OBJECTIVE OF STUDY

To study and analyses the concept and philosophy of fire insurance.

To know what are various policies offered by public sector companies.
To understand the policies condition of the fire insurance offered by public
sector companies.
To understand the practical aspect involved in fire insurance offered by
public sector companies.
To study the steps involved in analysis of project viability.
To find out up to what extend public sector companies are successful in
India.
To understand the importance of fire insurance.
To know about what are the views of business men over the insurance
offered by public sector companies.

SCOPE

The scope of the study is been restricted to the public sector companies
offering and not been extended to the private sector companies.
As there as limited number of public sector companies offering the fire
insurance, the information was not available easily.
Number of pages is another limiting factor to the project. Due to this factor it
was not possible to cover all the important to cover all the important aspects
of fire insurance and the policies offered by public sector companies.

LIMITATIONS

Very few public sector companies are engaged into the fire insurance
business.
The fire insurance policies are taken from Indian prospective.
Due to another year ending time the information provided was not sufficient
to complete the project.
As the subject of study is very vast it is not possible to cover each and every
aspect of the claim management.
Statistical data is confined to only the policies issued on an average in year
and average in year

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INDEX
Nature and use of Fire Insurance
-History
-Definition and nature
-Function
-Causes of Fire
-Prevention of loss
Fire Insurance contract
-What is Fire?
-Elements of fire insurance contract
-Principles of insurance(more than 1 policy)
Policies condition
-various policies condition
Rate fixation in fire insurance
-System of rate fixation
-principle of rate fixation
-Tariff rate
Payment of claim
-Conditions require for claim
-Salvage Corps
-Application of Average clause in payment of claim
-Task of Adjuster
-Payment and Discharge by Adjuster
-Waiver and Estoppels
Reinsurance
-Advantages of Reinsurance
Policies offered by public sector companies
-Types of Policies
Findings and conclusion
-Findings from the Insurers & its conclusion
-Findings from the insured &its conclusion
-Suggestion
Annexure
-Questioner for Public Sector Companies
-Questioner for Businessmen
Bibliography & Webbliography

Page No

1. NATURE AND USE OF FIRE INSURANCE

-History of Fire Insurance

Fire Insurance has not long history. The real establishment of fire insurance came
only after the The Great Fire of London in1966. The fire lasted for four days
brining over 436 acres of ground and destroying over 13,000 building was the most
disastrous fire in the history and forcibly wakened the people to necessity for a
form of protection against such calamities the main cause of its late development
was slow progress of trade and commerce. After a certain period when business
and commerce ran high, fire insurance received a real fillip. Previously there was
no basis on which the premium could be based. There was little concern which
made a remarkable progress. Gradually as they gained experience the data went on
accumulating and premium rate become equitable and scientific. The decision of
law court also brought the principle of fire insurance to a standard format. With
increasing competition and experience, the fire insurance is evolved in its present
scientific form. However, the progress in fire insurance was not as tremendous and
categorical as was in the case of life insurance.

-Definition and Nature

Fire insurance is a device to compensate for loss cons equate upon destruction by
fire. Thus the fire insurer shifts the burden of fire losses from their actual victims
over to all the members of the society. It is co-operative to share. It relives the
insured from the horror of the fire losses to which he is exposed.

-Functions

It is well known fact that the fire cause huge losses every year. The individual
owner by taking fire insurance can prevent the fire waste to some extent. The
insurer acts as a middle man between all members of the society who are exposed
to the fire risk on the one hand and the members who will be the actual victims of
the fire losses on the other. The insurer charges the premium from all the insured
members and makes good the losses when they occur to any of them.
The system of fire insurance cannot save the society from the economic loss to the
community to the extent of the property by fire, but it compensates someone and
this saves him from ruinous loss, at the cost of group of some others.

-Causes of Fire

Fire waste is result of two of hazard vise, Physical and Moral.

