FIRE INSURANCE

Insurable Property:

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Buildings

Plant and Machinery & Accessories

F F F

Contents

Stocks in Trade

Stocks held in Trust or Commission

Stocks- Raw materials, Stock in process, Finished Goods

Compound wall

Stocks/ Property in Godown/ Open

Who can take Fire Policy?

• Owners• Financiers- Banks, lenders• Lessees• Bailees

Policy in Joint Names is allowed

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Standard fire and special perils (SFSP) Policy

Covers Property against :

1. Fire2. Lightning3. Explosion/ Implosion4. Air Craft Damage5. STFI (Flood & Cyclone) or (FST)6. Impact Damage by Rail/ Road vehicle/ Animal (not belonging to Insured)7. Riot, Strike & Malicious Damage

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Covers Property against :8. Subsidence, landslide including

Rockslide (SLR)9. Bursting/ overflowing of water Tanks/ Apparatus/ Pipes10. Missile Testing Operations11. Accidental Leakage from Automatic sprinklers12. Bush Fire

AOG perils include Lightning, EQD, STFI & SLR

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General Exclusions:

1. Policy Excess- upto 10 Crore SI• AOG Perils: 5% of claim amount S/t min of Rs 10,000/-• Non- AOG perils: Rs 10,000/-

- Above 10 Crore SI• AOG Perils: 5% of claim amount S/t min of Rs 25,000/-• Non- AOG Perils: 5% of claim amount S/t min of Rs

10,000/-– Excess is per Event per Insured but not per Policy– No Excess for Residential House losses

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2. War & nuclear Risks/ perils

3. Pollution or Contamination except caused by Insured peril operation.

4. Bullion, Unset precious stones, Curious, works of Art > Rs10,000, Stamps, Plans, Money, Cheques, Business Books, Computer System records, Explosives etc unless specifically insured in the policy.

5. Cold storage stocks due to change in Temperature.

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6. Electrical Risks for Electrical Machines, apparatus/ Fittings etc where such machine is the originating source of electrical Risks ( including Electrical surges from Lightning).

7. Architects, Surveyors & Consulting Engineers Fees in excess of 3% and Debris Removal expenses in excess of 1% of claim amount.

8. Earthquake

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9. Terrorism

10. Spoilage Material Damage

11. Removal of Property to any non-insured locations (Temporary Removal of Machinery for repairs held covered upto 60 days only)

12. Theft during or after occurrence of any insured peril.

Note : Exclusions 5 to 11 above can be covered as Add-On Covers on payment of additional Premium.KSN-JLR 9

Peril related Exclusions• Fire

--- Property damage by its own fermentation, natural heating, or spontaneous combustion.

--- Property damage by its undergoing heating or drying process

--- Property burninng by order of Public Authority

• Explosion/ Implosion--- To Non- domestic Boilers/ Economisers or its contents by

their own explosion/ Implosion--- Caused by Centrifugal forces

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• Aircraft Damage-- Damage Caused by pressure waves

• RSMD-- Damage Caused by Acts of Terrorism

• Impact Damage -- Caused by Insured Own Vehicles/ Animals

• SLR -- Normal Cracking, Settlement of New Structures -- Demolitions, Structural Alterations, Excavators

etc• Bush Fire

-- Destruction by Forest Fire

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General Conditions

There are 15 conditions in Fire Policy

1. Mis-description/ Non Disclosure Condition

2. Fall or Displacement Condition-- cover continues upto 7 days thereof.

3. Change of Trade/ Manufacture/ Occupancy increasing the Risk or premises left unoccupied for more than 30 days or property transferred to others- such material changes make policy in operative at once.

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4. Marine Policy Cover

5. Cancellation by either party -- Insurer to give 15 days notice + Pro rata Refund

-- At Insured’s Request-- Short period Scale Retention.

6. Duties of Insured-- Immediate notification of Loss-- Claim form + Submission of other Details in 15 days time-- Submission of other Insurance details-- Non- Compliance will make claim not Tenable-- 12 months time limit for claim settlement-- Time bar for Suits- 12 months after disclaimer of claim

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7. Right of Insurer-- to enter & take posession of Building or Premises-- remove, sort, arrange or salvage affected property-- for non-cooperation by Insured , claim can be forfeited.-- No right of abandonment to Insured.

