Fire Insurance Autosaved [1]

8/10/2019 Fire Insurance Autosaved [1]

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OBJECTIVE OF STUDY

To study and analyses the concept and philosophy of fire insurance.To know what are various policies offered by public sector companies.To understand the policies condition of the fire insurance offered by publicsector companies.To understand the practical aspect involved in fire insurance offered by

public sector companies.To study the steps involved in analysis of project viability.To find out up to what extend public sector companies are successful inIndia.To understand the importance of fire insurance.To know about what are the views of business men over the insuranceoffered by public sector companies.


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SCOPE

The scope of the study is been restricted to the public sector companiesoffering and not been extended to the private sector companies. As there as limited number of public sector companies offering the fireinsurance, the information was not available easily.

Number of pages is another limiting factor to the project. Due to this factor itwas not possible to cover all the important to cover all the important aspectsof fire insurance and the policies offered by public sector companies.

LIMITATIONS

Very few public sector companies are engaged into the fire insurance business.The fire insurance policies are taken from Indian prospective.Due to another year ending time the information provided was not sufficient

to complete the project.As the subject of study is very vast it is not possible to cover each and everyaspect of the claim management.Statistical data is confined to only the policies issued on an average in yearand average in year


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Sr.No INDEX Page No1. Nature and use of Fire Insurance

-History-Definition and nature

-Function-Causes of Fire-Prevention of loss

2. Fire Insurance contract-What is Fire?-Elements of fire insurance contract-Principles of insurance(more than 1 policy)

3. Policies condition-various policies condition

4. Rate fixation in fire insurance-System of rate fixation-principle of rate fixation-Tariff rate

5. Payment of claim-Conditions require for claim-Salvage Corps-Application of Average clause in payment of claim-Task of Adjuster-Payment and Discharge by Adjuster

-Waiver and Estoppels6. Reinsurance-Advantages of Reinsurance

7. Policies offered by public sector companies-Types of Policies

8. Findings and conclusion-Findings from the Insurers & its conclusion-Findings from the insured &its conclusion-Suggestion

9. Annexure-Questioner for Public Sector Companies-Questioner for Businessmen

10. Bibliography & Webbliography


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1. NATURE AND USE OF FIRE INSURANCE

-History of Fire Insurance

Fire Insurance has not long history. The real establishment of fire insurance cameonly after the The Great Fire of London in1966 . The fire lasted for four days

brining over 436 acres of ground and destroying over 13,000 building was the mostdisastrous fire in the history and forcibly wakened the people to necessity for aform of protection against such calamities the main cause of its late development

was slow progress of trade and commerce. After a certain period when businessand commerce ran high, fire insurance received a real fillip. Previously there wasno basis on which the premium could be based. There was little concern whichmade a remarkable progress. Gradually as they gained experience the data went onaccumulating and premium rate become equitable and scientific. The decision oflaw court also brought the principle of fire insurance to a standard format. Withincreasing competition and experience, the fire insurance is evolved in its presentscientific form. However, the progress in fire insurance was not as tremendous and

categorical as was in the case of life insurance.

-Definition and Nature

Fire insurance is a device to compensate for loss cons equate upon destruction byfire. Thus the fire insurer shifts the burden of fire losses from their actual victims

over to all the members of the society. It is co-operative to share. It relives theinsured from the horror of the fire losses to which he is exposed.


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-Functions

It is well known fact that the fire cause huge losses every year. The individual

owner by taking fire insurance can prevent the fire waste to some extent. Theinsurer acts as a middle man between all members of the society who are exposedto the fire risk on the one hand and the members who will be the actual victims ofthe fire losses on the other. The insurer charges the premium from all the insuredmembers 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 thecommunity to the extent of the property by fire, but it compensates someone andthis saves him from ruinous loss, at the cost of group of some others.

-Causes of Fire

Fire waste is result of two of hazard vise, Physical and M oral .

1) 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, lackof extinguishing apparatus use of the property etc.

2) Moral Hazard - The moral hazard depends upon the man as physical hazardsdepend on the property. The property may be set up on fire by the owner or by any

person with his willingness, carelessness and lack of sense duty may also increasethe fire waste. Sometimes, when market price is going down the owner canwillingly set fire on the property and gain from the payment of insurance money.Thus, where the property was destroyed with the willingness of the propertyowner, moral hazard exists.


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-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 throughthe agencies engaged in prevention of loss.

Thus, insurance may help in two ways are as follows:

1) Indemnification or Curative Efforts - According to doctrine ofindemnification, the financial loss suffered by perils insured against will becompensated in full, not more than his and not less than this. The insurance

provides protection by indemnifying the financial loss suffered by insured person

who occurred beyond the control of Insured and Insurer .

2) Preventive Efforts The loss cannot be prevented by insurance. But, theinsurers help those who are engaged in the preventive efforts by granting financialand other assistances. This will benefit insurers as well because if the loss ofsociety is reduced, they can charge lesser premium which will stimulate the publicfor purchasing more insurance policies because of cheaper rate insurance. Fireinsurers stimulate the installation of protective devices and better types ofconstruction through granting credit.

They help in installation of fire fighting apparatus, water supply and engineeringservices.

Preventive efforts are divided into two parts

A) Private Activities

B) Public Activities


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A) Private Activities

Private Activities are those which include those activities which the propertyowner may engage in for the purpose of preventing fire loss.

Insurers give sincere advice of financial help property owner on the followingfactors.

I) Construction In construction of building, fire resistive materials, fire proofconstruction, greatest care in exercising selection of the type and planning of theconstruction, availability of the extinguisher, water supply, proper passage ionemergency is various activities which reduce the chance of fire. For theseactivities, the insurers provide advice and assistance.

II) Fire services The important thing is to extinguish fire before it reaches large proportions. The owner should consider equipping his building with an autonomicsprinkler system. Similarly, firefighting equipment may be established. Suchservices can be provided by insurer with the help of firefighting association.

III) Occupation There are considerable hazard in certain occupation e.g. in oilor coke or chemical industry. Insurance in this concerns are available at higherrate. Insurers help by stimulation and charging lesser premium in fire fencingoccupation.

IV) Management Good management of property may reduce the chances of fire.Carelessness and indifference cannot be overemphasized because these increasethe chance of fire.

V) Exposure Fire insurance rates are determined on the basis of possibility ofexposure. Fire-proof services may reduce the chances of exposure to a greaterextent.


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B) Public Activities

Fire insurers have performed numerous important services to reduce the fire wastewith the help of public institutions which are engaged in firefighting activities.

I) Community Surveys Engineering survey of the cities and localities is made.As a result of its investigation many have improved their five departments, watersupplies and other facilities involved in the protection against fire.

