a study of fire insurance with refernce to bajaj allianz general insurance

8/13/2019 A Study of Fire Insurance With Refernce to Bajaj Allianz General Insurance

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Bajaj Allianz General Insurance Co. Ltd.

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CHAPTER NO. 01

INTRODUCTION OF INSURANCE


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INTRODUCTION TO INSURANCE

1.1 Meaning of Insurance

As stated in the very beginning, insurance companies bear risk in

return for a fee called premium. Thus, insurance companies are risk

bearers. They accept or underwrite the risk in return for an insurance

premium. Accordingly, the term insurance may be defined as a co-

operative mechanism to spread the loss caused by a particular risk over a

number of persons who are exposed to it and who agree to ensure

themselves against that risk. Risk is, in fact, an uncertainty of a financialloss. Risk must not be confused with loss itself that is the unintentional

decline in or disappearance of value arising from a contingency. The

function of insurance include providing certainty, protection, risk sharing,

prevention of loss and capital formation. Wherever there is uncertainty

with respect to a probable loss there is risk. The insurance is also defined

as a social apparatus to accumulate funds to meet the uncertain lossesarising through a certain hazard to a person insured for such hazard.

Insurance has been defined to be that in which a sum of money as a

premium is paid by the insured in consideration of the insurers bearing

the risk of paying a large sum upon a given contingency. The insurance,

thus, is a contract whereby: -

Certain sum, termed as premium, is charged in consideration

Against the said consideration, a large amount is guaranteed to

be paid by the insurer who received the premium.

The compensation will be made in a certain definite sum, i.e., the

loss or the policy amount whichever may be, and the payment is

made only a contingency.


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1.2 Introduction To Insurance

Insurance is a tool by which fatalities of a small number are

compensated out of funds (premium payment) collected from plenteous.

Insurance companies pay back for financial losses arising out of

occurrence of insured events, e.g. in personal accident policy death due to

accident, in fire policy the insured events are fire and other allied perils

like riot and strike, explosion, etc. Hence, insurance is safeguard against

uncertainties. It provides financial recompense for losses suffered due to

incident of unanticipated events, insured within policy of insurance.

Moreover, through a number of Acts of parliaments, specific types of

insurance are legally enforced in our country, e.g. third party insurance

under Motor vehicles Act, public liability insurance for handlers of

hazardous substances under Environment Protection Act, etc.

Insurance, essentially, is an arrangement where the losses

experienced by a few are extended over several who are exposed tosimilar risks. Insurance is a protection against financial loss arising on the

happening of an unexpected event. Insurance companies collect premium

to provide security for the purpose. As loss is paid out of the premium

collected from the insuring public and the insurance companies act as

trustees to the amount so collected. Insurance companies have standard

proposal forms, which are to be filed up giving the details of insurancecompany. Depending upon the answers given in proposal form insurance

companies assess the risk and quote the premium. On payment of

premium and acceptance thereof by insurance company the insurance is

affected. Nonetheless, there is no insurance cover if premium is not paid.


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CHAPTER NO. 02

INTRODUCTION OF FIRE

INSURANCE


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2.3 Characteristics or Nature of Fire Insurance

It is a means of security against risk of fire on any material or property.

It is an indemnity contract.

The insurer undertakes to indemnity the insured against actual loss

subject to the maximum limit of sum insured.

It is contract of utmost good faith; the insurer and the insured must

disclose all material facts relating to the subject matter of insurance.

A fire insurance policy is usually issued for one year only with option to

the parties to renew it for a further period on payment of stipulated

premium.

If the property is insured with more than one insurer, and on loss by fire,all the insurers are called upon to contribute towards the claim.

The insurer is not liable for payment of any claim if the fire is caused

deliberately.

In British Law, the fire insurance policies can be assigned only with prior permission of the insurer, but under Indian Law the consent of the insurer

is not necessary to make valid assignment of policy, only a notice of

information is sufficient.

On occurrence of fire, a notice of fire should be given to the insurer so

that the insurer may take prompt steps forthwith to safeguard his interests,


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in dealing with salvage and also judge the cause and nature of fire, and

the extent of the loss.

It is the duty of the insured to act as a man of ordinary produce to take

necessary steps to save the property from loss of fire, as in the absence of

any insurance against the property.

2.4 Meaning of Fire

The word fire means loss by fire and i n literal sense means a fire

has broken bounds. Therefore fire, which is used for ordinary domestic

purposes or even for manufacturing, is not fire. Fire in fire insurance

must have the following two features:

Production of ignition, light and heat.

Fire by accident.

2.5 Definition of Fire

According to Justice Boyles (in Everett vs. London

Association Company 1885) Fire means the production of light and heat

by combustion and unless there is actual ignition there is no fire within

the mean sing of term in ordinary policy.


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2.6 The various loss caused by fire

The losses by the following instances or losses subsidiary to

fire are as follows:

Damage, which occurs as a result of smoke or of putting out the

fire, would be covered by the fire risks.

Any loss resulting from apparently necessary and bona fide efforts

to put out a fire, whether it be by spoiling goods by water, or

throwing articles of furniture out of the window, are covered by

the fire risks.

Even by damages to a neighboring house by explosion done for

the purpose of arresting fire, would be covered by the fire risks.

Every loss directly, or if not directly at least consequentlyresulting from the fire is within the policy (In Stanley vs. Western

ins. Co., 1968).

Loss by theft during a fire is covered as a fire risk (In Levy vs.

Bailey, 1831).

Even loss by fire caused by the insureds negligence is covered by

the policy (In Harris vs. Poland, 1941).


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CHAPTER NO. 03

NATURE AND USE OF FIRE

INSURANCE


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3.3 Causes of Fire

Fire waste is the result of two types of hazard viz., physical and

moral.

a. Physical Hazard

It refers to the inherent risk of fire in the property, which

may occur due to inflammable nature, construction, artificial

lighting and heating, lack of extinguishing apparatus use of the

property etc.

b. Moral Hazard

The moral hazard depends upon the man as physical hazard

depends on the property. The property may be set on fire by the

owner or by any person with his willingness, carelessness and lack

of sense of duty may also increase the fire waste. Sometimes, when

market price is going down the owner can willingly set fire on the

property and gain from the payment of insurance money. Thus,

where the property was destroyed with the willingness of the property owner, moral hazard exists.

c. Prevention of Loss:

Insurance is meant for indemnification of loss and not for

prevention of loss although every reasonable step can be taken to

eliminate it or minimize it through the agencies engaged in

prevention of loss. Thus, insurance may help in two ways:I. Indemnification and

II. Preventive Efforts.

I. Indemnification or Curative Efforts: - According to doctrine of

indemnification, the financial loss suffered by the perils insured against will

compensated in full, not more than this and not less than this. The insurance


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provides protection by indemnifying the financial loss suffered by insured

person, which occurred beyond the control of insured and insurer.

II. Preventive Efforts: - The loss cannot be prevented by insurance. But, the

insurers help those who are engaged in the preventive efforts by granting

financial and other assistances. This will benefit insurers as well because if the

loss of society is reduced, they can charge lesser premium, which will stimulate

the public of insurance. Fire insurers stimulate the installation of protective

devices and better types of construction through granting credit. They help in

installation of fire-fighting apparatus, water supply and engineering services.

