Fire Insurance
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Transcript of Fire Insurance
B. Rajasekhar
What is Insurance ?What is Insurance ?
Legal Definition :Insurance is a contractual arrangement whereby one party agrees to compensate another party for losses
Insurance is a branch of Insurance is a branch of Contract LawContract Law.
Financial Definition :Insurance is a financial arrangement that redistributes the costs of unexpected losses.
Insurance PoolInsurance Pool
Risk !Risk !
Risk is the exposure to the chance of loss or injury
Uncertainty about the outcomeIf a loss is certain : there is no riskPossibility that the outcome may be unfavorableAt least one of the possible outcomes should be undesirable
Ex : ParachuteInvestment in a capital asset Physical depreciation is ceratain
Peril and HazardPeril and Hazard
PerilIs cause of loss
HazardIs a condition that may create or increase the chance of a loss arising from a given peril
It increases the frequency and / or severity of the peril
• Physical Hazard• Moral Hazard• Morale Hazard
Elements of a Valid Elements of a Valid ContractContract
Offer and Acceptance Consideration
Capacity Legal Purpose
•Unconditional•Meeting of
Minds
Insurance Agents while soliciting new business
legally are not offering to sell insurance. They are only
inviting the insured to make an offer.
“Invitation to Treat”
•The value exchanged between
the parties to the Contract
Insured :•Premium
•Promise to follow the provisions and stipulations in
the insurance contractInsurer :
Contingent Promise
•Legal Capacity to enter into a
Contract
•An end or intention permitted by law
•Anti-social purpose are legally
unenforceable
Insurance ContractsInsurance ContractsDistinguishing CharacteristicsDistinguishing Characteristics
Principle of Indemnity
Insurable Interest
Actual Cash Value
Doctrine of Adhesion
Personal Contract
Utmost Goodfaith
Entire and Undivisible
Aleatory Concept
Policies are not transferable
automatically to new owners
The Policy and Proposal forms and other
documents filed at the time of insurance forms
one single contract Parties to the contract know in advance that the monies they will
exchange will be unequal
Exception :•Life, PA
•Reinstatement Policies•Valued Policies
More than one party may have an insurable
interest in the same propertyActual Cash Value :
Replacement value - Depreciation
Contra proferentum
Property TriangleProperty Triangle Movable / Immovable Animals / Insects / Birds / Fish Crop / Plantation
On Land Off Shore In Space In Course of Construction / Installation
While kept / Installed / Stored In Transit by Rail / Road / Water / Air Mechanically propelled Land Vehicle not on Rail
FLOP DSU
MLOPALOP
PROPERTY INSURANCE
FIRE MARINE
ENGINEERING
CAR EAR CPM MB EEI BPV
DOSCECR
Project Insurance
Project Insurance
Fire PolicyFire Policy
Is Location Specific
Is a Named Perils Policy
Cause of Fire is immaterial
Covers certain Non-Fire Damages
Spirit is to indemnify Direct Loss / Damage
WHO
WHAT
WHERE
WHEN
HOW MUCH
IS COVERED
IS INDEMNIFIED
FIRE INSURANCEFIRE INSURANCE
SUM INSUREDSUM INSURED
It is always fixed by the proposerIt is the limit of insurer’s liability under the policyIt is the amount on which the rate is applied to determine the premium payable for the insuranceIt should represent Actual Value at Risk of the property to be insuredOver insurance results in higher premium outgo with no extra benefitsUnder Insurance results in application of Condition of AverageDeclaration of Block-wise / Item-wise Sum Insured offers best results
Book Value
Market Value
Replacement Value /
Reinstatement Value
How to Fix Sum Insured How to Fix Sum Insured ??
Buildings, Plant & MachineryBuildings, Plant & Machinery
How to Fix Sum Insured How to Fix Sum Insured ??