II) Standard schedule for grading cities Under this schedule a number ofcities, town are divided, according to fire preventive devices. The deficiencies ineach part are sorted out and attempts are made to remove them.

III) Underwriters 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.

IV) Equipment Fire can be properly checked only through the possession andmaintenance of adequate equipment, personnel fire alarm system and water supply.Firefighting apparatus and equipment for any city or town can be determined bythe fire protection association.

V) Salvage crops 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 ofwhether they are insured or not. Training school and colleges are, sometimes,engaged in giving general education to all and particular education to few studentsto train them in firefighting methods and fire preventative methods.

VI) Legislation and regulation National board of fire underwriter s fire brigadeand other such associations are engaged in fire preventive and protective effortsunder a certain law. The property owner and the fire protection engineer must keep

you mind the numerous legal.


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2. FIRE INSURANCE CONTRACT

Fire insurance contract may be defined as an agreement whereby one party inreturn for a consideration undertakes to identify the other party against financialloss which the letter may sustain by reason of certain defined subject matter beingdamaged or destroyed by fire or other defined perils up to a agreed amount. The

party responsible to indemnify the loss is called the insurer, the party who is to beindemnified is called the insured, the consideration for the contract is termed ThePremium , the defined subject matter is termed The Property Insured the sum setforth in the contract is called the assured sum, and the document containing theterms and conditions of the contract is known as The Policy .

The contract of insurance involves all the elements of an ordinary contract andinsurance contracts. The elements of contract are discussed in details are as follow-

Before discussing the elements of the fire insurance contract the special meaningof Fire must be understood -

-What is Fire?

Fire, in order to make the insurer liable under the contract, must satisfy twoconditions. First, there should be actual fire or ignition, and second, the fire must

be fortuitous in its nature.

There should be actual fire or Ignition

The expression in the policy we have to construct is loss or damage occasioned by

fire. This means that loss or damage must be either by ignition of the article or property or premises or thereof. In other words, the damage should be occasioned by fire. Loss or damage caused by excessive fire heat cannot be included in loss ordamage by fire . It should be proved here, that the loss should be caused fire. Thecause of fire is not important. The fire even if caused by the negligence of theservant or himself may come under the definition of fire. There should be no


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Fraud or willful misconduct by the assured. There should be actual ignition but a process resembling fire may not be fire. For example, the damage done due tosmoke due to faulting chimney, or overheated iron is not the example of fire.Similarly chemical actions, explosion, lighting etc. are not occasioned or example

of fire.

Fire should be accidental and not intentional

Any loss caused by fire lighted purposively is not a loss by fire if it wasintentional. However the property burned accidentally in an ordinary fire, such asdomestic fire, the loss is covered even if the fire remains under control. When afire was purposively lighted but became out of control at a later stage is takenunder the definition of fire. The object of fire insurance is to indemnify the insured

against accidental loss by fire.

-Elements of fire insurance contract

1. Feature of General Contract

All the feature of general contract is also applicable to the fire insurance contract.

A) Proposal The proposal for the fire insurance can be either verbally or inwritten. The proposers give the necessary description of the property to be insuredQuestions must be completely correct. The assured must disclose all the materialfacts and should observe utmost good faith. The description of the subject matterof 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, theinsurer may accept on the basis of proposal forms only. When the subject- matter isof larger magnitude and where the hazard involved is of a variable or unknownnature 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 thelight of this report. The unknown proposers are required to submit an evidence of


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respectability. The insured is required to submit a certificate from some known andrespectable person about honesty and integrity. As soon as the proposal isaccepted, the assured is informed about the decision.

C) Commencement of risk The risk commences as soon as the contract iscompleted provided there is no specific time for purpose. As soon as the proposalaccepted, risk will commence irrespective of the fact that no policy was issued andno 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 willcommence only when the premium has been paid and before that, when policy has

been issued, payment of premium will not be the basis of commencement of risk.

D) 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 issued. Ifloss occurs before issue of policy the cover note will be sufficient to proveinsurance. Cover note however is not taken at par to the policy.

Policy

The insurer issues a duly stamped policy which will bear all the terms andcondition of the contract. Any contract of fire insurance comes within the meaningof the word Policy . It is a statutory and formal document of insurance contract.There are different types of policies. However, a standard form is also used. The

policy contains the name and address of the insured. The subject-matter ofinsurance, sum insured, terms and the premium. There are various clausesgoverning the conditions of the policy can be changed.

Period of Fire Insurance Policies

Usually fire p olicies 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 as Long TermPolicies . But in practice only annual policies are common. Short-term and long-


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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 buildingand terms of insurance. The premium rate is determined according to the nature,location, construction of policy.

Moreover, the period of insurance is also taken into account for computing premiums.

More than One Fire during a Period

When there is more than one fire in respect of the same subject matter insured, theinsurer 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 theamount so paid. When, after payment of certain losses the property insured istotally destroyed, the insurer will pay loss not more than balance of insured amountremaining after compensation of previous losses.

However, if the insured is willing to get payment of full loss, he can reinstate theassured sum to the original amount by paying loss not more than the balance ofinsured amount remaining after compensation of the previous losses paying fresh

premium on a pro-rata basis to the date of expiry.

More than One Policy

If the same subject matter is insured with more than one insurer, he cannot realizemore than the actual loss from the entire insurer. Each insurer will pay his ratable

proportion of loss who, property insured against fire. If there is average clause,then the insurers will pay accordingly.


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-Principles of Insurance

Following are the basic principles of Insurance

1) Insurable Interest It is the general principle of insurance without whichinsurance cannot lawfully be forced for an insurance unsupported by an insurableinterest would be a gambling transaction. Insurable interest will be there here thesubject matter should be in such a position that insured may suffer loss at the timeof damage and may gain by its protection. The Insurable interest in fire insurancemust be present at the time of contract and at the time of loss. Insurance contractwill be invalid if the property is sold to another party. Similarly if there is noinsurable interest at the time of insurance, the contract will be invalid.

The following conditions must be fulfilled to constitute an insurable interest.

I) There should be a physical object capable of being damaged or destroyed byfire.

II) The object must be the subject matter of insurance.

III) The insured must be stand in such relationship as recognized by law where theinsured 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 insurer. So, the transfer of interestwould invalidate the contract.

2) Principle of Utmost good faith The contract of fire insurance is one in whichthe observance of the utmost good faith by both the parties are of vital significant.The utmost good faith in fix insurance has two aspects first, disclosure of materialfacts and second, prevention of the property insured, the insurer and the insuredmust finish detailed information regarding the subject matter to be insured. Theinsured, since he has more information about the subject matter, must disclose allinformation asked truly and fully. The assured is also required to disclose all thematerial information which is known to him although it was not asked by theinsurer. Material fact is one which influences the decisions of the insurance. Thedecision may be pertaining to the acceptance or declination or determination the


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premium. In case of fire insurance the examples of material facts are constructionof building. If the assured has not observed good faith, the contract can be avoided

by other party. It was immaterial to plead that the insured was unaware of the factand could not disclose. In a given circumstance, it is expected from the insured to

know all the material facts. The insurer has also disclosed such material facts as arewithin his knowledge.

