is adjusted on the basis of this increase or decrease. This policy resembles like a declaration policy, but there are certain differences between the two: • In declaration policy, the stock value declared at the time of affecting the policy remains as insured sum, whereas in adjustable policy, the stock value declared at the last time is accepted as sum insured. • In declaration policy, it is essential to declare the stock at certain fixed interval, whereas in adjustable policy, this declaration is depends on the convenience of the insured. _______________________________________________________________________ _ 54
  55. 55. FIRE INSURANCE _____________________________________________________ _ • In declaration policy, the money to be indemnified shall be the same that declared at the beginning whereas in adjustable policy, the value declared at the last time shall be the amount to be indemnified. • Although in both the policies, the premium is calculated at the end of every year, the maximum limit of insured sum differs.  Maximum Value With Discount Policy: - Under this policy, the insurance is affected on the maximum value of stock remains throughout the year, and accordingly premium is charged. There requires neither any declaration of stock value nor any adjustment. The insurance is affected on the maximum stock value throughout the year and in the case of no indemnity, one-third of the premium paid is returned to the insured at the end of the year. The advantages of this policy is that there requires no declaration by the insured nor requires calculation of premium at the closing of every year. The one-third premium refunded by the insurer can be treated as a discount in consideration of variations in value of goods. Otherwise there is no justification for refund.  Excess Loss Policy: - This policy is obtained where the stock fluctuate indefinitely. The trader has to obtain two policies at a time, one for the minimum stock of the merchandise always remain in stock and the other for _______________________________________________________________________ _ 55
  56. 56. FIRE INSURANCE _____________________________________________________ _ such value the stock may increase. The first policy is known as “First Loss Policy.” Under the cover of first policy, the loss is indemnified up to the sum insured. If the loss exceeds this limit, that can be met out from the Excess Loss Policy. This policy has the advantages that with a small amount of premium, larger risk can be covered. The premium rate for the excess loss policy is very low in comparison to the other polices. In the case of excess loss policy, the insured is required to declare the actual stock every month as was needed in declaration policy.  Ordinary or Standard Policy: - This policy provided security against some fundamental risks. The premium is kept at lower rate because this policy is obtained by almost all the insured. This policy has two types:-  For household goods and  For all other purposes such as for factories, shops, go down, furniture’s etc. Usually this type of policies overlooks the risk factors and the insurer is not liable for the losses. The risks, which are overlooked, _______________________________________________________________________ _ 56
  57. 57. FIRE INSURANCE _____________________________________________________ _ include loss due to natural calamities, like earthquake, explosion of lava from the earth, civil wars, strikes, explosion, etc.  Special Peril Policy: - In addition to ordinary risks, this policy provides for coverage of risks involving explosion, violence, etc. strikes, civil war, earth- quake, etc. and loss due to floods, explosion of water tanks, explosion in the air by collision between two air. Crafts, loss to the insured properties by transport vehicles etc. Additional rate premium is charged for undertaking special kinds of perils.  Comprehensive Policy: - This policy not only undertakes full protection against risk of fire, but also combined with risk of burglary, riot, theft, pest, damage, lightning etc. This policy is also known as “All in policies”. The major advantage of this policy to the insurer is the higher rate premium, while the assured is protected against losses from other kind of perils.  Sprinkler Policy: - This policy insures destruction of or damage due to accidently leaking water from automatic sprinkler installation, used in the insured premises to put out fire. _______________________________________________________________________ _ 57
