Fire Insurance ITC

7/29/2019 Fire Insurance ITC

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Fire InsuranceAnurag Rastogi


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Principles & Policy

Coverage


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Copyright Bajaj Allianz 3/21/2013 3

Anurag Rastogi

Basic Principles

Insurable Interest

Utmost Good Faith

Proximate Cause

Indemnity

- Subrogation

- Contribution


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Fire Insurance


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Copyright Bajaj Allianz 3/21/2013 6Anurag Rastogi

Originating or Inception Fire

HazardElectrical

Smoking

Friction

Overheated Materials

Hot Surfaces

Burner Flames

Combustion Sparks

Spontaneous Combustion

Cutting and Welding


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Incendiarism

Mechanical Sparks

Molten Substances

Chemical Action

Static Sparks

Lightning


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Fire Policy

FIRE

LIGHTNING

EXPLOSION

AICRAFT DAMAGEImpact damage

Subsidence,landslide

Bursting of pipes/tanks

Missile testing

Sprinkler Leakage

Bush fire(excluding forest fire)

Debris removal & Architect fee

RIOT

STRIKE

MALICIOUS DAMAGE

STORM

TEMPEST

FLOOD

INUNDATION

RSMD

STFI

OTH

ERS

FLEXA


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Exclusions

Excess of Rs.10,000 for each and every loss(Max of 5% or 10000 for AOG perils)

War group of perils

Nuclear perilsPollution or Contamination, excluding :

- Resulting from insured peril

- Insured peril resulting from pollution orcontamination

Per insured per

event


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Exclusions

Stocks in Cold Storage premises caused by change in

temperature

Architects, surveyors fees exceeding 3% of claim

amount

Debris Removal expenses exceeding 1% of the claimamount

Loss of earnings, loss by delay, loss of market and

other consequential and indirect losses

Spoilage of materials caused by insured perils

Loss by theft during or after operation of insured perils


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Exclusions

Earthquake, Volcanic eruption or any other convulsions

of nature

Insured property removed from the insured premises,

however

- Equipment temporarily removed for repairs, cleaning,renovation or other similar purposes for a period of

60 days are covered

Electrical exclusion

Goods held in Trust,bullion, curios etc above

Rs.10,000, manuscripts, securities, documents,

money, explosives unless specifically covered


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Conditions

MisrepresentationPolicy expiry after 7 days from fall /displacement of any building-if not caused byinsured peril

Changes in risk, insurable interest

Unoccupied building

Coverage of same property by marine insurance

Policy termination

Notice of loss within 15 days

Disclaimer after 12 months


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Conditions

Rights of company on damaged propertyFraudulent claims/means

Companys option to repair, replace or

reinstateAverage clause-separately for each item

Contribution clause

SubrogationArbitration

Auto-reinstatement


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Add On Covers

Architects, Surveyors & Consulting Engineers

Fees upto 7.5% of adjusted loss

Removal Debris ( > 1% of claim amount)

Deterioration of Stock (cold storages), FOESextension

Forest Fire

Impact Damage due to Insureds own vehicles

Spontaneous Combustion

Omission to insure additions, alterations orextensions (5% 0f SI)


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Add On Covers

Terrorism Earthquake (Fire & Shock)

Spoilage Material Damage

Leakage and Contamination Cover (for oilsand chemicals only)

Temporary Removal of Stocks Clause

Loss of Rent Clause Insurance of Additional Expenses of Rent for

An Alternative Accommodation


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Customization


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Declaration Policy

For fluctuating stocks above 1 crorePremium adjustment at the end of policy,

refund maximum 50%

Basis of declarationOmission to declare

Two average conditions

No reduction in sum insured


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Floater Policy

For several specified locations where location-

wise sum insured can not be ascertained

One sum insured floats over all the locations

No floater extra for stocks floating within thesame complex/compound

Floater Declaration Policy

Amalgamation of floater & declaration conceptsMinimum sum insured Rs. 2 crores

Maximum refund 80%


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Reinstatement Value Policy

New for Old(?), for Buildings, P&M, FFF onlyNot for Stock

Applies only if property actually reinstated, elseclaim settlement on Market Value basis

Reinstatement should be completed within 12months (extra time allowed by company) ofdamage/destruction

Insureds option to accept settlement on RIV or

indemnity basisAverage Clause applies as usual. Often MVsettlement better that RIV settlement in case ofheavy underinsurance

New price of old asset if available as new today


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Other Clauses

Escalation(upto 25%) ClauseLocal Authorities Clause

Agreed Bank Clause

Contract Price Clause

Designation of property clause


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Fixing Sum

Insured


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Sum Insured

Recognized facts about Sum Insured

Always fixed by proposer

Is the limit of insurers liability

Is the amount on which rate is applied to determinepremium

Should represent actual value of property beinginsured

Over insurance means definite loss of premium

Underinsurance means a probable loss onoccurrence of claim


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Buildings

Below plinth / above plinthInclusion of embedded items like pipes, electric

& telephone wiring

Inclusion of Furniture, fixtures and fittingsValue to insure for?