Preventive efforts are divided into two parts:

Private activities and

Public activities

Private Activities:Private Activities are those which include those activities which the

property owner may engage in for the purpose of preventing fire loss.

Insurers give sincere advice of financial help to property owner on the

following factors.

Construction In construction of building, fire resistive materials, fireproof

construction, greatest care in exercising selection of the type and

planning of the construction, availability of fire extinguisher, water

supply, etc.


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Fire Services

The important thing is to extinguish fire before it reaches

large proportions. The owner should consider equipping his building

with an automatic sprinkler system. Similar fire fighting equipment

may be established. Insurers with the help of fighting associations can

provide such services.

Occupation

There are considerable hazard in certain occupation e.g. in

oil or coke or chemical industry. Insurance in these concerns isavailable at higher rate. Insurance help by stimulation and charging

lesser premium in fire fencing occupation.

Management

Good management of property may reduce the chances of

fire. Carelessness and indifference cannot be over emphasized becausethese increase the chance of fire.

Exposure

Fire insurance rates are determined on the basis of possibility

of exposure. Fireproof services may reduce the chances of exposure to

a greater extent.

Public Fire Prevention Activities:

Fire insurers have performed numerous important services to

reduce the fire waste with the help of public institutions, which are

engaged in fire fighting activities.


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Community Surveys

Engineering survey of the cities and localities is made. As a

result of its investigation many have improved their fire departments,

water supplies and other facilities involved in the protection against

fire.

Standard Schedule For Grading Cities

Under this schedule a number of cities, town, or Mohall as

are divided, according to fire preventive devices. The deficiencies in

each party sorted out and attempts are made to remove them. 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.

Equipment

Fire can be properly checked only through the possessionand maintenance of adequate equipment, personnel fire alarm system

and water supply. The Fire Protection Association can determine fire

fighting apparatus and equipment for any city or town.

Salvage Corps and Salvage Works By Fire Departments

The chief aim of the corps is to protect property from

unnecessary smoke and water damage. The protective benefits areextended to all those who suffer fire damages regardless of whether

they are insured or not. Training school and colleges are, sometimes,

engaged in giving general education to all and particular education to

few students to train them in fire fighting methods and fire preventive

methods.


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Legislation and Regulation

National Board of fire unde rwriters fire brigade and other

such associations are engaged in fire preventive and protective efforts

under a certain law. The property owner and the fire protection

engineer must keep in mind the numerous legal requirements relating

to the various phases of fire prevention.

General Devices

Apart from the above contribution to prevention protection, the

following devices are utilized for preventing the losses.i. The insurer compensates loss at a reasonable cost.

ii. Serious hazards are to be cooperatively reinsured.

iii. Loans are provided for better construction and building.

iv. Fire insurers stimulate the installation of protective devices to

reduce losses.

v. Fire fighting methods are organized with public utility concerns.vi. Insurers investigate the causes of loss and attempts ate made to

reduce the causes.

Insurers study various devices for fire proof, protection and

problems of special processes. Periodical examination of insured

property is made and instructions are issued for the purpose of

investigation.


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CHAPTER NO. 04

SCOPE FOR FIRE INSURANCE


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SCOPE FOR FIRE INSURANCE

A contract of fire insurance is a

contract whereby the insurer agrees, in

consideration of a sum of money called

premium, to compensate another person

known as the insured for any loss or damage

to the insured property. The contract specifies the period during which the

indemnity is to last and also the maximum amount to which the insurer

can be held liable.

The need for fire insurance arises out of the following facts: There

exists material property susceptible to damage or destruction by fire or

other peril.

1) That such material property has intrinsic value measurable in terms

of money.

2) The occurrence of fire will result in not only loss or damage to

material property, but also other consequential loss such as loss of

production, etc. in order to make the insurer liable for the loss under

the fire policy the following two conditions must be satisfied:

I. There must be fire in actual sense or ignition, and

II. The fire must be accidental.

Ignition

There must be actual ignition. This means that loss or damage must

be by fire. The cause of fire is not important but it should be proved that

loss was caused by fire. Ignition means burning and therefore the

presence of flame is a precedent condition.


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Fire Must Be Accidental

Any loss caused by willful consent does not come

under the term fire. There must be an accidental fire and not intentional.

This applies only to the insured.

Section 2 of the Indian insurance act, 1938, states the scope of fire

insurance to include:

1. Fire insurance business is different from other insurance

business in operation and covers the risk caused by fire.

2. In addition to the risk caused by fire, it also includes other riskand occurrences, which can be customarily, be included among

risks insured under fire insurance contracts.

3. Thus we can divide the total scope of fire insurance into two

parts, or the scope of fire insurance may be studied from two

angles, viz.,

Ordinary scope of fire insurance

Comprehensive scope of fire insurance

1. Ordinary Scope Of Fire Insurance

Ordinary fire insurance products includes those risks, whichdefine the narrower scope of fire insurance viz., the losses caused

by fire only. As such, under the fire insurance contracts the claims

for losses by fire must fulfill two basic conditions.

a. There must be actual fire or ignition

b.

The fire must be incidental, not intentional


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c. Risks covered under fire insurance

The risks causing losses must be mentioned under fire

insurance policy and only those risks are indemnified by the

insurer in case of loss. Usually, the following risks caused by fire

are covered under fire insurance.

i. Fire or ignition.

ii. Blasting of boiler used for household purposes.

iii. Blast of gas cylinder used for household cooking.

iv. Blast of gas etc. used for the purposes of lightening and

heating in any building.d. Risks not covered under fire insurance policies

These are the risks for which insurance company do not

indemnify the insured in the case of loss.

i. Some goods and properties are not eligible for insurance

under fire insurance policies such as: precious stones and

metals, articles, maps, stamps, cheques, goods or propertieskept under trust, account books and records, archives, and

rare documents and writings, etc.

ii. Losses caused by certain uncertain events such as riots, civil

disturbances, revolutions, wars, aggression, internal

emergencies, marital law etc., natural calamities like

earthquakes, storms, cyclones, floods, drought, excessiveheat or cold eave.

iii. Spontaneous fire in jungles or bushes.

iv. Spontaneous combustion caused by chemicals.

v. Theft during fire or after the breakout of fire.


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2. Comprehensive Scope of Fire Insurance:

Various types of policies are available in the form of fire

insurance policies, which cover various types of risks allied to the risk of

fire. Coverage of such risks under the purview of fire insurance has

widened the scope of fire insurance. Some special policies have helped in

a great way in broadening the scope of fire insurance in the following

manner:

(i) By including the excluded perils and risks.

(ii) By including consequential losses and other indirect fire risks.

In the first category, such excluded risks, which cannot be

insured under general insurance schemes or policies, have been included

under the cover of fire insurance. Such policies are called special perils

insurance relating to spontaneous combustion, earthquakes, blasts etc.

In the second category, such indirect risks and losses are covered.