The second phase of good faith is preservation of property. The observance ofgood faith is necessary not only during the negotiations of the contract butthroughout the term of the policy and in making claims. Any change aftercommencement of risk must be communicated to the insurer. The insured or hisagent well as the insurer must take all such steps as may be reasonable for avertingor minimizing loss. Since the insured is near to the property he must act to preventthe fire and if fire occurred, he must do his utmost to extinguish it. In such cases hemust act as if he was not insured.

3) Principle of Indemnity The doctrine of indemnity aims to compensate theinsured for a loss sustained, and the compensation should be such as to place himas nearly as possible in the same pecuniary position after the loss as he occupiedimmediately before the occurrence. The insured cannot claim anything in excess ofthe amount required to recoup the actual loss sustained. The insurers undertake to

make good the insured loss by monetary payment or by reinstatement orreplacement so that the insured shall be fully indemnified, but this is subject to thesum insured. The law does not sanction any insurance which would enable theinsured to profit by the destruction of the thing destroyed. It will check thetemptation to destroy the property insured there by to secure the money.

The insured amount is not the measure of indemnity but it sets an upper limit up towhich the loss can be indemnified. The actual amount of indemnified will be themarket 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 theactual loss is more than the assured amount then only the assured sum will be paidand nothing more is paid. But, this principle does not hold well when the policy isvalued 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 iii the policywhen it was taken. In a valued policy, no consideration is given to the actual loss.


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Thus, the amount of claim may be greater or less than the actual loss at the time offire in case of valued policies.

Interpretation of Indemnity

The insured is entitled to perfect indemnity subject to the sum assured beingsufficient. But in practice such perfection may be difficult to attain. Previously, themeaning of the word Indemnity was understood in the sense of materialindemnity 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 thehonest insured persons. Now, the insurance is extended to cover not only thematerial loss of property but also 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 onaccount of cessation of sale, salaries, taxes, rent, rates, etc are also indemnified.

Now-a-days tangible and intangible losses are insured and consequential loss isalso within the meaning of indemnity.

Consequences of Indemnity

The consequences of the doctrine of indemnity are as follow:

I) The insured may claim only the amount of the loss sustained.

II) In case of partial damage, the insured may claim compensation only for theamount of damage done.

III) The insured must transfer to the insurer any rights which he may possessagainst a third party in respect of the loss.

IV) If the insured have affected more than one policy, he is precluded fromobtaining more than one complete indemnity.

Measure of indemnity varies with the type of property. For damaged buildings, themeasure of indemnity is the cost of repairing or reinstating the buildings to their

pre-loss condition. Similarly, for machinery, the measure of indemnity is themarket value which is arrived at after taking into account wear and teardepreciation. For stock in trade, the measure is the net cost to the insured. Theindemnification may be in the form of cash, repair, replacement and reinstatement.


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4) Doctrine of Subrogation Subrogation means the right of one person to standin the place of another and to avail himself of the latter s rights and remedies. The

principles of subrogation are just a corollary to the principle of indemnity. Theinsured can realize only the actual value of the loss or damage to the property

according to the principle of indemnity and it follows that

The damaged property has any value left or the assured can recover the lost property or has any right against a third party regarding that property. There must pass on to the insurer, if there is allowed to retain them, he shall have realizedmore than actual loss which is contrary to the indemnity principle. The assured can

proceed against the third party, if he so desires and he recovers damages the insureris relieved of liability. If the insured has received the full amount of his loss anysums obtained from the third party belong to the insurer up to the amount of theirdisbursement.

The right of subrogation is exercisable at common law after the insurer has paidthe claim made against him.

5) Warranties The contents of proposal from are expressly incorporated in the policy, which form warranty. It is by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilledwhereby he affirms or negatives the existence of a particular state of facts.Warranties which mentioned in the policy are called express warranties and thosewarranties which are not mention in the policy are called implied warranties.

It must be complied with literally and the effect of breach of warranty is to rendervoid the relevant item of the policy, even if no increase in risk is involved. Everywarranty to which the property insured or any item thereof is, or may be, madesubject, shall from the time the warranty attaches apply and continue to be in forceduring the whole currency of the policy and non compliance with any suchwarranty, whether it increases the risk or not, shall be a bar to any claim in respectof such property or item. The condition states that every warranty is attachedduring 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 of item affected. However, if the policy is renewed and there was breachof a warranty before the renewal date and not after it and a loss occurs after the


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renewal is affected, in such a case the claim can be made, non-compliance with awarranty prior to the current renewal period of a policy is not a bar to a claim. Thenon- compliance with a warranty avoids a cover only during the period ofinsurance in which the breach occurred.

6) Proximate Cause The rule is that the immediate and not the remote cause areto be regarded causa-proxima non remote spectator. Proximate cause is veryimportant in fire insurance. The principle of proximate cause has already beendiscussed in detail. The insurer always takes the proximate cause while paying theclaim. If the property insured is burned but the fire was preceded and drought intooperation by an expected peril, the legal position depends upon whether theexpected peril was the proximate. The remote cause is when an incendiary bombdamaged the property; the proximate pause is enemy action.


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3. POLICY CONDITIONS

The policy conditions may be precedent to the contract condition subsequent to thecontract and conditions precedent to liability. The conditions must be fullycomplied with to make the insurer liable under the contract. The conditions may beimplied express. Conditions which are set out in the policy are known pressconditions which may be either of general nature and, therefore printed on the

policy or conditions specially designed reference to a particular contract and areincorporated in policy. The implied conditions are not mentioned on the policies

but are deemed to be present with reference to the policy.

IMPLIED CONDOTION

The following conditions are implied conditions in fire insurance

A) Existence of property: The subject-matter of insurance Id exists when the policy is affected.

B) Insured property: When the fire occurs the property damaged should be the property insured for obtaining claim on the property.

C) Insurable interest: The insured must have insurable interest from the time ofthe commencement of risk up to the completion of the contract.

D) Good Faith: The insured must observe good faith towards the insurer. He mustdisclose all the material facts truly fully, and should try to prevent the fire andextinguish if it occurred, with a reasonable care.

E) Identity: The subject-matter of insurance should be prescribed in the policy as

to identify it clearly and so define the insurers have undertaken.


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EXPRESS CONDOTION

The express conditions in fire insurance are discussed in the following paragraphs.