1) 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.
2) Moral Hazard - The moral hazard depends upon the man as physical hazards
depend on the property. The property may be set up on fire by the owner or by any
person with his willingness, carelessness and lack of sense 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.

-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 are as follows:
1) Indemnification or Curative Efforts - According to doctrine of
indemnification, the financial loss suffered by perils insured against will be
compensated in full, not more than his and not less than this. The insurance
provides protection by indemnifying the financial loss suffered by insured person
who occurred beyond the control of Insured and Insurer.
2) 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
for purchasing more insurance policies because of cheaper rate 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
A) Private Activities
B) Public Activities

A) 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 property owner on the following
factors.
I) Construction In construction of building, fire resistive materials, fire proof
construction, greatest care in exercising selection of the type and planning of the
construction, availability of the extinguisher, water supply, proper passage ion
emergency is various activities which reduce the chance of fire. For these
activities, the insurers provide advice and assistance.
II) Fire services The important thing is to extinguish fire before it reaches large
proportions. The owner should consider equipping his building with an autonomic
sprinkler system. Similarly, firefighting equipment may be established. Such
services can be provided by insurer with the help of firefighting association.
III) Occupation There are considerable hazard in certain occupation e.g. in oil
or coke or chemical industry. Insurance in this concerns are available at higher
rate. Insurers help by stimulation and charging lesser premium in fire fencing
occupation.
IV) Management Good management of property may reduce the chances of fire.
Carelessness and indifference cannot be overemphasized because these increase
the chance of fire.
V) Exposure Fire insurance rates are determined on the basis of possibility of
exposure. Fire-proof services may reduce the chances of exposure to a greater
extent.

B) Public Activities
Fire insurers have performed numerous important services to reduce the fire waste
with the help of public institutions which are engaged in firefighting activities.
I) Community Surveys Engineering survey of the cities and localities is made.
As a result of its investigation many have improved their five departments, water
supplies and other facilities involved in the protection against fire.
II) Standard schedule for grading cities Under this schedule a number of
cities, town are divided, according to fire preventive devices. The deficiencies in
each part are sorted out and attempts are made to remove them.
III) 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.
IV) Equipment Fire can be properly checked only through the possession and
maintenance of adequate equipment, personnel fire alarm system and water supply.
Firefighting apparatus and equipment for any city or town can be determined by
the fire protection association.
V) Salvage crops 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 are extended 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 firefighting methods and fire preventative methods.
VI) Legislation and regulation National board of fire underwriters 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
you mind the numerous legal.

2. FIRE INSURANCE CONTRACT

Fire insurance contract may be defined as an agreement whereby one party in

return for a consideration undertakes to identify the other party against financial
loss which the letter may sustain by reason of certain defined subject matter being
damaged or destroyed by fire or other defined perils up to a 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.
The contract of insurance involves all the elements of an ordinary contract and
insurance contracts. The elements of contract are discussed in details are as followBefore discussing the elements of the fire insurance contract the special meaning
of Fire must be understood-

-What is Fire?

Fire, in order to make the insurer liable under the contract, must satisfy two
conditions. First, there should be actual fire or ignition, and second, the fire must
be fortuitous in its nature.
There should be actual fire or Ignition
The expression in the policy we have to construct is loss or damage occasioned by
fire. This means that loss or damage must be either by ignition of the article or
property or premises or thereof. In other words, the damage should be occasioned
by fire. Loss or damage caused by excessive fire heat cannot be included in loss or
damage by fire. It should be proved here, that the loss should be caused fire. The
cause of fire is not important. The fire even if caused by the negligence of the
servant or himself may come under the definition of fire. There should be no

Fraud or willful misconduct by the assured. There should be actual ignition but a
process resembling fire may not be fire. For example, the damage done due to
smoke due to faulting chimney, or overheated iron is not the example of fire.
Similarly chemical actions, explosion, lighting etc. are not occasioned or example
of fire.
Fire should be accidental and not intentional
Any loss caused by fire lighted purposively is not a loss by fire if it was
intentional. However the property burned accidentally in an ordinary fire, such as
domestic fire, the loss is covered even if the fire remains under control. When a
fire was purposively lighted but became out of control at a later stage is taken
under the definition of fire. The object of fire insurance is to indemnify the insured
against accidental loss by fire.