These are called consequential losses or risks.


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SIGNIFICANCE OF FIRE INSURANCE

The industry, trade and commercial articles have been developing and

diversifying at faster rate in India. Along with the growth of industrial and

commercial articles the infrastructure fields like transport, communication,

finance, advertising, stock marketing, etc., have also been developing

continuously so as to cope with the pace of economic development. The

importance of foreign trade also has been very much for a developing country

like India. All these developments in various fields brought in much risks and

uncertainties in business activities. Insurance is the only field that provides

security, against business risks. The role of fire insurance has been increasing

day-by-day as a means against destruction or damage of business property

caused by fire.

The significance of fire insurance can be discussed under the following

points:

As A Source For Minimizing Losses:

Fire can destroy property in goods and fixed assets of crore of rupees or

can create damages to the business property. Fire insurance indemnifies losses

or damages done to fire and resources the mental worries of businessmen.

Decreases In Probabilities of Fire Losses:

The increasing uses of energy petrol like electricity, gas and other such

items have increased the probability of losses or damages to goods and

property. In order to minimize this calamity, various types of fire extinguishing

devices have been destroyed throughout the world. Moreover, the fire insurance

is another device to indemnity the losses thus removes mental worries by

extending financial support.

Increase In Production of Fireproof Materials:


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Fire insurance cannot prevent occurrence of fire, but can reduce the

losses. Today various devices are produced in the country like fire extinguisher.

Fire brigades are set up at every cities and towns to extinguish fire by the

government and local bodies.

Decrease In Social Loss of Fire:

Social awareness has been created in the country to put out fire and to

reduce the effect of fire. The social organizations provide training to the people

in the use of such items given below.

i. Assets Valuation:Assets are valued for obtaining a fire insurance policy. It requires the

insured to be more cautious in protecting his property or goods.

ii. Loss Preventing Efforts and Advice By The Insurer:

An insurer not only indemnity against fire losses, but also advices the

insured to reduce the incidence of fire. Fire insurance companies establishes,salvage corps, to extinguish fire so that the extent of loss can be minimized.

iii. In Business Progress:

Due to the facilities provide by the insurance companies, the business

enterprises undertake large-scale production, and invest in business and

marketing activities without any botheration. This lead to continuous progress

in industrial and commercial activities, leading to extinguish fire so that theextent of loss can be minimized.

iv. Beneficial For New Industries:

The new industrial units usually face complex problems of production,

finance, competition and sales etc. In such a situation, they cannot afford the

losses/damages due to fire. The fire insurance relives such entrepreneurs from

worries, by indemnifying the loss/damages, if any, from the occurrence fire.


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v. Credit Facility:

Where the assets are secured by fire insurance, it becomes easier for

such enterprises to get credit from banks and other financial institutions. This

will increase the credit worthiness of the enterprise.

vi. Distribution of Risks:

Fire insurance is effective device to distribute the risks in a group,

enabling the individual or the institution to maintain its efficiency.


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Bajaj Allianz General Insurance Company:

Allianz AG:

Allianz group was founded in 1890 and is one of the world's leading insurance

companies with over 100 year's experience in insurance and related services. It

is also the largest insurer in Europe. Allianz group has multi-local structure and

presence in over 70 countries. The key business areas of Allianz group include

General Insurance (property, engineering, marine, motor, casualty and

miscellaneous), Reinsurance, Risk Management, Life & health insurance, Asset

Management and Pension Funds Management.

Bajaj Auto Ltd.

Bajaj Auto Ltd the flagship company of Bajaj Group was incorporated in 1945

as Bachraj Trading Corporation. Initially it started by assembling two and three

wheelers in collaboration with Piaggio of Italy. After the expiry of the

Agreement in 1971 the two and three wheelers acquired the brand name ofBajaj. The strength of the company lies in its strong brand image and ability to

offer value for money products leveraging on its large-scale operations.

The Joint Venture

Bajaj Allianz General Insurance a joint venture non-life company promoted

jointly by Bajaj Auto and German insurer- Allianz. Indian auto major holds74% while Allianz holds 26% in the Joint Venture, and has an authorized and

paid up capital of Rs. ll0 crores. Mr. Graham Norris is the CEO of the company.

Bajaj Allianz General Insurance will leverage the customer base and expertise

of Bajaj Auto Ltd and Allianz.


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Bajaj Allianz General Insurance Products

o Personal Accidento Hospital Cash Daily Allowance Policy

o Health Guard

o Critical Illness

o Burglary Insurance

o Householders Insurance

o Travel Companiono Fidelity Guarantee Policy

o Office package

o Money Insurance

o Public Liability

o Plate Glass Insurance

o Consequential Loss (Fire) Insurance Policy


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Performance of the company over the last few years

Despite conditions which were not conducive for growth of gross premium, thecompany managed to maintain a growth rate which was more than twice that of

the market. The companys gross written premium (excluding share of premium

from the IMTPIP), grew by 33.3% during 2007-08 and, despite intense price

competition, company maintained its second position among the private sector

companies in terms of gross written premium. The market share of company

(excluding premium of specialized insurers) increased from 7.2% in 2006-07 to8.5% in 2007-08. Including the share of inward reinsurance business from the

IMTPIP, the growth rate would have been 43.0%. During 2007-08, company

clocked gross written premium of Rs. 24,045 Mn excluding share of business

from the IMTPIP as compared to Rs 18,033 Mn in 2006-07. Including share of

inward business from the IMTPIP, the gross written premium amounted to Rs.

25,780 Mn. On account of companys policy of steadily increasing its

retention in line with its capital base, the ne t earned premium for the year

(excluding net premium from inward business of the IMTPIP), rose to Rs.

13,266 Mn, an increase of 58.6% over the previous year of Rs. 8,366 Mn.

Including the net premium arising out of the share of business from the IMTPIP,

the net premium for the year 2007-08 was Rs. 14,134 Mn. Although de-

tariffication had an adverse effect on the price per policy, the number of policies

sold continued to grow. In the year under review, company sold 6.61 Mn.

policies as against 4.90 Mn. policies sold in the previous year. This growth

indicates that despite severe price competition, more customers preferred

companys service offerings, drawn by its strong brand image, convenience of

buying and satisfaction with its service levels. The total incurred claims for the

current year including actuarial provisions but excluding share of claims of the

IMTPIP, were Rs. 8,375 Mn. as against Rs. 5555 Mn. in the previous year. The


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number of claims reported during the year was 413,281 as compared to 309,160

in the previous year.

As on 31st March 2008, Bajaj Allianz General Insurance maintained its premier

position in the industry by garnering a premium income of Rs. 2578 crore,

achieving a growth of 43 % over the last year.Bajaj Allianz has made a profit

before taxes of Rs. 167 crore and is the first company to cross the Rs.100 crores

mark in profit after tax by generating Rs. 105 crores.

In the first quarter of 2008-09, the company garnered a gross premium of

Rs.733.53 crores against Rs.573.73 core last year for the same period

registering a growth of 28%.