  58. 58. FIRE INSURANCE _____________________________________________________ _ The policy contains various conditions relating to maintenance of sprinkler, up keeping and operation.  Rent Policy: - This policy protects the building owners from the loss of rent. If a tenant does not pay rent because of fire in the rented portion, the insurance company will pay for such loss. This may constitute a separate policy, or can be included within other forms of cover and may be affected either by the owner, or by the tenant or by an owner-occupier. If the tenant is not paying rent because of fire, the owner can claim rent from the insurer. If a tenancy agreement requires for such insurance, the tenant should insure under this policy. In the event of fire, the owner-occupies would be required to pay for alternative accommodation during the period of repairs and reinstatement.  Transit Policy: - A transit policy covers goods in the course transit from one place to another by rail, road, air or sea transport. The policy protects the loss due to damage or loss in transit. But reaching the goods to the destination place.  Builder’s Risk Insurance: - _______________________________________________________________________ _ 58
  59. 59. FIRE INSURANCE _____________________________________________________ _ This policy is insured for loss by fire against buildings, including machinery and equipment during the process of construction, as well as such materials incidental to the construction work. This policy is also known as contractors’ risk or contract works risks policy. At the beginning this policy is issued for a minimum sum and accordingly to progress of construction work, the sum insured is increased.  Long-Term Policies: - Policies for a period exceeding 12 months shall not be issued except for “Dwellings.” 11. CASE STUDY- ICICI LOMBARED ICICI Lombard General Insurance Company Limited ICICI Lombard General Insurance Company Limited is India’s No. 1 general insurance company as well as the first Indian general insurance company to be ISO 9001: 2000 certified. _______________________________________________________________________ _ 59
  60. 60. FIRE INSURANCE _____________________________________________________ _ ICICI Lombard General Insurance Company Limited is a 74:24 joint venture between ICICI Bank Limited and the US-based $26 bn Fairfax Financial Holdings Limited. ICICI Bank is India’s second largest bank; while Fairfax Financial Holdings is a diversified financial corporate engaged in general insurance, reinsurance, insurance claims management and investment management. ICICI Lombard combines the forte of two of the most trusted names in the financial sector: ICICI Bank’s strong brand equity, extensive distribution network, and sound technological infrastructure to serve customer needs, along with Lombard’s domain knowledge, product innovation, and business processes, based on international practices in the insurance business. In a period of two years, the company grew from 110 employees to 1,100 and from 20 offices to a 100 offices. The entity has been reaching our to the Indian market on the basis of its customer access to a range of customized and innovative insurance solutions. In all these years, that ICICI Lombard has been around, it has evolved both in its business as well as its IT deployment. Commencing operations in September 2001, ICICI Lombard is one of the first private sector general insurance players to achieve break-even levels in the first full year of its operations. Over time, as the business portfolio expanded, the company began shifting its focus from corporate markets to the retail market in general insurance. Products _______________________________________________________________________ _ 60
  61. 61. FIRE INSURANCE _____________________________________________________ _ ICICI Lombard deals with various insurance products in the personal, rural, travel, and business sectors. The products range is captured in Table. Products Personal Insurance Rural Insurance Business Insurance Travel Insurance Health Tractor Burglary Domestic Travel Home Weather Industrial all risk Individual overseas Motor Shop Consequential loss (fire) Student overseas Student medical Farmer’s package Electronic equipment Senior citizen overseas Accident Fidelity Corporate overseas Marine export import Pravasi Bhartiya Bima Yojana Machinery Inland transit ICICI LOMBARD Financial Highlights Figures in numbers Financial Year 2004-05 2005-06 No. Of policies sold 6,07,926 14,61,039 No. Of claims settled 84,970 2,43,951 _______________________________________________________________________ _ 61
  62. 62. FIRE INSURANCE _____________________________________________________ _ No. Of employees 1,249 2,283 No. Of offices 96 154 No. Of employees 35% 65% 2004-05 6,07,926 84,970 Figures in numbers 2005-06 14,61,039 2,43,951 _______________________________________________________________________ _ 62
  63. 63. FIRE INSURANCE _____________________________________________________ _ Financial Highlights 2004-05 6,07,926 84,970 93% 7% No. Of employees No. Of offices Figures in million Financial Year 2004-05 2005-06 Gross Written Premium 8,852 15,920 Net Earned Premium 2,156 5,277 Profit Before Tax 539 545 Profit After Tax 484 503 Share Capital 2,200 2,450 Net Worth 2,494 3,729 Investments 4,641 9,065 Total Asset 7,689 16,391 _______________________________________________________________________ _ 63
  64. 64. FIRE INSURANCE _____________________________________________________ _ 2004-05 Gross Written Premium Net Earned Premium Profit Before Tax Profit After Tax Share Capital Net Worth 2005-06 Gross Written Premium Net Earned Premium Profit Before Tax Profit After Tax Share Capital Net Worth _______________________________________________________________________ _ 64
