Fire ins.

FIRE INSURANCE

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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: -

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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

liability insurance for handlers of hazardous substances under

Environment Protection Act, etc.

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______________________________________________________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.

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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

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

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______________________________________________________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.

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.

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______________________________________________________ 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.

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.

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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.

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).

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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

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

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______________________________________________________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

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

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______________________________________________________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:

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

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______________________________________________________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.

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.

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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.

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

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______________________________________________________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

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

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______________________________________________________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

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.

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______________________________________________________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

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

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______________________________________________________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.

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

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______________________________________________________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.

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

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______________________________________________________contracts the claims for losses by fire must fulfill two basic

conditions.

a. There must be actual fire or ignition

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.

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______________________________________________________ii. Losses caused by certain uncertain events such as riots,

civil disturbances, revolutions, wars, aggression, internal

emergencies, marital law etc., natural calamities like

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.

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5. SIGNIFICANCE OF FIRE INSURANCE

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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

damages to goods and property. In order to minimize this

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______________________________________________________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.

ii. Loss Preventing Efforts and Advice By The

Insurer:

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______________________________________________________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.

v. Credit Facility:

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______________________________________________________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.

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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.

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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.

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

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______________________________________________________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.

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

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______________________________________________________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.

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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.

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,

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______________________________________________________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

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.

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______________________________________________________ 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.

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.

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______________________________________________________ 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 :

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

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______________________________________________________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

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:

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______________________________________________________ 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

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:

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FIRE INSURANCE

______________________________________________________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:

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

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FIRE 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.

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.

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FIRE INSURANCE

______________________________________________________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

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

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FIRE INSURANCE

______________________________________________________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.

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.

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FIRE INSURANCE

______________________________________________________ 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

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

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FIRE INSURANCE

______________________________________________________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,

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.

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FIRE INSURANCE

______________________________________________________ All those facts, which are known or reasonably presumed to be

known to the insurer.

Information, which are of common knowledge.

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

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FIRE INSURANCE

______________________________________________________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

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.

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FIRE INSURANCE

______________________________________________________F. Consequences of Indemnity:

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

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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

non-compliance with any such warranty, whether it increases the risk

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FIRE INSURANCE

______________________________________________________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

always takes the proximate cause while paying the claim. If the

property insured is burned but the fire was preceded and brought into

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FIRE INSURANCE

______________________________________________________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

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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:

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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: -

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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

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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

maximum value of goods. The insurer shall be liable up to this limit

only.

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FIRE INSURANCE

______________________________________________________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

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

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FIRE INSURANCE

______________________________________________________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.

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.

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FIRE INSURANCE

______________________________________________________ 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

such value the stock may increase. The first policy is known as “First

Loss Policy.”

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FIRE INSURANCE

______________________________________________________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,

include loss due to natural calamities, like earthquake, explosion of

lava from the earth, civil wars, strikes, explosion, etc.

Special Peril Policy: -

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FIRE INSURANCE

______________________________________________________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.

The policy contains various conditions relating to maintenance

of sprinkler, up keeping and operation.

Rent Policy: -

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FIRE INSURANCE

______________________________________________________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: -

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

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FIRE INSURANCE

______________________________________________________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.

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

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FIRE INSURANCE

______________________________________________________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

ICICI Lombard deals with various insurance products in the personal,

rural, travel, and business sectors. The products range is captured in Table.

ProductsPersonal Insurance

Rural Insurance Business Insurance

Travel Insurance

Health Tractor Burglary Domestic TravelHome Weather Industrial all risk Individual

overseasMotor Shop Consequential Student overseas

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FIRE INSURANCE

______________________________________________________loss (fire)

Student medical Farmer’s package Electronic equipment

Senior citizen overseas

Accident Fidelity Corporate overseas

Marine export import

Pravasi Bhartiya Bima Yojana

MachineryInland transit

ICICI LOMBARD Financial Highlights

Figures in numbersFinancial

Year

2004-05 2005-06

No. Of policies sold 6,07,926 14,61,039No. Of claims

settled84,970 2,43,951

No. Of employees 1,249 2,283No. Of offices 96 154

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______________________________________________________

Figures in million

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FIRE INSURANCE

______________________________________________________Financial Year 2004-05 2005-06

Gross Written Premium

8,852 15,920

Net Earned Premium

2,156 5,277

Profit Before Tax 539 545Profit After Tax 484 503

Share Capital 2,200 2,450Net Worth 2,494 3,729

Investments 4,641 9,065Total Asset 7,689 16,391

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______________________________________________________

Macro Picture Of General Insurance

Overall Business Performance of GIC 2005-06

Fire Others

Net Premium 14,246 54,713Incurred Claims 9,277 45,731

% Of Net Premium 65.1 83.6Net Commission 4,780 14,023

% of Net Premium 33.6 25.6Expenses of

Management149 438

% Of Net Premium 1.0 0.8

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FIRE INSURANCE

______________________________________________________Underwriting Profit/Loss (-)

(512) (9,821)

% Of Net Premium -3.59 -17.95Inv. Income app to

revenue2,249 10,957

% Of Net Premium 15.8 20.0Balance Profit/Loss

(-)1,741 1,152

% Of Net Premium 12.2 2.1

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______________________________________________________

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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: -

a. Complete details of the losses giving the date, time

and place where the incident took place.

b. Causes of loss.

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______________________________________________________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.

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.

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______________________________________________________ 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

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.

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______________________________________________________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

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.

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______________________________________________________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

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.

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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.

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______________________________________________________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.

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.

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______________________________________________________14.Bibliography & Webliograph y

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.

Icfai.insurance - Magazines

14.2 Webliography

www.google.com

www.yahoo.com

www.icfai.com

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