Bajaj Allianz today has a countrywide network connected through the latest

technology for quick communication and response in over 200 towns spread

across the length and breadth of the country. From Surat to Siliguri and Jammu

to Thiruvananthapuram, all the offices are interconnected with the Head Office

at Pune.


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PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE

The steps to be followed in connection with affecting fire

insurance are as under:

I. Selection of Insurer: The selection of the insurance company is the first

step. The insured is required to select a suitable company for this purpose

amongst a large number of companies engaged in this business.

The proposer can select any of these companies according to his

convenience, rationality, goodwill of the company, its financial soundness,

premium rates, policies and service provided etc.

PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE

II. Presentation of Proposal In The Prescribed Form: After the selection

of the insurance company a proposal form is obtained and furnished with

the insurer or his agent. The particulars about the name, address,

occupation of the proposer, value and nature of the subject matter of

insurance, type of policy required, amount of sum insured, etc. are to be


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furnished with care and utmost good faith. All the facts about the subject

matter should be clearly disclosed.

III. Evidence of Goodwill: The proposer is required to furnish a certificate as

evidence of his goodwill along with the proposal. The formal of this

certificate is given with the proposal form itself. Usually, the insurance

agent certifies that he knows the proposer for a period time and his

reputation is good in the society. In case the proposer will be asked to

furnish such evidence from any reputed person in the society.

IV. Recommendations By Agent: The agent also gives his recommendations

in the proposal form at the place provided for this purpose. The insurer

takes the decision to accept a proposal keeping in view of the

recommendations given by the agent.

V. Survey of The Subject Matter: When a proposal for fire insurance isreceived in the office of the company, it makes a thorough study of the

proposal and if necessary, a survey of the subject matter of insurance is

conducted. Such a survey is conducted by expert surveyors, who will go

into enquire about the conditions of the subject matter, surrounding

situations of the subject matter, risks involved etc. The surveyors also

verify the accuracy of the details furnished in the proposal.

VI. Report by Surveyors: After the survey, the surveyors present a report to

the insurance company. This report will state the physical and moral

hazards involved in the proposal. This report serves as an important base

for determining premium.


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VII. Acceptance of Proposal: After determination of premium on the basis of

risk involved, the proposal is accepted and intimation is sent to the

proposer asking him to pay the premium within a specified period of

time. If the surveyors present an adverse report, the proposal is rejected

and a regret letter is sent to proposer.

VIII. Depositing of Premium Money: A lawful contract between the insured

and the insurer is entered into, when the premium money is deposited by

the insured. The risk commences as soon as the premium is remitted.

IX. Issue of Cover Note: As soon as the premium money is deposited, the

insurer issues a cover note (a provisional policy) indicating there is that

the insured has deposited the premium and the insurer has accepted the

proposal. On issue of absolute policy the legality of the cover note ends.

A cover note can also be insured pending the process of survey of the

subject matter and the premium has not been determined.

X. Issue of Insurance Policy: When all the requirements under the risks

have been complied with, the insurer issues the policy duly stamped and

containing all terms and conditions. These terms and conditions define

the mutual rights and liabilities between the insurer and the insured's.


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CHAPTER NO. 07

BAJAJ ALLIANZ FIRE INSURANCE

RATE FIXATION


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BAJAJ ALLIANZ FIRE INSURANCE RATE

FIXATION

Rate fixation on scientific basis in fire

insurance is still not fully developed as in the

case of life insurance. Under fire

insurance, after the inspection of risk,

physical hazards can be assessed but moral

hazards cannot be assessed properly.

Therefore, rate fixation is different. The past

experience can only be used as a guideline for the estimation of risk. While

fixing the rates of premium for different risks in fir insurance, the insurer must

ensure that the calculation work is carried out as accurately as possible.

Thus, the rate so determined should cover the probable claims and the

premiums must be equitable, stable and consistent.

System of Rate Fixation

Actual process of rating consists of two steps:

Classification,

Discrimination, and

Scheduled rating.

Classification :

The classification rating method is based upon the

experience of several years and of several persons and therefore

can be considered as superior over the personal judgment method.

Under this method, risks are classified according to their loss

experience. Properties have been classified into three categories.

i. Ordinary


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ii. Hazardous, and

iii. Extra hazardous

Therefore different premium rates are to be fixed for

each class. While fixing the rate the following points are to be taken into

consideration:

Construction:

The construction of the building has a great

impact in the fixation of the rate. Buildings made of

bricks are sound than wooden buildings. A fireproof building is considered better than a without fireproof

building.

Occupancy:

Occupancy means the use of the building. The

building may be used for various purposes, as forexample, general shop, hardware store, and go down

and for residential purposes.

Flooring:

The wooden floor in the building its an

accidental hazard and is worst than stone flooring. Incase of fire, wooden floor prove a bad risk.

Height:

The height is an extra physical hazard for

rating. The sky scrapper buildings have proved a very

bad risk in case of fire.


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Lighting, heating and power:

Short circuits may lead to fire and faulty

installation may result in combustion.

Situation:

The location, the adjoining premises, the

distance from the fire brigade station or water supply

point and congestion are all-important sources for

considering the fire risk rating.

Discrimination:

Discrimination rate system is very old system of rate fixation

in fire insurance. Under this method, premium rates are dependent

upon the judgment of a person skilled in the fire field. All the bad

factors and good factors are put together and the rate is to be

calculated. The method has many shortcomings because personal judgment may differ and different rates may be determined to the

same risk by the different companies.

Under this method the most important factor, which

influences the rate fixation in fire insurance, is the discrimination,

i.e. differentiation. Every risk is considered individually.

Schedule Rating:

Under this system of rating a normal property is considered

as standard and for each standard risk a standard premium i s

charged. For any defect, addition is made in standard premium and

for good feature deduction is made. The main advantage of the

schedule rating is that it provides equitable treatment for all risks.


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A scheduled rate means a standard rate of premium or an

average premium. The average premium rate for a particular class

of risk is determined taking into the account the total loss and the

sum insured during a period of years. For finding out the average

rate percent, the following formula is applied: the average rate

percent (R) = L/V x 100 where, R = average rate percent, L

represents Loss, V represents the total sum insured of the subject

matter. The gross or office premium is called the Normal rate or

average rate of premium. As discussed above, eac h class of risk

may differ from one another and therefore the principle ofdiscrimination may also be applied.


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CHAPTER NO. 08

BAJAJ ALLIANZ FIRE INSURANCE

CONTRACT


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BAJAJ ALLIANZ FIRE INSURANCE CONTRACT

Fire insurance contract may be defined as an agreement whereby

one party in return for a consideration undertakes to indemnify the other

party of certain defined subject-matter being damaged or destroyed by fire or

other defined perils up to an agreed amount. The party responsible to

indemnify the loss is called the insurer, the party who is to be indemnified is

called the insured, the consideration for the contract is termed the

premium, the defined subject matter is termed the property insured the

sum set forth in the contract is called the assured sum, and the document

containing the terms and conditions of the contract is known as the policy.

8.1ELEMENTS OF FIRE INSURANCE CONTRACT

1.Features of General Contract:

All the features of general contract are also applicable to the fire

insurance contract.