-Elements of fire insurance contract

1. Feature of General Contract

All the feature of general contract is also applicable to the fire insurance contract.
A) Proposal The proposal for the fire insurance can be either verbally or in
written. The proposers give the necessary description of the property to be insured
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.
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- matter 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 proposers are required to submit an evidence of

respectability. The insured is required to submit a certificate from some known and
respectable person about honesty and integrity. 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 purpose. As soon as the proposal
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
commence only when the premium has been paid and before that, when policy has
been issued, payment of premium will not be the basis of commencement of risk.
D) 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 issued. If
loss occurs before issue of policy the cover note will be sufficient to prove
insurance. Cover note however is not taken at par to the policy.

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 statutory and formal document of insurance contract.
There are different types of policies. However, a standard form is also used. The
policy contains the name and address of the insured. The subject-matter of
insurance, sum insured, terms and the premium. There are various clauses
governing the conditions of the policy can be changed.

Period of Fire Insurance Policies

Usually fire policies are issued for one year and are called Annual Insurance.
Policies issued for a period shorter than one year are known as Short-Term
policies and those issued for a period more than one year are called as Long Term
Policies. But in practice only annual policies are common. 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, construction of policy.
Moreover, the period of insurance is also taken into account for computing
premiums.

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 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 balance of insured amount
remaining after compensation of 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 loss not more than the balance of
insured amount remaining after compensation of the previous losses paying fresh
premium on a pro-rata basis to the date of expiry.

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 the entire insurer. Each insurer will pay his ratable
proportion of loss who, property insured against fire. If there is average clause,
then the insurers will pay accordingly.

-Principles of Insurance

Following are the basic principles of Insurance

1) Insurable Interest It is the general principle of insurance without which
insurance cannot lawfully be forced for an insurance unsupported by an insurable
interest would be a gambling transaction. Insurable interest will be there here the
subject matter should be in such a position that 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.
I) There should be a physical object capable of being damaged or destroyed by
fire.
II) The object must be the subject matter of insurance.
III) The insured must be 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 Insurable interest is the Pecuniary Interest. The fire insurance is a
personal contract between the insured and insurer. So, the transfer of interest
would invalidate the contract.
2) Principle of Utmost good faith The contract of fire insurance is one in which
the observance of the utmost good faith by both the parties are of vital significant.
The utmost good faith in fix insurance has two aspects first, disclosure of material
facts and second, prevention of the property insured, the insurer and the insured
must finish detailed information regarding the subject matter to be insured. The
insured, since he has more information about the subject matter, must disclose all
information asked truly and fully. The assured is also required to disclose all the
material information which is 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 the

premium. In case of fire insurance the examples of material facts are construction
of building. If the assured has not observed good faith, the contract can be avoided
by other party. 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 disclosed such material facts as are
within his knowledge.
The second phase of good faith is preservation of property. 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
agent well as the insurer must take all such steps as may be reasonable for averting
or minimizing 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.
3) 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 nearly as possible in the same pecuniary position after the loss 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 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 the
temptation to destroy the property insured there by to secure the money.
The insured 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 indemnified 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 is more than the assured amount then only the assured sum will be paid
and nothing more is paid. But, this principle does not hold well 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 iii the policy
when it was taken. In a valued policy, no consideration is given to the actual loss.

