Fire Insurance

• Great Fire of London of 1666

• Industrial revolution of the 17th and 18th century
• Fire insurance business is “the business of effecting,
otherwise than incidentally to some other class of
insurance business, contracts of insurance against loss
by or incidental to fire or other occurrence customarily
included among the risks insured in fire insurance
policies”.
- Insurance Act, 1938
• Fire portfolio constitutes almost 24% of the total premium
of General insurance industry and has been the major
support in its profitability.
• Fire business is governed as per the tariff of Tariff
Advisory Committee.
 SCOPE OF COVER UNDER THE
STANDARD FIRE AND SPECIAL
PERILS POLICY
• Fire
• Excluding destruction or damage caused to the property insured by —
• its own fermentation, natural heating or spontaneous combustion.
• It’s undergoing any heating or drying process.
– Burning of property insured by order of any Public authority.
• Lightning
• Explosion/implosion
– Excluding destruction or damage caused to the boilers (other than domestic boilers).
• Aircraft Damage
• Riot, Strike, Malicious and Terrorism Damage
• Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation
• Impact Damage
• Subsidence and Landslide including Rock slide
• Bursting and/or overflowing of Water Tanks, Apparatus and Pipes
• Missile Testing operations
• Leakage from Automatic Sprinkler Installations
• Bush Fire
 Add on Covers
• Architects, Surveyors and Consulting Engineer’s Fees in
excess of 3% of claim amount).
• Debris Removal (in excess of 1% of claim amount).
• Deterioration of Stocks in Cold Storage premises due to
power failure following damage due to an insured peril.
• Forest Fire.
• Impact Damage due to Insured’s own Rail/Road
Vehicles and the like and articles dropped there from.
• Spontaneous Combustion.
• Omission to insure additions, alterations or extensions.
• Earthquake (Fire and Shock).
Sum insured in Fire insurance
• Market value
• Reinstatement value
• Premium: Premium under the policy depends
upon:
– Nature of risk;
– Class of construction; and
– Sum Insured.
• Extra premium is charged for opting add on
perils and discounts are provided for installing
fire fighting systems and for a good claim ratio.
 VARIOUS TYPES OF FIRE
POLICIES
• Floater Policy
• Floater Policy can be issued for stocks at
various locations under one Sum Insured
(The Standard Floater Clause I, Annexure
A shall be attached to such policies).
• Note: Unspecified locations not allowed.
• Rating: The rate is the highest rate
applicable to insured’s stocks at any
location with a loading of 10 %.
 VARIOUS TYPES OF FIRE POLICIES-
Declaration Policies
• To take care of frequent fluctuations in stocks/stock values, Declaration Policy can be granted
subject to the following conditions
– The minimum sum insured shall be Rs 1 crore in one or more locations and the sum
insured shall not be less than Rs. 25 lakhs in any of these locations. It is necessary that the
declared values should approximate to this figure at sometime during the policy year.
– Monthly declarations based on a) the average of the values at risk on each day of the
month or b) the highest value at risk during the month shall be submitted by the Insured
latest by the last day of the succeeding month. If declarations are not received within the
specified period, the full sum insured under the policy shall be deemed to have been
declared.
• Reduction in sum insured shall not be allowed under any circumstances.
• Refund of premium on adjustment based on the declarations/ cancellations shall not exceed 50%
of the total premium.
• The basis of value for declaration shall be the Market Value anterior to the loss.
• It is not permissible to issue declaration policy in respect of
– Insurance required for a short period.
– Stocks undergoing process.
– Stocks at Railway sidings
• If after occurrence of any loss it is found that the amount of last declaration previous to the loss is
less than the amount that ought to have been declared, then the amount which would have been
recoverable by the insured shall be reduced in such proportion as the amount of said last
declaration bears to the amount that ought to have been declared.
 VARIOUS TYPES OF FIRE POLICIES-
Floater Declaration Policies
• Floater Declaration policy can be issued
subject to a minimum sum insured of Rs 2
crores and compliance with the Rules for
Floater and Declaration Policies
respectively except that the minimum
retention shall be 80% of the annual
premium.
 Rural Insurance
• Need
– Increase in credit finance in the rural areas
– Increase in income and assets of rural poor
– Availability of information for decision making
• Modus Operandi
– Design tailored products
– Establish efficient methods of premium collections
and claims settlements.
– Create awareness for need of insurance products.
 Definition
• “Rural sector shall mean any place as per
the latest census which meets the
following criteria--
– a population of less than five thousand;
– a density of population of less than four hundred
per square kilometer; and
– more than twenty five per cent of the male working
population is engaged in agricultural pursuits
• Social sector” includes unorganised sector,
informal sector, economically vulnerable or
backward classes and other categories of
persons, both in rural and urban areas;
 Obligation –Rural Sector
• Every insurer, who begins to carry on insurance business after the
commencement of the Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999), shall, for the purposes of sections 32B
and 32C of the Act, ensure that he undertakes the following obligations,
during the first five financial years, pertaining to the persons in rural
sector,
(i) in respect of a life insurer, --
– seven per cent in the first financial year;
– nine per cent in the second financial year;
– Twelve per cent in the third financial year;
– Fourteen per cent in the fourth financial year;
– Sixteen per cent in the fifth year;
of total policies written direct in that year;
(ii) in respect of a general insurer,--
– two per cent in the first financial year;
– three per cent in the second financial year;
– five per cent there after,
• of total gross premium income written direct in that year.
 Obligation- social sector
in respect of all insurers, --
– five thousand lives in the first financial year;
– seven thousand five hundred lives in the second financial
year;
– ten thousand lives in the third financial year;
– fifteen thousand lives in the fourth financial year;
– twenty thousand lives in the fifth year;
• Provided that in the first financial year, where the
period of operation is less than twelve months,
proportionate percentage or number of lives, as the
case may be, shall be undertaken.
• Provided further that, in case of a general insurer, the
obligations specified shall include insurance for
crops.
 Rural Insurance Policies
• Acqua Culture insurance
• Cattle Insurance
• Failed well insurance
• Farmers’ Package Insurance
• Fish insurance
• Floriculture Insurance
• Lift irrigation/Sprinkler Insurance
• Plantation/Horticulture Insurance
• Poultry Insurance
 Social Insurance
• Government provides social insurance on compulsory
basis.
• Objective is to provide minimum level of social security
for the large portion of the population.
• Maximum benefit to lower income groups.
• Social insurance Schemes of GIC: Krishi Bima Yojna,
personal accident social security scheme, hut insurance
scheme.
• Social insurance Schemes of LIC: Landless Agricultural
Labourers Scheme, Group Insurance Scheme for
beneficiaries of IRDP, Rural Group Life
Insurance Schemes etc.