A . Proposal:

The proposal for fire insurance can be made either verbally or in

writing. The proposer gives the necessary description of the property to be

insured. In practice the printed proposal form is used for the purpose.

Introduction, type of properties, value of properties, construction, occupation,etc., are the various information, which are required by the insurer. The answers

to these questions must be completely correct. The assured must disclose all the

material facts and should observe utmost good faith. The description of the

subject matter of insurance is the basis of the contract for assessing the risk and

fixing the premium.


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B. Acceptance:

On receipt of the proposal form, the insurer will assess the risk.

Sometimes, when the contents and subject matters are not of very high amount,

the insurer may accept on the basis of proposal forms only. When the subject-

matters is of larger magnitude and where the hazard involved is of a variable or

unknown nature, the insurer may send his surveyor to survey the property. The

surveyors being expert in the field of insurance evaluation will consider the

proposal in the light of this report. The unknown proposes are required to

submit an evidence of respectability. The insured is required to submit a

certificate from some known and respectable person about honesty andintegrity. As soon as the proposal is accepted, the assured is informed about the

decision.

C. Commencement of Risk:

The risk commences as soon as the contract is completed provided there

is no specific time for the purposes. As soon as the proposal is accepted, risk

will commence irrespective of the fact that no policy was issued and no premium was paid. Where risks are unknown and tremendous, the payment of

premium will be the basis of the completion of the contract. The risk will be

commence only when the premium has been paid and not before that; when the

policy has been issued, payment of premium will not be the basis of

commencement of risk.

a. Cover Note:

The insurer issues a Cover Note or Interim

Protection Note when the risk was accepted provisionally or

subject to the condition of payment of premium. This note will

cover the property so far the final policy has not been issued. If


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loss occurs before issue of policy cover note will be sufficient to

prove insurance. The cover note, however, is not taken at par to the

policy.

b. Policy:

The insurer issues a duly stamped policy which will

bear all the terms and condition of the contract. Any contract of fire

insurance comes within the meaning of the word policy. It is a

different statutory and formal document of insurance contract.

There are a standard form is also used. The policy contains the

name and address of the insured, the subject matter of insurance,the sum insured, the term and the premium. There are various

clauses governing the conditions of insurance contract. The terms

and conditions of the policy can be changed.

c. Period of Fire Insurance Policies:

Usually fire policies are issued for one year and are

called Annual Insurance. Policies issued for a period shorter thanone year are known as Short -Term Policies and those issued for a

period more than one year are called Long -Term Policies. But in

practice only annual policies are co mmon. Short -term and Long -

term policies are rarely used. Long -term policies are generally

issued in case of building. Alteration in the policy will be made

according to the change in building and terms of insurance. The premium rate is determined according to the nature, location, and

construction of the property.

Moreover, the period of insurance is also taken into

account for computing premiums.

d. More Than One Fire During A Period:

When there is more than one fire in respect of the

same subject matter insured, the insurer is not bound to pay more


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than the sum assured. During the policy-life, payment of each loss,

automatically, reduces the amount of the policy by the amount so

paid. When, after payment of certain losses, the property insured is

totally destroyed, the insurer will pay loss not more than the

balance of insured amount remaining after compensation of the

previous losses.

However, if the insured is willing to get payment of

full loss, he can reinstate the assured sum to the original amount by

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

e. More Than One Policy:

If the same subject matter is insured with more than one

insurer, he cannot realize more than the actual loss from all the

insurers. Each insurer will pay his ratable proportion of loss to the

property insured against fire. If there is average clause, then the

insurers will pay accordingly.


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CHAPTER NO. 09

PRINCIPLE OF FIRE INSURANCE


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PRICIPLE OF FIRE INSURANCE

A. Insurable Interest: Insurable interest is the general principle of insurance

without which insurance cannot lawfully be enforced for an insurance

unsupported by an insurable interest would be a gambling transaction.

Insurable interest will be there where the subject matter should be in such a

position that the insured may suffer loss at the time of damage and may

gain by its protection. The insurable interest in fire insurance must be present at the time of contract and at the time of loss. Insurance contract

will be invalid if the property is sold to another party. Similarly if there is

no insurable interest at the time of insurance, the contract will be invalid.

The following conditions must be fulfilled to

constitute an insurable interest.

There should be a physical object capable of being damaged or

destroyed by fire.

The object must be the subject matter of insurance.

The insured must stand in such relationship as recognized by law

where the insured is benefited by the safety of the subject matter or

be prejudiced by its loss.

The insurab le interest is the pecuniary interest. The

fire insurance is a personal contract between the insured and the insurer.

So, the transfer of interest would invalidate the contract.

The following persons have insurable interest in the

subject matter concerned.

The owner of the property or asset whether fixed or

current has as insurable interest whether he is the legal owner or the

equitable owner. The owner may be a single or joint holder. Partial owner


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can take policy for full value as trustee of all the property. A life tenant

entitled to the use of the property during his lifetime only has an insurable

interest.

An agent has insurable interest in the property of his

principal.

A creditor has an insurable interest in the firms

property.

A creditor has an insurable interest in property on

which he has a lien for the debt.

An insurer has it in respect of risks underwritten byhim for the purpose of reinsurance.

Where the subject matter is mortgaged, the mortgagor

has an insurable interest in the full value thereof and

the mortgage has an insurable interest in respect of

any sum due to become due under the mortgage.

A bailee can insure any article or property bailed. Hemay be a gratuitous bailer or bailee for reward.

A trustee has insurable interest in the property put on

trusteeship.

B. Principle of Good Faith:

The contract of fire insurance is one in which the

observance of the utmost good faith uberrima fides by both the partiesare of vital significant. The utmost good faith in fix insurance has two

aspects first, disclosure of material facts and second, preservation of the

property insured.

The insurer and the insured must furnish detailed

information regarding the subject matter to be insured. The insured,

since he has more information about the subject matter, must disclose allthe information asked truly and fully. The assured is also required to


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disclose all the material information which are known to him although it

was not asked by the insurer; material fact is one which influences the

decisions of the insurance. The decision may be pertaining to the

acceptance or declination or determination of the premium. In case of fire

insurance the examples of material facts are construction of buildings. If

the assured has not observed good faith, other party can avoid the

contract. It was immaterial to plead that the insured was unaware of the

fact and could not disclose. In a given circumstance, it is expected from

the insured to know all the material facts. The insurer has also to disclose

such material facts as are within his knowledge.The second phase of good faith is preservation of

property. Thus, the observance of good faith is necessary not only during

the negotiations of the contract but throughout the term of the policy and

in making claims. Any change after commencement of risk must be

communicated to the insurer. The insured or his agents as well as the

insurer must take all such steps as may be reasonable for averting orminimizing loss. Since the insured is near to the property, he must act to

prevent the fire and if fire occurred, he must do his utmost to extinguish

it. In such cases he must act as if he was not insured.

C. Exceptions: In the following circumstances, the insured is not

required to disclose information.

All those circumstances which diminish the risk.

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

known to the insurer.

Information, which are of common knowledge.