  65. 65. FIRE INSURANCE _____________________________________________________ _ Macro Picture Of General Insurance Overall Business Performance of GIC 2005-06 Fire Others Net Premium 14,246 54,713 Incurred Claims 9,277 45,731 % Of Net Premium 65.1 83.6 Net Commission 4,780 14,023 % of Net Premium 33.6 25.6 Expenses of Management 149 438 % Of Net Premium 1.0 0.8 Underwriting Profit/Loss (-) (512) (9,821) % Of Net Premium -3.59 -17.95 Inv. Income app to revenue 2,249 10,957 % Of Net Premium 15.8 20.0 Balance Profit/Loss (-) 1,741 1,152 % Of Net Premium 12.2 2.1 _______________________________________________________________________ _ 65
  66. 66. FIRE INSURANCE _____________________________________________________ _ _______________________________________________________________________ _ 66
  67. 67. FIRE INSURANCE _____________________________________________________ _ Fire Net Premium Incurred Claims % Of Net Premium Net Commission % of Net Premium Expenses of Management % Of Net Premium Underwriting Profit/Loss (-) % Of Net Premium Inv. Income app to revenue % Of Net Premium Balance Profit/Loss (-) % Of Net Premium _______________________________________________________________________ _ 67
  68. 68. FIRE INSURANCE _____________________________________________________ _ 12. CLAIM PROCEDURE UNDER FIRE INSURANCE A set procedure is followed for the settlement of claim under fire insurance. The procedure is as follows:  Notice of Fire: - As per conditions of fire insurance policy, immediately after the occurrence of fire, the notice of fire is given to the insurance company, in writing. This is necessary for the insurance company to make preliminary investigation that deem expedient. Delay in giving notice of fire may severely prejudice the interest of the policyholder.  Presentation of Claim: - After giving necessary notice of information of fire, the insured must present the claim to the insurer in the prescribed claim form. The claim in the prescribed form should be submitted within 15days from the date of fire. This period of 15days can be increased by the permission of the insurer. All the facts should be correctly be furnished in the claim. Usually, the following types of information are given in the claim: - _______________________________________________________________________ _ 68
  69. 69. FIRE INSURANCE _____________________________________________________ _ a. Complete details of the losses giving the date, time and place where the incident took place. b. Causes of loss. c. Details of damaged property, value of the property at the time of fire, value of salvage and the claim amount. d. Subject matter of insurance and loss to every component. e. Full details of the other policies insured against the same subject matter.  Presentation of Necessary Documents:- The following documents and evidence are enclosed with the claim: - a. A declaration about the claim and about related facts and figures. b. The evidence of all details, books, records, statutory books, plans, vouchers, document, certificate and other information that give the proof of loss by fire and that create the liability on the insurer. c. Any other necessary document, witness, certificate etc. that is required under the conditions of fire insurance policy. _______________________________________________________________________ _ 69
  70. 70. FIRE INSURANCE _____________________________________________________ _ In case these documents could not be presented together with the claim, they may be sent within 6months, failing which the insurer can reject the claim.  Action By The Insurance Company: - On receipt of claim, the office of the insurance company. It may issue the receipt of the claim. After that, the claim department undertakes thorough scrutiny of the claim on the basis of documents and witnesses presented by the insured with the claim. After that a ‘Claim Ticket’ is prepared and entered it in the ‘Claim intimation Register’. This way the claim file is prepared with claim number.  Survey and Loss Assessment: - On receipt of notice of information and claim from the insured, the insurer arranges to undertake survey of the lost properly with help of expert surveyors and loss assessors. As per provision of insurance Act, 1938, no insurance company accepts the claim exceeding Rs. 20,000/- or more unless it receive the reports of the surveyors about the actual loss of the subject matter. Such a survey is necessary to find out under what conditions and causes the fire occurred, and what would be limit of company’s liability in this behalf. This survey is calculated by visiting the spot _______________________________________________________________________ _ 70