StocksStocksRaw Materials :Net Cost at which the materials are available to the insured on the date of and at the place of lossInsured’s own expenses of storage, interest and such other “HOLDING CHARGES” NOT to be included
Finished Goods :Net Manufacturing Cost including Factory OverheadsIn other words, the Manufacturer’s Ex-Factory Price less Administrative / Sales Overheads and Net Profit
Goods in Bonded Warehouse :Sum Insured to include Excise Duty
Imported Goods :Contract Price
Stock-in-process :Cost of Raw Materials + other inputs and processing costs at any given time
Structure of a Fire Structure of a Fire PolicyPolicy
Preamble or Recital Clause
Operative Clause
12 Perils covered
13 General Exclusions
15 General Conditions
14 Add-on Covers
FLEXA
• FIRE
• LIGHTNING
• EXPLOSION
• AIRCRAFT DAMAGE
RSMTD
• RIOT• STRIKE• MALICIOUS DAMAGE• TERRORISM DAMAGE
STFI
• STORM• TEMPEST• FLOOD• INUDATION
OTHERSOTHERS
• IMPACT DAMAGE• SUBSIDENCE, LANDSLIDE• BURSTING and/or overflowing of water tanks, apparatus & pipes• missile testing operations• Leakage from automatic sprinkler installations• Bush fire
Fire MeaningFire Meaning
To be understood in its ordinary popular sense
There should be actual ignition of insured property
Which ought not to have been on fire
Under accidental circumstances as far as insured is concerned
The word Fire as used in the Fire The word Fire as used in the Fire Insurance policy covers the following Insurance policy covers the following
contingencies:contingencies:
Smoke, Scorching, Heat, Toxic Gases, Ash
Water or other fire extinguishing appliances used in putting out fire
Acts of Fire brigade in execution of its duties
Falling of wall as a result of fire
During removal from a burning building, caused by exposure to weather, the removal being made to mitigate the loss
Other Limitations to Other Limitations to “FIRE”“FIRE”
Its own Fermentation Natural Heating Spontaneous Combustion
Its undergoing any Heating or Drying process Burning of property insured by order of any Public Authority
• Excludes destruction or damage caused to the property insured by:
Limitations to Limitations to Explosion / ImplosionExplosion / ImplosionExcludes destruction or damage caused to
Boilers
Economizers or
Other vessels in which steam is generated
by their own explosion / implosion
Machinery or apparatus subject to centrifugal force
• However, destruction or damage caused to the domestic boilers by explosion / implosion is covered
Exclusions :Exclusions :
Policy ExcessPolicy ExcessRs. 10,000 for each and every loss
In case of AOG PERILS :5% of each and every loss subject to a minimum of Rs. 10,000
The excess shall apply per event per insured
However, for DWELLINGS : NO EXCESS
Exclusions :Exclusions :
War group of perils
Nuclear perils
Pollution or Contamination :
Excluding :• Resulting from insured peril• Insured peril resulting from pollution or
contamination
Exclusions :………Exclusions :………
Stocks in Cold Storage premises caused by change in temperatureArchitects, surveyors fees exceeding 3% of claim amountDebris Removal expenses exceeding 1% of the claim amountLoss of earnings, loss by delay, loss of market and other consequential and indirect losses
Spoilage of materials caused by insured perilsLoss by theft during or after operation of insured perilsEarthquake, Volcanic eruption or any other convulsions of nature Insured property removed from the insured premises
Equipment temporarily removed for repairs, cleaning, renovation or other similar purposes for a period of 60 days are covered
Exclusions :………Exclusions :………
Electrical ExclusionElectrical Exclusion
Loss or damage to any electrical machine, apparatus, arising from or occasioned by : over running excessive pressures, arcing, short circuiting, overloading, electrical surge etc.
this exclusion applies to the particular machine, apparatus
but not to other machines which may be destroyed
by fire so set up.
Excluded PropertyExcluded Property
Unless specifically stated in the policy
Goods held in Trust, Bullion, curios etc above Rs. 10,000 Manuscripts etc., Securities, documents, Money, Explosives
General ConditionsGeneral Conditions
1. Policy voidable in case of mis-representation, mis-description or non-disclosure
2. Policy will expire after 7 days from the date of fall of any building – if not caused by insured peril.
If the insurer expressly agrees to cover : the cover continues
3. Under the following circumstances the
insurance ceases :• Alteration of trade to increase the hazard• Insured building unoccupied by for more than
30 days• Interest in the insured property passes from
the insured other than by will or operation of law
General Conditions…….General Conditions…….
4. If Insured property is insured by marine policy, Fire Insurance will cover the excess claimed amount, if any, after marine policy pays
5. Cancellation6. Notice in writing to the Company
reporting the loss within 15 daysLaw of Limitation : 12 months
General Conditions…….General Conditions…….