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Those facts, which the insurer in the ordinary course of his

business ought to know, or which the insurer ought reasonably to

have inferred from the details given.

Those facts, which are superfluous to disclose by reason of a

condition or warranty.

D. Principle of Indemnity:

The doctrine of indemnity aims to compensate the

insured for a loss sustained, and the compensation should be such as to

place him as he occupied immediately before the occurrence. The insured

cannot claim anything in excess of the amount required to recoup the

actual loss sustained. The insurers undertake to make good the insured's

loss by monetary payment or by reinstatement or replacement so that the

insured shall be fully indemnified, but this is subject to the sum insured.

The law does not sanction any insurance, which would enable the insured

to profit by the destruction of the thing destroyed. It will check thetemptation to destroy the property insured thereby to secure the money.

The assured amount is not the measure of indemnity but

it sets an upper limit up to which the loss can be indemnified. The actual

amount of indemnity will be the market value of the subject matter

destroyed or damaged by fire at the time and place of the occurrence of

fire. It will never exceed the assured amount. When the actual loss ismore than the assured amount then only the insured sum will be paid and

nothing more is paid. But, this principle does not hold good when the

policy is valued policy. Here, the basis of indemnity will not be the actual

cash value of the property at the time of loss but the insured value, which

is named in the policy when it was taken. In a valued policy, no

consideration is given to the actual loss. Thus, the amount of claim may


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be greater or less than the actual loss at the time of fire in case of valued

policies.

E. Interpretation of Indemnity:

The insured is entitled to perfect indemnity subject to

the sum assured being sufficient. But, in practice such perfection may be

difficult to attain. Previously, the meaning of the word indemnity was

understood in the sense of material indemnity only, i.e., tangible and

material property only. The intangible loss, i.e., loss of profit, rent, etc.,

was not compensated. It worked as a great hardship to the honest insured

persons. Now, the insurance is extended to cover not only the material

loss of p roperty insured but also to cover the consequential loss. When a

business property is burnt not only the material loss on account of the

destruction of building, plant and stock are covered but the consequential

loss of profits on account of cessation of sales, salaries, taxes, rent, rates,

etc., are also indemnified. Now-a-days tangible and intangible losses areinsured and the consequential loss is also within the meaning of

indemnity.

F. Consequences of Indemnity:

The consequences of the doctrine of indemnity are as below: The insured may claim only the amount of the loss sustained.

In case of partial damage, the insured may claim compensation only for

the amount of damage done.

The insured must transfer to the insurer may rights which he may possess

against a third party in respect of the loss.


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If the insured have affected more than one policy, he is precluded from

obtaining more than one complete indemnity.

Measure of indemnity varies with the type of properly.

For damaged buildings, the measure of indemnity is the cost of repairing

or reinstating the buildings to their pre-loss condition. Similarly, for

machinery, the measure of indemnity is the market value, which is

arrived at after taking into account wear and tear and depreciation. For

stock in trade, the measure is the net cost to the insured. For stock in

trade, the measure is the net cost to the insured. The indemnification may

be in the form of cash, repair, replacement and reinstatement.

G. Doctrine of Subrogation:

Subrogation means the right of one person to stand in

the place of another and to avail him of the latters rights and remedies.

The principle of subrogation is just a corollary to the principle of

indemnity. The insured can realize only the actual value of the loss ordamage to the property according to the principle of indemnity and it

follows that if the damaged property has any right against a third party

regarding that property. These must pass on to the insurer. If the assured

is allowed to retain them, he shall have realized more than the actual loss,

which is contrary to the indemnity principle. The assured can proceed

against the third party, if he so desires, and if he recovers damages theinsurer is relived of liability. If the insured has received the full amount of

loss any sums obtained from the third party belong to the insurer up to the

amount of their disbursement.

The right of subrogation is exercisable at common law

after the insurer has paid the claim made against him.


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H. Warranties:

The contents of proposal form are expressly

incorporated in the policy, which form warranty. Warranty is that by

which the assured undertakes that some particular thing shall or shall not

be done, or that some conditions shall be fulfilled or whereby he affirms

or negatives the existence of a particular state of facts. Warranties, which

mentioned in the policy, are called express warranties and those

warranties, which are not mentioned in the policy, are called implied

warranties.

Warranties must be complied with literally and the

effect of a breach of warranty is to render void the relevant item of the

policy, even if no increase in risk is involved. Every warranty to which

the property insured or any item thereof is, or may be, made subject, shall

from the time the whole currency of the policies, and non-compliance

with any such warranty, whether it increases the risk or not, shall be a bar

to any claim in respect of such property or item. The condition states thatevery warranty is attached during the whole currency of the policy and if

during this period a warranty has not been complied with, the insured will

not entertain any claim in respect of the property or item affected.

However, if the policy is renewed and there was breach of a warranty

before the renewal is affected, in such a case the claim can be made. Non-

compliance with a warranty prior to the current renewal period of a policyis not a bar to a claim. The non-compliance with a warranty avoids a

cover only during the period of insurance in which the breach occurred.


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I. Proximate Cause:

The rule is that the immediate and not the remote cause

is to be regarded cause proximate non-remote spectators. Proximate

cause is very important in fire insurance. The principle of proximate

cause has already been discussed in detail. The insurer always takes the

proximate cause while paying the claim. If the property insured is burned

but the fire was preceded and brought into operation by an excepted peril,

the legal position depends upon whether the expected peril was the

proximate. The remote cause is when an incendiary bomb damaged the

property; the proximate cause is enemy action.


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CHAPTER NO. 10

TYPES OSF BAJAJ ALLIANZ FIRE

INSURANCE POLICIES


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TYPES OF BAJAJ ALLIANZ FIRE INSURANCE

POLICIES

There are different types of fire insurance

policies keeping in view of the various needs of business enterprise. Theimportant types of policies are described below: -

Average Policy : -

It is policy containing Average Clause Average policy

refers that if a person insures his property for an amount lesser than its

value, the insurer is not bound to indemnify for the total loss of the

property, even if the claim is not more than the sum insured by the policy.

This way, the insurer shall be liable to pay in proportion to the actual loss,

in which proportion the policy amount and the real value of the subject

matter exists. The formula is an under:

Amount of indemnity = Policy money * actual amount of loss

Market value of the subject matter at the time of fire.

For example:

A has insured his property in a fire insurance policy containing

Average clause for Rs. 5.00 lakh. After some time, the property partially


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burned by fire causing a loss of Rs. 6.00 lakh. The claim payable to him

against the loss of Rs. 3.00 lakh, by the insurance company is calculated as

under:

Amount of indemnity = Policy money * Actual amount of loss

Market value of the property insured.

= 5,00,000* 3,00,000 = Rs. 2,50,000.

6,00,000

Valued Policy : -

In an ordinary fire insurance policy, the insurer simply indemnifies

the insured. In the case of valued policy, the property is valued at the time

of affecting the policy and the insurer agrees to pay the insured sum on

occurrence of fire irrespective of the loss. Here in this case, the contract is

not an indemnity. Under the valued policy the insured can recover a fixed

amount, agreed at the issue of policy without the necessity for any further

proof of value at the time of fire. This is because that the valuation was

done at the time of affecting the policy. The valued policy also is known

as insured policy.