  71. 71. FIRE INSURANCE _____________________________________________________ _ where the fire took place. Under the conditions of fire insurance, it is the duty of the insured to extend all necessary assistance and cooperation to the surveyors and assessors. The surveyor’s reports usually contain the following information: - a. Causes of loss occurred. b. Proximate cause of fire. c. Assessment of loss. d. Indirect loss or expenses to insured. e. Details of expenses made towards assessment of loss. Mention about the policies obtained by insured from other fire insurance companies on the same subject matter and the amount of contribution on the part of the insurer.  Settlement of Claim: - When the report is received from the surveyors and assessors of loss, the insurance company takes further steps to settle the claim. The company studies the reports and the claim received from the insured thoroughly. In case the claim money charged by the insured and that calculated by the assessors do not make any difference, the company takes the decision immediately to make any difference; the company takes the decision immediately to make the payment of claims. On the other hand, if there is difference in the claim amounts, the insurance _______________________________________________________________________ _ 71
  72. 72. FIRE INSURANCE _____________________________________________________ _ company takes the decision to pay the claim money calculated by the assessors. In case there is any provision in the policy for reinstatement, the company assesses the reinstatement value and reinstates the property instead of payment of claim by cash. In connection with the settlement of claim, an insurance company should take into consideration the following matters. a. Double Insurance: - Where the insured has obtained policies for the same risk from different companies; the claim is not covered by one policy, but under all the policies. Every insurer in such a situation, liable to contribute towards the total loss in proportion to the sum assured when each. b. Under Insurance: -Where the insured gets his property insured with under the value of his property, a situation of under insurance arises. In such a situation, the insured is deemed to be the insurer for the difference of value between the value of the property and sum assured. For this amount, the insured is liable proportionately to the loss and the insurance company is liable to pay average proportionate loss. As such, the insurer should keep _______________________________________________________________________ _ 72
  73. 73. FIRE INSURANCE _____________________________________________________ _ this fact in mind where the insured takes under insurance policy. c. Losses At Different Times During The Tenure of Policy: -The loss to the insured property at various times is possible during the tenure of the policy. The general rule in this case is that whenever the claim is paid, that paid claim money is reduced from the total sum insured. This way the sum insured gradually reduces. By paying additional premium, the sum assured can be increased again. d. Arbitration: - Where the insured is not satisfied with the claim paid by the insurer, the dispute can be referred to arbitration as per conditions of insurance policy. The decision given by arbitrator shall be binding on both the parties. But the matter can be taken to court if any of the parties is not satisfied by the decision of arbitration.  Payment: - Where the claim is finalized, the payment is made by a cross cheque to the insured’s. _______________________________________________________________________ _ 73
  74. 74. FIRE INSURANCE _____________________________________________________ _ 13. CONCLUSION Indian Insurance Companies have come a long way since independence & more after Liberalization, Privatization, and Globalization (LPG) era, however they have to cover some distance so as to be benchmarked with the for sure that the reforms process is on & the insurance companies are in right directions In the project study of “FIRE INSURANCE” we can see that the scope & significance of it to such an extent that every insurance company is handling it with due care, as the scope insurance business has widen to from national boundaries to global or international boundaries. _______________________________________________________________________ _ 74
  75. 75. FIRE INSURANCE _____________________________________________________ _ From the topic of “FIRE INSURANCE” a more reformed & deep study of the same is made. This project study not only covers various aspects of the same & is a very good example through which we can measure the growing need, scope & significance of the same. This project report has not only given an opportunity to me to prepare a project on the subject above topic but it has also given me a chance to understand this topic more effectively but has also increased my own knowledge of the topic. 14.Bibliography & Webliography 14.1 Bibliography  Modern concept of Insurance -M.N.Mishra  Taxmann’s Insurance law Manual  Insurance principles & pratices-M.N.Sharma  Insurance principles & practices-M.G.Methew.  - Magazines _______________________________________________________________________ _ 75
  76. 76. FIRE INSURANCE _____________________________________________________ _ 14.2 Webliography    _______________________________________________________________________ _ 76