8. Fraud

9. Option to Insurer to Reinstate/ Replace/ Repair/ or pay amount to Insured

10. Pro rata Condition of Average- Each item of Policy is subject to Average.

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11. Contribution Condition

12. Subrogation Condition

13. Arbitration Condition

14. All Notices and Communication to Insurer must be in writing.

15. Automatic Reinstatement of SI after a loss, unless opted out by Insured, & provision for pro rata Reinstatement premium deduction from claim amount. KSN-JLR 15

Add- On Covers1. Architects, Surveyors & Consulting Engineers Fees etc

-- in excess of 3%, for a higher limit selected, up to 7.5% claim amount.

2. Debris Removal expenses -- in excess of 1% of claim amount, for a higher limit selected, up to 10% of Total SI.

3. Deterioration of Stocks in Cold Storage premises

4. Spontaneous Combustion

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5. Forest Fire

6. Impact damage by Insured’s Own Rail/ Road vehicles, Forklifts, Cranes etc

7. Earthquake

8. Spoilage material Damage

9. Temporary Removal of Stocks

10. Loss of Rent Cover

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11. Additional Expenses for Alternate Accommodation

12. Start up Expenses cover

13 Escalation Cover (up to 25% for BMA)

New Add- On Covers (w.e.f 01/04/2010)1. House Breaking cover2. Electrical Risks for Electrical Installations

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Special PoliciesReinstatement Value Policy

for Buildings, Plant and Machinery etc

-- In claim Settlement Depreciation is not deducted from new Replacement value.

-- Physical Reinstatement is required for this mode of settlement. Otherwise Market value mode is adopted.

-- Within 6 months intention to reinstate & within 12 months actual reinstatement to be carried out. -- No Extra premium, SI= RIV value -- Not applicable for stocks -- For Under Insurance, RIV on completion will be compared with SI on Loss Date.

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Stock Declaration Policy:

- For Stocks only.- Provisional SI & Provisional Premium.- Monthly Declaration of Stock Value.- Annual Adjustment on policy Expiry by charging premium on Monthly average stock value.- Min SI should be Rs 1 Crore.- Min Retention should be 50% of Provisional Premium.

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- Mid term increase in SI is allowed but not SI decrease.

- For Underinsurance verification, last received Declaration, Stocks value on DOL will be checked up.- Not for Stock in Process,

Stocks at Railway siding or for short period policies.

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Floater Policy:

- For stocks only.- Single SI is Floated over many

locations.- Floater extra 10% is charged on

all perils including Add- on perils.

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Floater Declaration Policy:

- For Stocks only.

- Single SI for Multiple locations on Declaration Basis.

- 10% Floater Extra is chargeable

- Min SI should be Rs 2 Crores

- Min Retention of Premium is 80%

- other features of Declaration Policy will apply.KSN-JLR 23

Other Important Features

• No Agreed Value/ First Loss Policies• One Risk- one rate concept• Multiple occupancies- per se Rating• Long Term Policies for Dwellings• Mid Term Perils inclusion- 15 days waiting period +

Premium payment by Cash/ DD• Mid Term increase in SI at Prorata and Mid Term

decrease in SI at Short Period scale.• Rates are Per Thousand / Per Mille.• Silent Risks rating for inoperative Industrial Units.

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Fire Claims Process

Important aspects of Fire Policy Claims Cause of Loss- Insured Peril or not Date and Place of Loss- covered by policy or not Property Damaged- covered or not Damaged Property Value Vs S I Reinstatement Value or Market Value Salvage Value Under Insurance - Policy Item wise Policy Excess - Peril wise Depreciation deduction from New RIV

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Claims Documents

o Claim Intimation & Estimate of Losso Policy Copy + 64 VB Complianceo Cause of loss, Date & Place of Loss and details

of Property damaged for cross check-upo Fire Brigade Report/ Met Report/ News paper

Clippings/ Govt Dept certificateso Claim form and detailed claim billo Survey report with photos

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Claim documents

o Evidences of Loss, Documentary proof of values and salvage value details

o Buildings, P & M, Stocks etc --- Damaged property details and values.

o Other Insurance Policy details for same damaged property

o Bills for expenses incurred i.e. for loss minimization actions, Debris Removal, Architects Fees etc.

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Deductions in Fire claims settlement• Value of Damaged Property

Depreciation Salvage Under-insurance Excess

= DSUEVoluntary Excess opted , if any.Also penalty (NSC) Deduction before applying

Policy Excess.