Thus, the amount of claim may be greater or less than the actual loss at the time of
fire in case of valued policies.
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 property but also 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 sale, salaries, taxes, rent, rates, etc are also indemnified.
Now-a-days tangible and intangible losses are insured and consequential loss is
also within the meaning of indemnity.
Consequences of Indemnity
The consequences of the doctrine of indemnity are as follow:
I) The insured may claim only the amount of the loss sustained.
II) In case of partial damage, the insured may claim compensation only for the
amount of damage done.
III) The insured must transfer to the insurer any rights which he may possess
against a third party in respect of the loss.
IV) 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 property. 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
depreciation. 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.

4) Doctrine of Subrogation Subrogation means the right of one person to stand

in the place of another and to avail himself of the latters rights and remedies. The
principles of subrogation are just a corollary to the principle of indemnity. The
insured can realize only the actual value of the loss or damage to the property
according to the principle of indemnity and it follows that
The damaged property has any value left or the assured can recover the lost
property or has any right against a third party regarding that property. There must
pass on to the insurer, if there is allowed to retain them, he shall have realized
more than actual loss which is contrary to the indemnity principle. The assured can
proceed against the third party, if he so desires and he recovers damages the insurer
is relieved of liability. If the insured has received the full amount of his 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.
5) Warranties The contents of proposal from are expressly incorporated in the
policy, which form warranty. It is by which the assured undertakes that some
particular thing shall or shall not be done, or that some conditions shall be fulfilled
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 mention in the policy are called implied warranties.
It must be complied with literally and the effect of 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 warranty attaches apply and continue to be in force
during the whole currency of the policy 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 that every 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 of item affected. However, if the policy is renewed and there was breach
of a warranty before the renewal date and not after it and a loss occurs after 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 policy is 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.
6) Proximate Cause The rule is that the immediate and not the remote cause are
to be regarded causa-proxima non remote spectator. 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 drought into
operation by an expected 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 pause is enemy action.

3. POLICY CONDITIONS

The policy conditions may be precedent to the contract condition subsequent to the
contract and conditions precedent to liability. The conditions must be fully
complied with to make the insurer liable under the contract. The conditions may be
implied express. Conditions which are set out in the policy are known press
conditions which may be either of general nature and, therefore printed on the
policy or conditions specially designed reference to a particular contract and are
incorporated in policy. The implied conditions are not mentioned on the policies
but are deemed to be present with reference to the policy.

IMPLIED CONDOTION
The following conditions are implied conditions in fire insurance
A) Existence of property: The subject-matter of insurance Id exists when the
policy is affected.
B) Insured property: When the fire occurs the property damaged should be the
property insured for obtaining claim on the property.
C) Insurable interest: The insured must have insurable interest from the time of
the commencement of risk up to the completion of the contract.
D) Good Faith: The insured must observe good faith towards the insurer. He must
disclose all the material facts truly fully, and should try to prevent the fire and
extinguish if it occurred, with a reasonable care.
E) Identity: The subject-matter of insurance should be prescribed in the policy as
to identify it clearly and so define the insurers have undertaken.

EXPRESS CONDOTION
The express conditions in fire insurance are discussed in the following paragraphs.
Misdiscription - The policy shall be void able in the event of mis-description, mispresentation or non-disclosure of any material facts.
Alteration - The insurance contract may be avoided if there is any alteration after
the commencement of this insurance.
The alteration of the following types.
A) Removal: The removal of the insured property without the consent of the
insurer makes the contract violable.
B) Increase in risk: The alteration may take place with the risk of the insured
property have increased.
C) Change in interest: Without the consent of the insurer interest on the insured
property cannot be changed. If the interest has been changed, the insurer will cease
his responsibility.
D) Exclusions: The risks which are excluded from the fire policies are called
exception or exclusions. The exclusions are explained below:
I) Destruction or damage by explosion (whether the explosion occasioned by fire
or otherwise) except as stated on thereof the policy.
II) Goods held in trust or on commission, money, securities, stamps, documents,
manuscripts, business books, patterns, models, moulds, plans, designs, explosives
unless specially insured by the
III) Destruction of or damage to property which at the time of happening of such
destruction or damage is insured by any marine policy.