Specific Policy : -

It is a policy under which the property is insured for a fixed or a

specified sum without taking into account the actual value of the

property. The sum assured shall be usually less than the actual value of

the insured property. The insurers liability under this policy arises only

when the losses reach to the extent of certain specified sum. However, the

insurer shall not be liable for indemnity more than the policy money.


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Reinstatement or Replacement Policy : -

This a policy in which a clause is inserted in the policy under

which the insured can recover not the value of the buildings or the plantas depreciated, but the cost of replacement of the property destroyed by

new property of the same kind or the insurer may reinstate the property

instead of paying in cash. In both the cases we have the example of New

lamps for old.

Reinstatement or replacement policy is issued for new plant and

machinery of buildings, of reputed companies.

Floating Policy : -

This type of policy is useful for the goods kept at different places

and for floating goods. For example, some of the goods of other trader are

kept in one go down, and few kept in another go down, some are kept in

the railways go down or some at the sea port. This way, for the goods

kept at different places, such a trader to cover the risk of goods lying at

different places can obtain a floating fire insurance policy under one

policy.

The major advantage of this policy is that the insured need not

obtain different policies for the goods kept at different places. Theinsured needs to declare all his goods for which the floating policy is

issued. The disadvantage for the insurer is that his risk increases.

Sometimes one can make under insurance, by which the loss will be

higher for the insurer.

The policy is suitable for those traders whose goods are lying at

different go downs, railway station or seaport for a long period, and the


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possibility of risk of fire is much. The touring companies like Circus

Company, Theatre Company, and Auctioneers etc. this floating policy is

beneficial.

Declaration Policy: -

This policy is specifically aimed for wholesalers and distributions

of goods whose stocks usually fluctuate. However, this policy is not

issued for the goods lying in go downs or which are used in

manufacturing process.

At the time of effecting the policy, it is estimated that how much of

the goods are to be covered by risk during the tenure of policy. On the

basis of this estimate insurance is affected on maximum value of goods.

The insurer shall be liable up to this limit only.

At the beginning, the insurer charges three-fourth of the premium

fixed on the basis of maximum values of stocks. Thereafter, insured

declares after certain time interval (monthly or quarterly according to the

duration of premium become, due) the value of his actual stock. In the

case of loss by fire, indemnity is calculated on the basis of value of goods

declared by insured, in the above manner. On maturity of this policy, the

average value of stock is ascertained and on the basis of this average the

premium is more than the initial premium charged, the excess is claimed

from the insured. On the other hand, the initial premium charged is more

than the average premium determined at the maturity of the policy, excess

amount be returned to the insured. However, the insurance company

retains 50 per cent of the initially paid premium. This way, the insure is

effected on the maximum value of the stock and the payment of premium

is made on the average stock.


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The declaration policy is issued for not less than Rs. 20 lakh, in

India.

Adjustable Policy: -

This policy is issued for existing stock. A condition a attached with

this policy that the premium rate shall adjusted according to increases or

decrease in the value of stock. At the beginning this policy is issued like

an ordinary policy and the premium is paid in full at the rate prescribed. It

is a contract limited to merchandise or stock-in-trade, other than farming

stock. When there is variation in the value of stock, this change is notified

to the insurer by the insured. On basis of this information, a suitable

endorsement is made on the policy and the premium is adjusted on a pro-

rata basis. On the basis of endorsement made on the policy, it is assured

that the policy is affected on such an amount. In the case of loss by fire,

the amount notified by the insured at the maturity of the policy is taken as

final and indemnified up to that limit.

In this kind of policy insured can reduce or increase the policy

amount according to his convenience and the premium is adjusted on the

basis of this increase or decrease.

This policy resembles like a declaration policy, but there are

certain differences between the two:

In declaration policy, the stock value declared at the time of

affecting the policy remains as insured sum, whereas in

adjustable policy, the stock value declared at the last time is

accepted as sum insured.


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In declaration policy, it is essential to declare the stock at

certain fixed interval, whereas in adjustable policy, this

declaration is depends on the convenience of the insured.

In declaration policy, the money to be indemnified shall be the

same that declared at the beginning whereas in adjustable

policy, the value declared at the last time shall be the amount to

be indemnified.

Although in both the policies, the premium is calculated at the

end of every year, the maximum limit of insured sum differs.

Maximum Value With Discount Policy : -

Under this policy, the insurance is affected on the maximum value

of stock remains throughout the year, and accordingly premium is

charged. There requires neither any declaration of stock value nor any

adjustment. The insurance is affected on the maximum stock value

throughout the year and in the case of no indemnity, one-third of the premium paid is returned to the insured at the end of the year. The

advantages of this policy is that there requires no declaration by the

insured nor requires calculation of premium at the closing of every year.

The one-third premium refunded by the insurer can be treated as a

discount in consideration of variations in value of goods. Otherwise there

is no justification for refund.

Excess Loss Policy: -

This policy is obtained where the stock fluctuate indefinitely. The

trader has to obtain two policies at a time, one for the minimum stock of

the merchandise always remain in stock and the other for such value the

stock may increase. The first policy is known as First Loss Policy.


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Under the cover of first policy, the loss is indemnified up to the

sum insured. If the loss exceeds this limit, that can be met out from the

Excess Loss Policy.

This policy has the advantages that with a small amount of

premium, larger risk can be covered. The premium rate for the excess loss

policy is very low in comparison to the other polices.

In the case of excess loss policy, the insured is required to declare

the actual stock every month as was needed in declaration policy.

Ordinary or Standard Policy : -

This policy provided security against some fundamental risks. The

premium is kept at lower rate because this policy is obtained by almost all

the insured. This policy has two types:-

For household goods and For all other purposes such as for factories, shops, go down,

furnitures etc.

Usually this type of policies overlooks the risk factors and the

insurer is not liable for the losses. The risks, which are overlooked,

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

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

Special Peril Policy: -

In addition to ordinary risks, this policy provides for coverage of

risks involving explosion, violence, etc. strikes, civil war, earth-quake,

etc. and loss due to floods, explosion of water tanks, explosion in the air

by collision between two air. Crafts, loss to the insured properties by


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transport vehicles etc. Additional rate premium is charged for undertaking

special kinds of perils.

Comprehensive Policy: -

This policy not only undertakes full protection against risk of fire,

but also combined with risk of burglary, riot, theft, pest, damage,

lightning etc. This policy is also known as All in policies. The major

advantage of this policy to the insurer is the higher rate premium, whilethe assured is protected against losses from other kind of perils.

Sprinkler Policy: -

This policy insures destruction of or damage due to accidently

leaking water from automatic sprinkler installation, used in the insured

premises to put out fire.

The policy contains various conditions relating to maintenance of

sprinkler, up keeping and operation.

Rent Policy: -

This policy protects the building owners from the loss of rent. If atenant does not pay rent because of fire in the rented portion, the

insurance company will pay for such loss.