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Valuation

Capitalized CostBook Value/WDV

Market Value

- Depreciation on merit

Reinstatement Value- CPWD rates

- Cost indices by National

Building Organization

Capitalized Cost Book Value RIV Market Value

1976 1000000 1000000 1000000 1000000

1986 1000000 300000 1500000 1200000

1996 1000000 102000 15100000 4080000

2006 1000000 39000 17340000 13872000


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Indicative Building

Depreciation

RCC construction 1%

Factory sheds with RCC frame 1-2%

Factory sheds with AC sheets roofs on

steel / wooden framework

2-4%

Other construction 2-2%


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Old plant might have undergone technologicalimprovements May be out of production Imported earlier, but available indigenously now P & M may be obsolete

Old P&M-RIV-from where?


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Plant & Machinery

Methods of finding RIV

Current replacement value of similar machinery, if

available, OR

Current replacement cost of available machineryLESS adjustments for improvements, OR

Landed cost of (imported) machinery, (+) Fall / (-)

Gain in value of Rs. Vis-a-vis foreign currency (+)

Inflation (foreign currency) (+) Increase / (-)Decrease in duty

Alternatively, inflate landed cost by RBI index


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Plant & Machinery

Book Value Market Value

For marketable P&M

For specialized P&M

Depreciation as per plant load, usage,

maintenance

Maximum depreciation and residual value

A special case of computers and other

electronic machinery


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Stock

Raw material-Cost at which material availableon the date & place of loss

Finished goods-Manufacturing cost includingoverheads, OR ex-factory cost MINUS sales

overheads and profit Imported goods-Contract price/Landed cost

Stocks In Process-Cost of raw material plusother inputs and processing cost

Waste Products: Commercial value asindicated by earlier sales


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Extra Protection

EscalationRemoval of debris

Architects, surveyor and Engineers fee

Omission to insure additions, alterations orextensions


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All India Fire Tariff


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Section I - General regulationsSection II - Policy Cover / Exclusion / Conditions

Section III - Non Industrial risk

Section IV - Industrial / Manufacturing risk

Section V - Utilities outside IndustriesSection VI - Storage risk outside Industries

Section VII - Tank farms / Gas holders outsideIndustries

Section VIII - Add-ons

Annexure A - Standard clauses

Annexure B - Standard proposal form


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General Regulations

For land based

properties only

Separate block wise SI

for bldg, machineries,

stock & SIP, FFF, other

contents


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General Regulations

STFI & RSMD could

be deleted at

inception

No partial insurance

Insured Uninsured


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General Regulations

SI increase any no. of times at prorata premiumEscalation 5%-25%, for B&M only

Claim experience discount/loading for SI>50 cr

in one location, 5-15% Discount, 2.5-15%loading

FEA discount, 2.5-10%

Silent risks


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Claims-The Acid Test


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Essentials

Intimation & surveyCoverage

- Date, risk, insurable interest, peril

Adequacy

Damage quantification

Policy conditions, warranties, clauses

Claim valuation & reinstatement adjustment

Salvage

Claim recipient & discharge

Recovery


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Salvage

An important component of most fire claimsInsured is the best buyer of salvage!

Hence, salvage needs special care and prompt

actionSalvage is adjusted before application of

underinsurance and excess

Branding issues


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Duties of insured

Common law duty to avoid/minimize the lossCost of minimizing losses payable by policy

Duty to give notice

Onus of Proof & associated duties-listed perilVs All risks policy

- Facts and only facts

- Figures, accurate and authenticated- Access to premises and records


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Rights of insured

To receive proper and dispassionate adviceTo receive a copy of proposal

Receive an offer of claim settlement within 30

days of the receipt of survey reportReceive penal interest in case of delay in claim

payment

Source: IRDA Policyholders protection regulations, 2002


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Rights of insurer

After claim- To enter, take & keep possession of thepremises

- To take possession of insured property

- To exercise removal, sorting or examinationetc of property

- To sell such property for account of all

concernedExercise of these rights does not prejudiceinsurers right to deny or diminish liability


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Irritants

Loss Valuation- Value at the time of loss

- Value at the place of loss

- Real or intrinsic value (sans sentimentalvalue)

Depreciation

Average ClauseExcess

Salvage Value


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The Golden Rule

Learn form others mistakes andavoid the usual pitfalls

Claims optimization begins at the

stage of buying insurance and not

after loss occurrence


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QUESTIONS?

Thank You

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