Fraud
Fraud always invalidates a contract and the following provision is made in the
standard policy.
If the claim be in any respect fraudulent of or if any fraudulent means or devices be
used by the insured or anyone acting on his behalf to obtain any benefit under this
policy or if any destruction or damage be occasioned by the willful act or with the
connivance of the insured of benefit under this policy shall be forfeited.
Reinstatement Clause
The insurer has the option to discharge his liability by restating or replacing the
damaged property. The cash payment of actual loss is not made under this clause.
Warranties
The warranties clause is as follows:
Every warranty to which the property insured or any thereof is or may be made
subject form the time the warranty attaches apply and continue to be in force
during the whole currency of this policy, and non-compliance with any such
warranty, whether it increases the risk or not, shall be a bar, to claim in respect of
such property or item, provided that if policy is renewed a claim in respect of loss
or damage occurring during the renewal period shall not be barred by reason of
warrantee not having been complied with at any time before the commitment of
such period.
The compliance of warranties is very essential. Non-compliance with any of the
warranty or even substantial compliance fatal to the contract whether the risk
thereby has increased or According to the clause the warranties of the previous
policies policy may not essentially be applied to renewed policies.

4. RATE FIXATION IN FIRE INSURANCE

The rate fixation in fire insurance is not as scientific as scientific as in life
insurance. The physical hazard can be estimated satisfactorily but the moral
hazard, being varied and unknown, cannot be ascertained so correctly. While
calculating the premium, various relevant factors of both the hazards are properly
estimated and evaluated. The premium must be adequate enough to provide for full
payment of claims including catastrophic losses, expenses of management and
margin of profit. The tariff offices follow the collective system of tariff rating.
After nationalization of general insurance businesses, the tariff rating is applied.

SYSTEM OF RATE FIXATION

The actual process of rating consists of three steps:
1) Classification
2) Discrimination
3) Fixing rates or schedule rating.

1) Classification
Properties to be insured are of various nature and risk. Since the premium is fixed
in relation to the class of risk, the properties are classified accordingly. Properties
are generally divided into three main classes, vise
(1) Common or Ordinary,
(2) Hazardous and
(3) Doubly Hazardous.
Different premium rates are fixed for each class. These classifications do not hold
good for a long time because of varied nature of risk. Now the risks are classified
into various classes according to factors affecting fire risk.

Construction or Structure: The construction of the building has always been of

great importance in rating. Building made of brick will be sounder than the
building made of wood. Today, the construction of building is divided into two
types of structure. First fire- proof building and second, building without fireproof.
The height of the building the area, the number of unprotected floor openings,
construction of walls, floors, roof, etc, is considered in calculating the fire hazard.
Occupancy: The risk considerably varies according to the nature of occupancy,
i.e., the use to which the building is devoted. One building may be used as a dry
goods store or hardware store, or furniture-store or for residential purposes. The
building may have different risks because of the different substances and processes
which they contain and the different uses to which they are put. There is inherent
connection between the building and its contents. It is essential for companies to
change their rates to meet changing business conditions. Rate making in fire
insurance does not present constant factors. Justice demands that the insurer should
recognize the important changes. A building occupied as a residence or an office is
a better risk than a retail shop. A storeroom used for the storage of highly
combustible goods is more hazardous from a fire insurance viewpoint than grocery
shop. The process of manufacture, the nature of raw materials used, and the type of
machinery are important factors to influence the physical hazard.
Nature of Flooring: The nature of flooring influences the risk to a greater extent.
Existence of wooden floors in the building introduces an additional physical
hazard. Wooden floor becomes a fuel in the event of fire. It may collapse easily
causing damage to property.
Height: The height adds difficulty in fighting a fire on the upper floors. There may
be risk of water damage to property on the lower floors when water is used to
extinguish a fire on the upper floors. The floors involve heavy risk of collapse of
the upper floors.
Floor and wall openings: Openings in the floor for lifts and belts constitute higher
physical hazard. It may cause greater chances of ignition of fire and difficulty of
extinguishing the fire.
Exposure: The chances of risk may differ from property to property according to
the degree of exposure. A building or property may be situated in a congested