Misdiscription - The policy shall be void able in the event of mis-description, mis-

presentation or non-disclosure of any material facts.

Alteration - The insurance contract may be avoided if there is any alteration afterthe commencement of this insurance.

The alteration of the following types.

A) Removal: The removal of the insured property without the consent of theinsurer makes the contract violable.

B) Increase in risk: The alteration may take place with the risk of the insured property have increased.

C) Change in interest: Without the consent of the insurer interest on the insured property cannot be changed. If the interest has been changed, the insurer will ceasehis responsibility.

D) Exclusions: The risks which are excluded from the fire policies are calledexception or exclusions. The exclusions are explained below:

I) Destruction or damage by explosion (whether the explosion occasioned by fireor otherwise) except as stated on thereof the policy.

II) Goods held in trust or on commission, money, securities, stamps, documents,manuscripts, business books, patterns, models, moulds, plans, designs, explosivesunless specially insured by the

III) Destruction of or damage to property which at the time of happening of suchdestruction or damage is insured by any marine policy.


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Fraud

Fraud always invalidates a contract and the following provision is made in thestandard policy.

If the claim be in any respect fraudulent of or if any fraudulent means or devices beused by the insured or anyone acting on his behalf to obtain any benefit under this

policy or if any destruction or damage be occasioned by the willful act or with theconnivance of the insured of benefit under this policy shall be forfeited.

Reinstatement Clause

The insurer has the option to discharge his liability by restating or replacing thedamaged property. The cash payment of actual loss is not made under this clause.

Warranties

The warranties clause is as follows:

Every warranty to which the property insured or any thereof is or may be madesubject form the time the warranty attaches apply and continue to be in forceduring the whole currency of this policy, and non-compliance with any suchwarranty, whether it increases the risk or not, shall be a bar, to claim in respect ofsuch property or item, provided that if policy is renewed a claim in respect of lossor damage occurring during the renewal period shall not be barred by reason ofwarrantee not having been complied with at any time before the commitment ofsuch period.

The compliance of warranties is very essential. Non-compliance with any of thewarranty or even substantial compliance fatal to the contract whether the riskthereby has increased or According to the clause the warranties of the previous

policies policy may not essentially be applied to renewed policies.


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4. RATE FIXATION IN FIRE INSURANCE

The rate fixation in fire insurance is not as scientific as scientific as in lifeinsurance. The physical hazard can be estimated satisfactorily but the moral

hazard, being varied and unknown, cannot be ascertained so correctly. Whilecalculating the premium, various relevant factors of both the hazards are properlyestimated and evaluated. The premium must be adequate enough to provide for full

payment of claims including catastrophic losses, expenses of management andmargin of profit. The tariff offices follow the collective system of tariff rating.After nationalization of general insurance businesses, the tariff rating is applied.

SYSTEM OF RATE FIXATIONThe actual process of rating consists of three steps:

1) Classification

2) Discrimination

3) Fixing rates or schedule rating.

1) Classification

Properties to be insured are of various nature and risk. Since the premium is fixedin relation to the class of risk, the properties are classified accordingly. Propertiesare generally divided into three main classes, vise

(1) Common or Ordinary,

(2) Hazardous and

(3) Doubly Hazardous.

Different premium rates are fixed for each class. These classifications do not holdgood for a long time because of varied nature of risk. Now the risks are classifiedinto various classes according to factors affecting fire risk.


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Construction or Structure: The construction of the building has always been ofgreat importance in rating. Building made of brick will be sounder than the

building made of wood. Today, the construction of building is divided into twotypes of structure. First fireproof building and second, building without fireproof.

The height of the building the area, the number of unprotected floor openings,construction of walls, floors, roof, etc, is considered in calculating the fire hazard.

Occupancy: The risk considerably varies according to the nature of occupancy,i.e., the use to which the building is devoted. One building may be used as a drygoods store or hardware store, or furniture-store or for residential purposes. The

building may have different risks because of the different substances and processeswhich they contain and the different uses to which they are put. There is inherentconnection between the building and its contents. It is essential for companies tochange their rates to meet changing business conditions. Rate making in fireinsurance does not present constant factors. Justice demands that the insurer shouldrecognize the important changes. A building occupied as a residence or an office isa better risk than a retail shop. A storeroom used for the storage of highlycombustible goods is more hazardous from a fire insurance viewpoint than groceryshop. The process of manufacture, the nature of raw materials used, and the type ofmachinery are important factors to influence the physical hazard.

Nature of Flooring: The nature of flooring influences the risk to a greater extent.Existence of wooden floors in the building introduces an additional physicalhazard. Wooden floor becomes a fuel in the event of fire. It may collapse easilycausing damage to property.

Height: The height adds difficulty in fighting a fire on the upper floors. There may be risk of water damage to property on the lower floors when water is used toextinguish a fire on the upper floors. The floors involve heavy risk of collapse ofthe upper floors.

Floor and wall openings: Openings in the floor for lifts and belts constitute higher physical hazard. It may cause greater chances of ignition of fire and difficulty ofextinguishing the fire.

Exposure: The chances of risk may differ from property to property according tothe degree of exposure. A building or property may be situated in a congested


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conflagration locality involving greater danger to the property. Exposure standsseconds a cause of fire and is more than the occupancy hazard.

Lighting, Heating and Power: The fire may occur due to short-circuit.

Combustion can also arise from faulty installation and dampness. The lightingsystem e.g. by gas or oil, leakage of fuel and naked flames cause more hazard to property.

Place or situation: The locations of the property, Nature the source of watersupply, the degree of congestion in the area are some of the important factors toinfluence the degree of risk.

Protection : The availability of protection against fire influences the degree of risk.The protection facilities may be public or private. When protection facilities areavailable the fire may be extinguished in its incipiency. The fire extinguishingapparatus, water supply, police system etc can reduce the degree of risk. Smaller

premium is changed where modern device for preventing and extinguishing firesare present. It would be injustice to charge the same rate for all types of risk.

Time : The time of loss must be kept into consideration. The annual loss ratio is byno means uniform every year. So, the rate fixation must account for good or badyears to determine approximately the real loss. Therefore, a long period of time is

taken in to consideration while calculating the premium.

2) Discrimination

The differentiation of the rates for individual risks in a particular class is known asdiscrimination. Each additional feature of risk is charged extra premium. The bettertypes of risks are encouraged and attracted by the insurer. Lesser premium ischarged where fire extinguishing appliances or fire-resisting construction are

present. The tariff system is based on the law of average and graded schedule isformulated where different rates are ascertained for the different types of risks.Thus, the different risks are put in a specified class, and are differentiated fromeach other according to the merits and demerits of the individual risk.