7. Company’s right to enter the premises, take possession of the property
8. Fraud, willful act : policy void
9. Reinstatement option : • as circumstances permit• Reasonably sufficient manner• Sum Insured is the Limit• Because of any law, if the Reinstatement could not be done,
payment in money
General Conditions……General Conditions……
10. Average Clause
11. Contribution
12. Subrogation
13. Arbitration
14. All notices etc. in writing
15. Reinstatement of Sum Insured
after a loss
General Conditions……General Conditions……
Policies for Particular Policies for Particular ConsiderationsConsiderations
Valued Policies
Floater Policies
Declaration Policies
Floater Declaration Policies
3. Long-term Policies : for ‘Dwellings’ only
4. Mid-term Cover : For STFI & RSMTD : Specific advice with payment of additional premium in Cash or by Draft only Entire Property. No Selection Cover starts 15 days after receipt of Premium Premium on Short Period Scale
5. No Installment facility. Premium in full.
6. Minimum Premium : Rs. 100/-, Rs. 50/-
General RegulationsGeneral Regulations::
General RegulationsGeneral Regulations::
7. Partial Insurance :No policy for onlyonly certain portions of a
building( excluding plinth and foundationsexcluding plinth and foundations )No policy for onlyonly specified machinery,
parts of machinery ( except Boilersexcept Boilers )
Note : In case of different interests : Full interest.
Clearly defined in the policy.
8. Short Period Scale Extension of short period policies not permitted.
General RegulationsGeneral Regulations::99. . Loading for ‘Kutcha’ ConstructionLoading for ‘Kutcha’ Construction
Walls and / or Roofs of :• Wooden planks
• Thatched leaves, Grass, Hay
• Bamboo
• Plastic cloth, Asphalt Cloth
• Canvas, Tarpaulin
Loading : Additional rate of 4.00%o4.00%o
General RegulationsGeneral Regulations::10. Cancellation10. Cancellation
At the option of the Insured : • short period scaleshort period scale
If policy is replaced with same Insurersame Insurer by new annual one with identical propertyidentical property :
• Pro-rata on SI replaced• Short Period on SI not replaced
Short Period Policies : applicable short period scaleIf policy is cancelled on account of Govt. order, Building-in-course of construction, Buildings demolished : pro-ratapro-rataAt the option of the Insurer : Pro-rataPro-rata
General RegulationsGeneral Regulations::
11. Mid-term Increase in Sum Insured :Increase in SI : Pro-rataDecrease in SI : Short Period Scale
12. Escalation Clause :Max. 25%Additional Prem. : @50% of Tariff RateFor Buildings, P&M only. Not for StockFor Buildings, P&M only. Not for Stock
General RegulationsGeneral Regulations::16. Claims Experience Discount /Loading16. Claims Experience Discount /Loading
Min. SI : Rs. 50 Cr. ( Sec. IV,V,VI,VII )All property in one compound, one complex, one location Preceding 36 months excluding the expiring policy period.On renewal : either by existing or new insurer
When certified claims experience by respective insurers is not available - Provisional loading of 15%.
General RegulationsGeneral Regulations::17. FEA Discount17. FEA Discount
For all detached or segregated blocks
Sections : III, IV, V, VI, VII ( except Floater / Floater Declaration policies )
19. Silent Risk : 30 days30 days or more Storage rate or 1.00%o whichever is higher
No DiscountsNo Discounts for Silent risks
No Silent Rates if a risk goes silent following a loss under the policy
20. Voluntary Deductible Scheme
General RegulationsGeneral Regulations::21. Computation of 21. Computation of
RateRateThe following sequence shall be adopted for computation of rate :
1. Basic Rate
2. 5% reduction for Sprinklered blocks if applicable (Sect. III, IV, V, VI ).
3. Reduction in rates for deletion of STFI & RSMTD if opted out
4. Extra for ‘Kutcha’ construction ( on 1-2-3 )
5. Discount / Loading for Claims experience ( 1-2-3-/+4 )
6. FEA Discount on protected blocks (1-2-3-/+4 )
7. Discount for voluntary deductibles on the total premium calculated on the basis of final rate worked out as above
FuelCombustible Material
Oxy
gen
Air
Heat
Ignition
FIRETRIANGLE