conflagration locality involving greater danger to the property. Exposure stands

seconds a cause of fire and is more than the occupancy hazard.
Lighting, Heating and Power: The fire may occur due to short-circuit.
Combustion can also arise from faulty installation and dampness. The lighting
system e.g. by gas or oil, leakage of fuel and naked flames cause more hazard to
property.
Place or situation: The locations of the property, Nature the source of water
supply, the degree of congestion in the area are some of the important factors to
influence the degree of risk.
Protection: The availability of protection against fire influences the degree of risk.
The protection facilities may be public or private. When protection facilities are
available the fire may be extinguished in its incipiency. The fire extinguishing
apparatus, water supply, police system etc can reduce the degree of risk. Smaller
premium is changed where modern device for preventing and extinguishing fires
are present. It would be injustice to charge the same rate for all types of risk.
Time: The time of loss must be kept into consideration. The annual loss ratio is by
no means uniform every year. So, the rate fixation must account for good or bad
years to determine approximately the real loss. Therefore, a long period of time is
taken in to consideration while calculating the premium.

2) Discrimination
The differentiation of the rates for individual risks in a particular class is known as
discrimination. Each additional feature of risk is charged extra premium. The better
types of risks are encouraged and attracted by the insurer. Lesser premium is
charged where fire extinguishing appliances or fire-resisting construction are
present. The tariff system is based on the law of average and graded schedule is
formulated where different rates are ascertained for the different types of risks.
Thus, the different risks are put in a specified class, and are differentiated from
each other according to the merits and demerits of the individual risk.

It aims at a more equitable basis of rating. For example, dwelling house is a class
and therefore, all the dwelling houses are put in the same class. Since the dwelling
houses are of different types, the class may be sub-divided into several classes
according to the degree of hazard. An appropriate discount could be given for
those houses which have fire extinguishing appliances, nearness to fire brigade
station and absence of exposure in the vicinity.
3) Schedule Rating
It is a plan by which hazards with respect to any particular risk are measured. It is
defined as, an empirical standard for the measurement of relative quantity of fire
hazards. Schedule rating takes into consideration the various item influencing the
peril of fire. It is based on the theory that the aggregate for hazard of any risk is
capable of ultimate analysis into its component factors to each of which could be
assigned an appropriate charge. A standard or average premium is determined as a
base for calculating the premium. The average premium rate for a class of risk is
determined taking into account the total loss and the sums assured during a period
of years. The period should be such that the experience of good as well as bad
years may be taken into account. A large number of items, as far as possible, are
taken so that the law of average may apply. Larger the number, the more
representative will be the rate of premium.
Thus the average fire rate is calculated as follows:
L/V * 100
Where L represents the losses and V represents the values of insured amount.
The rate arrived at will be net premium which is just sufficient to meet all the
losses in that particular risk. This basic or net premium is loaded with expenses of
management, commission, rents and a margin for profit to arrive at the gross
premium or office premium.
The rate so calculated is called normal rate or average rate for the particular
group. In each group, risks may differ from one another and in order to maintain
equity between different, types of risk and between the insurer and the insured, it is
necessary to apply the principle of discrimination, of individual risks in a group
taking into account their particular features. Extra rates are provided for bad

features, i.e., for inferior construction, timber flooring ,height, situation in a

congested area and discounts are granted for good features, i.e., for fire extinguish
appliances, automatic sprinklers etc. The rebate will be allowed taking into account
the efficacy of the means adopted.