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It aims at a more equitable basis of rating. For example, dwelling house is a classand therefore, all the dwelling houses are put in the same class. Since the dwellinghouses are of different types, the class may be sub-divided into several classesaccording to the degree of hazard. An appropriate discount could be given for

those houses which have fire extinguishing appliances, nearness to fire brigadestation and absence of exposure in the vicinity.

3) Schedule Rating

It is a plan by which hazards with respect to any particular risk are measured. It isdefined as, an empirical standard for the measurement of relative quantity of firehazards. Schedule rating takes into consideration the various item influencing the

peril of fire. It is based on the theory that the aggregate for hazard of any risk is

capable of ultimate analysis into its component factors to each of which could beassigned an appropriate charge. A standard or average premium is determined as a

base for calculating the premium. The average premium rate for a class of risk isdetermined taking into account the total loss and the sums assured during a periodof years. The period should be such that the experience of good as well as badyears may be taken into account. A large number of items, as far as possible, aretaken so that the law of average may apply. Larger the number, the morerepresentative will be the rate of premium.

Thus the average fire rate is calculated as follows:

L/V * 100

Where L represents the losses and V represents the values of insured amount.

The rate arrived at will be net premium which is just sufficient to meet all thelosses in that particular risk. This basic or net premium is loaded with expenses ofmanagement, commission, rents and a margin for profit to arrive at the gross

premium or office premium.

The rate so calculated is called normal rate or average rate for the particulargroup. In each group, risks may differ from one another and in order to maintainequity between different, types of risk and between the insurer and the insured, it isnecessary to apply the principle of discrimination, of individual risks in a grouptaking into account their particular features. Extra rates are provided for bad


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features, i.e., for inferior construction, timber flooring ,height, situation in acongested area and discounts are granted for good features, i.e., for fire extinguishappliances, automatic sprinklers etc. The rebate will be allowed taking into accountthe efficacy of the means adopted.

PRINCIPLES OF RATE FIXATION

The fire insurance rates are determines by three ways:

A) Personal judgment

B) Tabulated experience and

C) Schedule.

A) Personal Judgment Rating:

This method was the first to be generally used. Under this method, the rates somade indicate the opinion or judgment of the rate maker. The judgment is theresult of the experience and observation of many years. The rate made wasequitable. No attempt was made to take account of minor differences. All the goodfeatures and all the defective featjures were put together and the rate was

calculated by differentiating from the average premium.

Since the personal judgments differ greatly, different rates may be determines tothe same risk. With the increasing complexities of modern properties, the short-comings of this system became more and more apparent. This method may createdissatisfaction amongst the policyholders because of different premiums to thesame type of properties. Now less reliance is placed upon personal judgment inmaking rates.

1) The method is not essentially based upon judgment. The combines judgmentof a large number of individuals is taken into account. It is based on theexperience of several years and of several persons. Therefore, it reflects areasonably accurate treatment of the various elements to measure the firehazard. Under this method, the risks are classified according to their lossexperiences.


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This system may not be practical as so many classes of risks would benecessary. The experience collected in the past will be of no great value inthe future. However, rates made on this basis may more correctly be utilizedas compared to that of other systems.

2) Schedule RatingUnder this method, fire hazard is separated into various elements and eachelement is assigned a particular value. The schedule describes a property asStandard . For each standa rd risk, a standard premium is assigned. To this

basic rate or standard premium, a certain stipulated charges are made fordefects in construction and arrangement of property and certain deductionsare made for unusually good features as compared with the standard.

The advantages of the schedule rating system are that it provides more equitabletreatment of all insured. Due to the systematic treatment of the risk, the premiumrates come approximately the same. The second advantage is that it reducesfriction between the company and the insured because the insured is able tounderstand how his rate is made in every case. The third advantage is that it tendsto reduce fire waste because it encourages proper construction of buildings byintelligently charging for deficiencies from standards and recognizingexceptionally good construction by deductions. The fourth advantage is that it

secures more thorough inspection and rating.

THE TARIFF SYSTEM IN PRACITICE

The Tariffs have prescribed the order in which the various additional rates anddiscounts are to be applied to the final rate.

1) Tariff rates as mentioned against the relevant item in tariff.2) Extra rate mentioned in the item itself.3) Extra for inferior reconstruction.4) Conflagration extra.5) Artificial light extra night work extra.6) Extra for the use of the mobile goods handling appliances.7) Mofussil or classified town extra.


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8) Extra for electrical installation not in the accordance with tariffregulation.

5. PAYMENT OF CLAIMS

Payents of claimsThe insurer should inform about loss as soon as the loss occurs. Onreceiving the notice, the insurer appoints an assessors to examine thefacts of the case and to determine the amount of liability. The assessor isan expert person having the ability and experience in handling the claims.The assessor is empowered to act and make necessary arrangement on

behalf of the insurer. He goes to the site of fire and personally, examinesthe damaged property and the collects the all available information. Theassessor gets the idea of the nature and extent of the damage, the originand the cause of the fire. Usually, the assessor asks the insured about theloss to avoid future dispute between the insured and insurer. The insuredis suggested to separate the salvage or undamaged part from thedamaged part to reduce the possibilities of further damage and toevaluate the amount of the loss correctly.

Steps are taken to check that-The policy is in force on the date of the occurrence of the loss or damage;The loss or damage is by a peril insured by the policyThe property affected by the loss is the same as insured under the policyThe notice of loss is received without undue delayAfter the initial check up, a number is allotted to the claim and entered inclaim register. A separate docket is opened for filling the claim paper andthe copy of the policy. The face of the docket provides for printedcolumns for incorporating claim number, policy number, date of loss,estimated amount of the loss, date of survey, name of surveyors, etc.A claim form is issued to the policyholder. The claim form requires thefollowing information:

I. Full description of circumstances of the loss such as date loss oftime, the place of fire


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II. Cause of fire.III. Particulars of the property affected by the loss such as description,

value at eh time of fire, value of salvage and the claim amount.IV. Statement of other insurances on the property, name of the insurer,

the policy number and the sum insured.V. Sound value of all the property.

The Claim is recorded in the docket of claim, where facultative reinsurance isinvolved, an advice of the loss is sent to the insurers.

The survey report of the assessor contains the following information:

1. Cause of loss: It is necessary to know whether the fire was caused by anexcepted peril or was caused by the negligence of a third party or there wasany evidence of fraud, So, the cause of fire is clearly obtained. Often theexact cause and origin of fire annot be accurately established. In such casesthe available evidence will have to be carefully examined to support a

plausible cause:2. The amount recommended for payment which is determined, on the basis of

current market value and under-insurance.

3.