This may constitute a separate policy, or can be included within

other forms of cover and may be affected either by the owner, or by the

tenant or by an owner-occupier. If the tenant is not paying rent because of

fire, the owner can claim rent from the insurer. If a tenancy agreement


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requires for such insurance, the tenant should insure under this policy. In

the event of fire, the owner-occupies would be required to pay for

alternative accommodation during the period of repairs and reinstatement.

Transit Policy: -

A transit policy covers goods in the course transit from one place

to another by rail, road, air or sea transport. The policy protects the loss

due to damage or loss in transit. But reaching the goods to the destination

place.

Builders Risk Insurance: -

This policy is insured for loss by fire against buildings, including

machinery and equipment during the process of construction, as well as

such materials incidental to the construction work. This policy is alsoknown as contractors risk or contract works risks policy. At the

beginning this policy is issued for a minimum sum and accordingly to

progress of construction work, the sum insured is increased.


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Long-Term Policies: -

Policies for a period exceeding 12 months shall not be issued except

for Dwellings. Macro Picture Of General Insurance

Overall Business Performance of GIC 2005-06

Fire Others

Net Premium 14,246 54,713

Incurred Claims 9,277 45,731% Of Net Premium 65.1 83.6Net Commission 4,780 14,023% of Net Premium 33.6 25.6Expenses ofManagement

149 438

% Of Net Premium 1.0 0.8UnderwritingProfit/Loss (-)

(512) (9,821)

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

2,249 10,957

% Of Net Premium 15.8 20.0Balance Profit/Loss (-) 1,741 1,152% Of Net Premium 12.2 2.1


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CHAPTER NO. 11

CLAIM PROCEDURE OF FIRE

INSURANCE


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CLAIM PROCEDURE OF FIRE INSURANCE

A set procedure is followed for the settlement of claim under fire

insurance. The procedure is as follows:

Notice of Fire: -

As per conditions of fire insurance policy, immediately after the

occurrence of fire, the notice of fire is given to the insurance company, in

writing. This is necessary for the insurance company to make preliminary

investigation that deem expedient. Delay in giving notice of fire may

severely prejudice the interest of the policyholder.

Presentation of Claim: -

After giving necessary notice of information of fire, the insured

must present the claim to the insurer in the prescribed claim form. The

claim in the prescribed form should be submitted within 15days from the

date of fire. This period of 15days can be increased by the permission of

the insurer. All the facts should be correctly be furnished in the claim.

Usually, the following types of information are given in the claim: -

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

place where the incident took place.

b. Causes of loss.c. Details of damaged property, value of the property at the

time of fire, value of salvage and the claim amount.

d. Subject matter of insurance and loss to every component.

e. Full details of the other policies insured against the same

subject matter.

Presentation of Necessary Documents:-


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The following documents and evidence are enclosed with the

claim: -

a. A declaration about the claim and about related facts andfigures.

b. The evidence of all details, books, records, statutory

books, plans, vouchers, document, certificate and other

information that give the proof of loss by fire and that

create the liability on the insurer.

c. Any other necessary document, witness, certificate etc.

that is required under the conditions of fire insurance

policy.

In case these documents could not be presented together with the

claim, they may be sent within 6months, failing which the insurer can

reject the claim.

Action By The Insurance Company: -

On receipt of claim, the office of the insurance company. It may

issue the receipt of the claim. After that, the claim department undertakes

thorough scrutiny of the claim on the basis of documents and witnesses

presented by the insured with the claim. After that a Claim Ticket is

prepared and entered it in the Claim intimation Register. This way the

claim file is prepared with claim number.


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Survey and Loss Assessment: -

On receipt of notice of information and claim from the insured, the

insurer arranges to undertake survey of the lost properly with help ofexpert surveyors and loss assessors.

As per provision of insurance Act, 1938, no insurance company

accepts the claim exceeding Rs. 20,000/- or more unless it receive the

reports of the surveyors about the actual loss of the subject matter. Such a

survey is necessary to find out under what conditions and causes the fire

occurred, and what would be limit of companys liability in this behalf.

This survey is calculated by visiting the spot where the fire took place.

Under the conditions of fire insurance, it is the duty of the insured to

extend all necessary assistance and cooperation to the surveyors and

assessors.

The surveyors reports usuall y contain the following information: -

a. Causes of loss occurred.

b. Proximate cause of fire.

c. Assessment of loss.

d. Indirect loss or expenses to insured.

e. Details of expenses made towards assessment of loss.

Mention about the policies obtained by insured from other fire

insurance companies on the same subject matter and the amount of

contribution on the part of the insurer.


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Settlement of Claim: -

When the report is received from the surveyors and assessors of

loss, the insurance company takes further steps to settle the claim. The

company studies the reports and the claim received from the insured

thoroughly. In case the claim money charged by the insured and that

calculated by the assessors do not make any difference, the company

takes the decision immediately to make any difference; the company

takes the decision immediately to make the payment of claims. On the

other hand, if there is difference in the claim amounts, the insurance

company takes the decision to pay the claim money calculated by the

assessors.

In case there is any provision in the policy for reinstatement, the

company assesses the reinstatement value and reinstates the propertyinstead of payment of claim by cash.

In connection with the settlement of claim, an insurance company

should take into consideration the following matters.

a. Double Insurance: - Where the insured has obtained policies for the same

risk from different companies; the claim is not covered by one policy, but underall the policies. Every insurer in such a situation, liable to contribute towards the

total loss in proportion to the sum assured when each.

b. Under Insurance: - Where the insured gets his property insured with under

the value of his property, a situation of under insurance arises. In such a

situation, the insured is deemed to be the insurer for the difference of value

between the value of the property and sum assured. For this amount, the insured


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is liable proportionately to the loss and the insurance company is liable to pay

average proportionate loss. As such, the insurer should keep this fact in mind

where the insured takes under insurance policy.

c. Losses At Different Times During The Tenure of Policy: - The loss to the

insured property at various times is possible during the tenure of the policy. The

general rule in this case is that whenever the claim is paid, that paid claim

money is reduced from the total sum insured. This way the sum insured

gradually reduces. By paying additional premium, the sum assured can be

increased again.

d. Arbitration: - Where the insured is not satisfied with the claim paid by the

insurer, the dispute can be referred to arbitration as per conditions of insurance

policy. The decision given by arbitrator shall be binding on both the parties. But

the matter can be taken to court if any of the parties is not satisfied by the

decision of arbitration.


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CHAPTER NO. 12

CASE STUDIES ON FIRE INSURANCE


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CASE STUDIES ON FIRE INSURANCE

Case Study No. 1

Client

Chemfab Alkalies Limited, manufacturers of Caustic Soda, liquid chlorine &Hydrogen has their manufacturing plant at Pondicherry. Chennai RegionalOffice services the client.

Cover

The cover was Industrial All Risk (IAR) with sum insured of Rs. 102.73 crorefor material damage and Rs. 25 crore for Business Interruption.

What happened?

There was an explosion in the Cell house of Electrolysis House due to whichthere was a material damage and plant production has to be stopped. The keymaterial membranes had to be i