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Fire LOP Insurance

• Fire LOP (Loss of Profits) Policy- Covers Business Interruption Risks/ losses.

• Fire (MD) policy covers Physical Loss/ Damage to property insured.

• Fire LOP Policy covers Loss of Gross Profits due to insured perils operation.

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Fire LOP Insurance• G P = N P + S C • Gross Profit = Net Profit + Standing Charges. • Insured can select some Standing Charges or

all Standing Charges = Insured Standing Charges ( ISC ).

• G P Ratio = NP + ISC/Annual Turnover *100• LOP Policy pays for Loss of Gross Profits due to

reduction in Turnover (Production/Sales).

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Fire LOP Insurance• Indemnity Period ( I P ) starts from Date of

Loss occurance and ends with number of months selected.

• I P can be Min 3 months….Max 36 months.• FLOP Policy period is one year but I P can be

between 3 and 36 months.• Eg. Fire and FLOP Policy periods are

1.4.09/10. But FLOP Indemnity Period is say 18 months. Date of Loss 30.12.09. Then FLOP covers Loss of Profits from 30.12.09 to 29.6.2011.- 31

Fire LOP Insurance• Increased Cost of Working ( ICW ) will also be

paid, if the same is less than the Loss Amount avoided by such exp.

• FLOP Sum Insured shall match the G P for Indemnity Period selected. It shall be 2 years G P, if I P is 24 months and likewise.

• Standing Charges. Eg. Rent, Directors Fees, Audit Fees, Insurance Premium, Corporate Office exp. Advt and Publicity exp, Salary to Permanent Staff, Bank Loans interest payments and Wages. 32

Fire LOP Insurance• Other Important Features.• FLOP Policy must cover same Perils and Units

as covered under Fire (MD) Policy.• No FLOP Claim is payable unless Fire policy

admits liability for same peril/loss. Fire Claim can be paid or O/s but liability admitted. This is known as Material Damage Proviso.

• Fire Policy(MD) Process Blocks average Premium rate is taken as base for calculating Fire LOP Premium Basis Rate.

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Fire LOP Insurance• Other Important Features.• Insured’s Multiple Production Units can be

covered under a single LOP Policy.• Wages can be insured under a separate Item

of Standing Charges.• Trends Clause, Accumulated Stocks Clause,

Condition of Average etc are applicable.• ATO & STO are the tools used for Loss

Calculation.

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Fire LOP Insurance• Other Important Features.• Annual Turnover (ATO) means Last 12 months

Turnover ending with Date of Loss.• Standard Turnover (STO) means Previous

Year’s Turnover matching with Indemnity Period, starting from Date of Loss…

corresponding period Turnover in Last year. Fire and LOP Policies can be with different

Insurers and for different periods, but Fire Policy must be in force for valid claim under FLOP , as on Date of Loss.

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Industrial All Risks Policy• IAR policy is a Package Policy issued in Fire

Dept.• Minimum S I Rs 50 Crores, at all locations in

India, is required for this Policy Eligibility.• This Policy Covers under Section 1….Fire and allied Perils incl EQD/SC. Burglary/Theft, Boilers, Machinery/Elec Breakdowns, EEI, FOES.Section 2….Fire LOP. MLOP ( optional Cover). 36

Industrial All Risks Policy• Other Important Features.• IAR policy covers All Risks of Physical Loss subject to

Named Exclusions.• Basis of S I : For Bldgs, P&M, FFF etc …Reinstatement Value. For Stock….Market Value. No Declaration Facility. Under-insurance up to 15% is ignored under Material

Damage Covers. Burglary Cover is free. 37

Industrial All Risks Policy• Other Important Features.• Transit Risk within Insured’s Premises

Compound stands covered.• Escalation, Temporary Removal of Stocks etc

are held covered at additional premium.• For MBD and EEI Properties, no Depreciation

is deducted for Total Loss Claims also, unlike MBD/EEI stand alone Policies.

• Under Sec 2…. FLOP cover is available and MLOP cover is Optional.

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Industrial All Risks Policy• Other Important Features.• LOP Cover includes Loss of Gross Profit due

to reduction in Turnover during Indemnity Period on occurance of a insured peril.

• I C W is also covered.

Premium Rates and Discounts will depend upon Risk Physical Features, Past Claims Experience, S I and Current Guidelines in force.

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Thanks

K Sankara Narayana

15.5. 2010 Manager, NIC HRO Hyderabad.40