Detail and value of salvage. The method to dispose it of4. Details of expenses involved in extinguishing fire and salvage corps charges.5. The position in respect of compliance with the warranties.6. Apportionment of the loss and expenses among the insurer where there are

more than one insurer.7. The assessor can judge whether the fire has been started at more than one

place and whether it is a case of arson. He will inquire whether there is a breach of warranty or negligence on the part of the insured.

8. The exact amount of loss payable by the insurer. The presences of theaverage clause in the policy will determine the amount of loss payable.

On receipt of the claim form dull completed and the survey report the claim is processed and, if it is in order, a discharge voucher is to be signed by the insured.The amount of loss payable by the insurer is usually settled by agreement betweenthe insurer and the insured otherwise the matter has to be referred to arbitration.


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Market value of the damaged property is usually taken into account whilecalculating the amount of loss. Sometimes the cost of replacement is considered forthe purpose. But, it is prevalent only in advanced countries because the insurershave we equipped staff of replacement.

Before the cheque in settlement of the claim is released , the payment isrecorded in the claims register and the claim docket. It is essential that the salvagerecoveries should be correctly recorded in the claims register. The payment isrecorded in the relative policy file and the sum insured is reduced by the amount ofthe claim. The sum assured can be reinstated on payment of proportionate premiumfrom the date of reinstatement of the sum insured to the date of expiry of the

policy. When the amount of loss is estimated to be small and the cost ofinvestigation is disproportionately high, the survey is dispensed with and the claimis processed and settled on the basis of the complete claim form. When theinsurance is on co-insurance basis, the surveyor is appointed by the leading office.Each co-insurer is sent a preliminary advice of the claim followed by a copy of thefinal survey report which indicates the apportionment of the loss among the co-insurers. Generally the leading office settles the entire loss and recovers the

proportionate shares of the loss and expenses from the co-insurers.

Salvage Corps

Fire Salvage Association was incorporated in 1925 as a company registered byguarantee and the insurance companies are members of the Association. The mainobjects of the Association are to provide a fully trained corps to salvage materialsfrom the buildings on fire, to protect them from water damage, to restore them toserviceable conditions after fire fighting operations are completed. The corps alsorenders following services to the fire M-committee, Bombay, of the TariffAdvisory Committee.

i. Checking the fire hydrants in the Cotton Green Storage area.ii. Inspection of sprinklers in the godowns in the Cotton Green area.

iii. Training of the fire fighting squads in the textile mills.iv. Provision of facilities to the Fire Sub-committee to test sprinkler heads and

other fire extinguishing appliances.v. Reporting on unusual features observed on the time of fire extinguishment.


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Application of Average Clause in Payment of Claim

When insurance is subject to the ordinary, or Pro-Rata conditioning of Average,i.e., under-insurance, the liability of the insurers is restricted to that proportion of

the loss that the sum insured bears to the value of the property at the time of thedestruction or damage. The insurer s liability in th3e event of a claim under a policy subject to average, the loss is assessed in the ordinary manner, but theamount payable is determined after a comparison of the sum insured and the valueof the property. Where under-insurance exists, the liability of the insurers islimited.

The Pro-Rata Condition of Average

Whenever a sum insured is declared to be subject to average, if the propertycovered thereby shall at the breaking out of any fire or at the commencement ofany destruction of or damage to such property by any other peril hereby insuredagainst the collectively of greater value than such sum insured, then the insuredshall be considered as being his own insurer for the difference and shall bear aratable share of the los accordingly.

The insurers cannot be called upon to pay the full sum insured. If the property istotally destroyed, there will be a total loss under the policy.

Special Condition of Average

Whenever a sum insured is declared to be subject to special conditions of average,then, if such sum shall at the bring out of any fire or at the commencement of anydestruction or of damage to the property by any other peril hereby insured against,

be less than three-fourths of the value of the property insured in that amount theinsured shall be considered as being his own insurer for the difference between thesum insured and the value of the property at the time of such fire or atcommencement of such destruction or damage and shall beat ratable share of theloss accordingly.


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This condition shall operate only if the sum assured is less than the three-fourths ofthe value of the property. If the sum assured exceeds this proportion of the value atrisk, the insured recovers the full amount of his loss up to the sum insured.

The assessor in the fire insurance deals with some typical tasks which is describedin the following paragraphs. The assessor also called Adjuster

Task of Adjuster

The adjuster has to examine and collect the following information:

1. What policies and agreement covered the property at the time of loss?2. Whether the property described in the policy is really located and placed at

the described place. Whether property had be removed at the safer place at

the time of loss3. Tile nature and extent of the insurer s interest in the property. 4. Loss occurred after the commencement and before the expiration of the

contract.5. Whether loss was the direct result of fire or other insurer perils6. Whether loss was the direct result of fire or other insurer perils7. Whether any part o the loss was caused directly or indirectly by enemy

attack, military offence etc.

8.

Whether the loss occurred while the hazard was increased by any meanswithin the control or knowledge of the insured.

9. Whether before or after the loss the insured willfully concealed ormisrepresented any material facts.

The adjuster must do the following:

1) Fix by agreement with the insured or by appraisal, the all cash value ofthe property at the time of loss and the amount of loss there to.

2) Exclude from the claim, uninsurable property or accepted property.3) Determine the extent of the application of the insurance the contribution

to be made by the insurer to the loss.4) If there are two or more policies covering the property, portion the loss

among these policies.


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5) See that the requirements in case of loss that are necessary produceinformative essentials to establish the status of liabilities under the policyor the value or loss of the property are complied

6) Consider the interest of any mortgagee name as payee in policy and theaction that should be taken by the insurers.

7) Investigate any disputed cancellation of the policy.8) Exercise the option to take all or any part of the property at the agreed or

appraised value.9) Preserve any right of recovery from third, parties to the loss.

PAYMENT AND-DISCHARGE BY ADJUSTER

i. Meet the insured or the person who will act for him in adjustment, discuss

the loss with him and make any necessary, mination of records.ii. Examine his policy if it cannot easily be produced, the record of insurer s

agents or broker s record should be searched. iii. Inspect the scheme of the loss and examine any of the property still

evidence.iv. Examine available records or reports covering the occurrence of the loss,

those of fire department, peril or salvage corps, ice, etc.v. Examine available records or reports covering the occurrence of the loss,

those of fire department, peril or salvage corps, ice etcvi. Consider whether any insurance held by others should bear the loss or any part of it.

vii. Withdraw if the insurance is not liable for the loss contract with the insuredand report to the insurer or have n waiver agreement.

viii. Estimate the situation and the probable results to adjustments.ix. Choose the method of adjustment used.x. Make any necessary preparation for conducting the adjustment according to

the method chosen.xi. Negotiate an agreement with the insured as to value and submits the

disagreement.xii. Check any claim for possible errors and omissions also for which any policy

or contract is liable.xiii. Forward to insurer with final report and supporting papers.xiv. Account the salvage and its proceeds with the final report.


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WAIVER AND ESTOPPEL

Waiver

Waiver is defined as the voluntary relinquishment of a known right. The waiver

may be

1) Expressed2) Implied.

An insurer is informed that a policy under which claim is made is void because the person insured had no insurance interest in the property but still, the insurer isgoing to pay it as a waiver.

Estoppel

Estoppel is the legal bar raised by a person s own action against asserting a rightthat he once possessed or making a choice that once was open to him. An, insurermay be stopped from exercising its option to take all or any part of the property atthe agreed or appraised value it it delays notice to the insured that it intends to doso.

CHAPTER 6. REINSURANCE

Reinsurance is an arrangement whereby an original insurer has insured arisk insures a part of that risk again with another insurer, that is to say,reinsures a part of the risk in order to diminish his own liability. The

difference between the retention and the total amount of acceptance isreinsured. The sting or retention and effecting of reinsurance brings about awider distribution of the risks and secures to the insurer the full Vantages ofthe low of average.Reinsurance is the transfer of insurance business from one insurer toanother. The insurer transferring the business is called the principal or


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ceding or original office and the office to which the business is transferredis called for reinsurer or guaranteeing office . It is also a contract ofindemnity. The original company must disclose all the material facts to thereinsurer. At the time of loss the reinsurer indemnifies the loss up to the

amount of reinsurance. The reinsurance amount is obtained by deducting totension amount from the original policy.

Advantages of Reinsurance1. The original insurer can accept the risk to the extent of his limit. In

absence of reinsurance , a person desiring a large amount ofinsurance will have to take a number of policies from severalinsurers. This reinsurance contract makes it possible to purchase.

Only one policy from an insurer.2. Reinsurance contract makes it possible to accept each risk for the

very amount desired by the proposers and to transfer the excessabove the retention limit to another insurer.

3. The reinsurance gives the benefit of the greater stability resultingfrom a widespread of business. By accepting many risk and scalingdown, by reinsurance, all those that are larger than the normalcarrying capacity of the insurer justifies, certainty in business issubstituted for uncertainty through the better application of the law ofaverage.

4. The reinsurance makes stability in underwriting and consistency inunderwriting results over a period.

5. It provides a safeguard against serious effects of conflagration.6. The reinsurance has the effect of stabilizing income and losses over a

period of year.


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Chapter 7. VARIOUS POLICIES OFFERED BY PUBLIC SECTORCOMPANIES

VARIOUS POLICIES OFFERED BY PUBLIC SECTOR COMPANIES

The policies can be of various types which are offered by public sector companiesare as follows-

1. Valued Policy : The value of the property to be insured determines at theinception of the policy. In this case, the insurer pays the total admitted valueirrespective of the then market value of the properties. The measure ofindemnity is, in consequences, not value at the time of fire, but a value

agreed at the inception of the policy. The insurer pays the insured a fixedsum following the destruction of the insured property. The amount fixedmay be greater or less than the actual market value of the property destroyed

by fire at the time of loss. In this policy, the measure of indemnity is basedon the value of properties rather than on the market values of the propertydestroyed. This policy is used for insuring specially pictures, sculptures, andworks of jewelry, rare things, and articles of everyday use. Since the valueof damage of these articles cannot be easily denied a the time of loss, the

valued policies are commonly Strictly speaking the valued polices are betrayal from principle of indemnity because the market price is not paid incase.

The valued policy is beneficial to the insured because he is reed of proving thevalue of property at the time of loss by search of invoices and receipts. Thedisadvantages are that the new purchases and replacement cannot be added to thevalued policy valuation, therefore, is revised at frequent intervals. The insurer willhave to pay more than the actual loss if the market price the property has gone

down. IT may increase the moral hazard. The valued policies can be disputed ongrounds of fraud.

2. Valuable Policy: Valuable policy is that policy is claim amount is to bedetermined at the market price of the aged property. The amount of loss is


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not determined at the time place of loss. This policy is truly representing thedoctrince indemnity.

3. Specific Policy: Where a specific sum is insured you a specified property incase of a specified period , the whole of actual los is payable provided it

does not exceed the insurance amount. Here the value of property insuredhas no relevance arriving at the measure of indemnity in a specified policythe insured sum sets a limit up to which the loss can be good.

4. Floating Policy: The floating policy is the policy taken to cover one of morekinds of goods at one time less than one sum a assured for one premium andin relation to the, same owner. This policy is useful to cover fluctuatingstocks in different localities. Since the properties are spread over variouslocalities and in different forms, the physical and moral hazards are also

varying and, therefore, it makes difficult to determine premium rate. InIndia, the premium rate is approximately the same in such case except thecase of most hazardous risk. Such policies are specially taken by bigmanufacturers or traders whose merchandise might be laying in parts atwarehouse, godown, port, or railway station. In such cases, it is very difficultfor the owner of such goods to take specified policy of each good becausethe quantities of the goods deposited in each will fluctuate from day to day,

place to place, according to sales or consumption or Consequent removaland replacement. The average rate of premium is ascertained by taking intoaccount the total premium payable ha the property been insured by specific

policies. The floating policy contains the average and marine clause. 5. Average Policy: Policy containing average clause is called an Average

Policy. The amount of indemnity is determined with reference to the valueof the property insured. I f the policy holder has taken policy for lesseramount than the actual value of the property, the insured will be deemed to

be his own insurer for the amount of under-insurance. The insurer will payonly such proportion of the actual loss as his insurance amount bears to theactual value of the property at the time of loss. For example, the propertyworth Rs. 30,000 is insured for Rs. 20,000 is damaged up to Rs. 12,000, theinsurer will pay only Rs. 8,000 as is evident from the following:

Claim = Insured amount/value of property X actual loss = 20,000/30,000 x12,000= Rs. 8,000


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The insured thus will suffer himself up to Rx 4,000 and the surer will payonly Rs. 8,000 out of its 12,000. In this case, if the insurance was taken up tothe full value of the property, the assured would have been paid all thefinancial loss, i.e. Rs.12,000. Since the insurance was taken for lesser than

the actual of property, the assured is compensated the loss in that proportion.

The average clause is operative only in case of under-insurance. This clauseis ineffective when the property is insured are the full value as in that casethe insured is protected to the extent of his total loss. The under-insurance

penalizes the assured inserting average clause to the policy because he issupposed insure himself for the amount by which he under-insures his

property and, therefore, is supposed to contribute in that ratio to the as

sustained.6. Excess policy: Sometimes, the stock of a businessman any fluctuate from

time to time and he may be unable to take one hey or specific policy. If hetakes policy for a higher amount, has to pay a higher premium. On the otherhand, if he takes insurance to lower amount, he will have to bar the

proportionate amount of loss. The insured in this case can purchase two policies, one First LOSS Policy will cover that stock below which the stocknever goes. The minimum level of stock can be found out from the pastexperience and for the other portion of stock which exceeds the minimumlimit, he can purchase another poli cy called excess policy, the actual valueof the excess stock is declared every month. The amount of premium iscalculated on the average monthly excess amount. Since the chances of

payment on the excess amount are very remote, the rate of nominal premiumas compared to the premium payable on the total amount had the policy beenspecific. The average clause also, applies to this policy.

7. Declaration Policy: The excess policy contributes to a ratable proportion ofthe loss because if the amount of excess stock exceeds the sum set in theexcess policy the business will not have a full cover owing to averagecondition. Moreover, if the First Loss Policy was also subject to averagecondition the assured will be at a loss, the stock fluctuates from time to time.Under the declaration policy, the insured takes out insurance for themaximum amount that he considers would be at risk during the period of the

policy. The insured takes out insurance for the maximum amount that he


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considers would be at risk during the period of the policy. On a fixed date ofevery month or a specific period, the insured furnishes a declaration of theamount. The premium is provisionally paid to 75% of the annual premiumamount, practically, the annual premium is determined on the average of

these declarations. If the premium is higher than the provisional premiumalready paid, the insured has to pay the difference to the insurer. On himother hand if the premium so calculated is lesser than the premium already

paid, the excess return to the policy holder. The declaration must be made ona specified day or within the next 14 days, otherwise the sum insured will bedeemed to be the declaration value.The great advantage of this policy is that the premium is limited to the actualamount at risk irrespective of the sum insured. Unlike the excess policy, the

premium is not unnecessarily paid. Moreover, the insurer may pay up to thefull sum insured throughout the period of the policy because the premiumamount can be adjusted accordingly. The policy is very advantageous tothose businessmen whose stocks fluctuate from time to time. The amount ofthe declaration offers scope for fraud because the insurer may pay lesser

premium by undervaluing the stock. Therefore, this policy is issued only toreputed concern.

8. Adjustable Policy: The above disadvantage is removed by adjustable policy. This policy is nothing but an ordinary policy on the stock of the businessman with liberty to the insured to vary at his opinion, the premiumis adjustable pro-rata according to the variation of the stock. In case ofdeclaration policy, since the excess premium is refundable at the end of theyear, the insured may put fire to the property. This danger is avoidable in anAdjustable Policy . This is issued for a definite term on the existing stock.The premium is calculated in the ordinary manner and is paid in full at theinception of the policy. Whenever, there is variation in the stock, theinsured informs the insurer. As soon as the information of variation isreceiv ed, the policy is suitably endorsed and the premium is adjusted on a

pro-rata basis. The policy amount will, thus, be changeable form time totime. The Premium is also settled accordingly.

9. Maximum Value with Discount Policy: Under this policy declaration oradjustment of policy is required, but the policy taken for a maximum amountand full premium is paid thereon. The end of the year, in case of no loss,


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one-third of the premium is returned to the policy holder. This policy issimilar to the declaration policy where the botheration of checking andrecord declarations is avoided. It serves as a rough and ready methodoverage for maximum amount. This policy is not issued on all types of

commodities and is confined only to selected commodities. 10. Reinstatement Policy: This policy is issued to avoid the conflicts of

indemnity. In other types of policies only the market value of the damage orloss is indemnified but, this policy undertaken to reinstate the insured

property lost by fire to new condition irrespective of its value at the time ofloss.

In other types of policies, in case of building or machinery, the actual loss isarrived at by deducting the regular depreciation and the original cost of it.The amount of indemnity will be lesser than the amount to be spent inreinstating the property destroyed or damage. In order to provide fullcoverage reinstatement or replacement policies are issued. Under this

policy, the basis of settlement in the event of destruction is the cost ofrebuilding the premises or in cse of plant and machinery, the placement done

by similar machinery. The reinstatement of the damaged property indicatesthe meaning of repair of the damages. The restoration of the damaged

portion of the property to a condition substantially the same is but not better

or more extensive than its condition. At the time of its renovation the cost ofthe property when partially destroyed will not be more than the cost whichwould have been insured if such a property has been totally destroyed. The

payment of the actual expenditure on replacement will not be made, until theexpenditure has actually been incurred. This policy is also called New forOld policy is not issued on stock, merchandise or materials. Each item ofthe insured property is subject to average. The policy provides the definiteamount in case of purchase of new property in place of the old property

destroyed.

CHAPTER 8. FINDINGS AND CONCLUSIONS

FINDINGS AND CONCLUSIONS


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In the primary data collected from the experts from the insuranceindustry, the following are the findingsFindings from the insurers-

People have a faith in public sector companies because of government backingand their long and strong background. They clearly mention during one to oneinterview that even though they are not as much customer friendly as the peoplethat have been created because of their long history.

They admitted that the working of the public sectors not quick and fast. Butthey want the public to understand the reason behind this. The reason is thatthey have to consult to the higher authority if they have to cross the borderdrawn by MoA & AoA as they are dealing with the public money. In brief, theylack of decision taking power.

There is a lot of untapped market in India rather not even 10% market has beentapped in India. The main reason behind this is lack of awareness. Anotherreason behind this is that If the event does not occur than the amount paid bythe insured is non refundable.

There is no threat to the public sector from private sector because ofgovernment backing and their long and strong background.

Conclusions

Conclusions from all above is as follows- People have more faith in public sector that private sector. The working of the public sector is not as efficient as the private sector. There is a lot of untapped market in India which has to be tapped. Private is not a threat to the public sector as far as the insurance sector is

concern.

In the primary data collected from the experts from the insurance industry, thefollowing are the findings.

In the primary data collected from the experts from the insurance industry, thefollowing are the findings

Findings from the insured-


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Many of the businessmen do not take a fire insurance cover as they considerit as an overhead cost and not as the risk coverage.

Many few have taken for insurance policy. They include fire cracker shop,grocery shop, hardware shop, etc.

Among them most have complaint that the public sector companies don thave a customer centric approach

They also don t have inn ovative products.

Conclusion-

From the above finding we can conclude that

There is a need of awareness of the fire insurance as the loss due to fireinsurance is huge which effects countries progress

Most of the customer of the public sector companies are not happy and aredemanding more innovative product.

SUGGESTION

From the above information we, can see the worsening situation of the fireinsurance business. The following are the suggestions-

Improvement in the working of the public sector insurance company

Launching new innovative products Shifting from product centric approach to customer approach In case of no event returning back 25% amount to the public

Fire Insurance Autosaved [1]

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