PRINCIPLES OF RATE FIXATION

The fire insurance rates are determines by three ways:
A) Personal judgment
B) Tabulated experience and
C) Schedule.
A) Personal Judgment Rating:
This method was the first to be generally used. Under this method, the rates so
made indicate the opinion or judgment of the rate maker. The judgment is the
result of the experience and observation of many years. The rate made was
equitable. No attempt was made to take account of minor differences. All the good
features and all the defective featjures were put together and the rate was
calculated by differentiating from the average premium.
Since the personal judgments differ greatly, different rates may be determines to
the same risk. With the increasing complexities of modern properties, the shortcomings of this system became more and more apparent. This method may create
dissatisfaction amongst the policyholders because of different premiums to the
same type of properties. Now less reliance is placed upon personal judgment in
making rates.
1) The method is not essentially based upon judgment. The combines judgment
of a large number of individuals is taken into account. It is based on the
experience of several years and of several persons. Therefore, it reflects a
reasonably accurate treatment of the various elements to measure the fire
hazard. Under this method, the risks are classified according to their loss
experiences.

This system may not be practical as so many classes of risks would be

necessary. The experience collected in the past will be of no great value in
the future. However, rates made on this basis may more correctly be utilized
as compared to that of other systems.
2) Schedule Rating
Under this method, fire hazard is separated into various elements and each
element is assigned a particular value. The schedule describes a property as
Standard. For each standard risk, a standard premium is assigned. To this
basic rate or standard premium, a certain stipulated charges are made for
defects in construction and arrangement of property and certain deductions
are made for unusually good features as compared with the standard.
The advantages of the schedule rating system are that it provides more equitable
treatment of all insured. Due to the systematic treatment of the risk, the premium
rates come approximately the same. The second advantage is that it reduces
friction between the company and the insured because the insured is able to
understand how his rate is made in every case. The third advantage is that it tends
to reduce fire waste because it encourages proper construction of buildings by
intelligently charging for deficiencies from standards and recognizing
exceptionally good construction by deductions. The fourth advantage is that it
secures more thorough inspection and rating.
THE TARIFF SYSTEM IN PRACITICE
The Tariffs have prescribed the order in which the various additional rates and
discounts are to be applied to the final rate.
1)
2)
3)
4)
5)
6)
7)

Tariff rates as mentioned against the relevant item in tariff.

Extra rate mentioned in the item itself.
Extra for inferior reconstruction.
Conflagration extra.
Artificial light extra night work extra.
Extra for the use of the mobile goods handling appliances.
Mofussil or classified town extra.

8) Extra for electrical installation not in the accordance with tariff

regulation.

5. PAYMENT OF CLAIMS
Payents of claims
The insurer should inform about loss as soon as the loss occurs. On
receiving the notice, the insurer appoints an assessors to examine the
facts of the case and to determine the amount of liability. The assessor is
an expert person having the ability and experience in handling the claims.
The assessor is empowered to act and make necessary arrangement on
behalf of the insurer. He goes to the site of fire and personally, examines
the damaged property and the collects the all available information. The
assessor gets the idea of the nature and extent of the damage, the origin
and the cause of the fire. Usually, the assessor asks the insured about the
loss to avoid future dispute between the insured and insurer. The insured
is suggested to separate the salvage or undamaged part from the
damaged part to reduce the possibilities of further damage and to
evaluate the amount of the loss correctly.
Steps are taken to check thatThe policy is in force on the date of the occurrence of the loss or damage;
The loss or damage is by a peril insured by the policy
The property affected by the loss is the same as insured under the policy
The notice of loss is received without undue delay
After the initial check up, a number is allotted to the claim and entered in
claim register. A separate docket is opened for filling the claim paper and
the copy of the policy. The face of the docket provides for printed
columns for incorporating claim number, policy number, date of loss,
estimated amount of the loss, date of survey, name of surveyors, etc.
A claim form is issued to the policyholder. The claim form requires the
following information:
I. Full description of circumstances of the loss such as date loss of
time, the place of fire

II.
III.
IV.
V.

Cause of fire.
Particulars of the property affected by the loss such as description,
value at eh time of fire, value of salvage and the claim amount.
Statement of other insurances on the property, name of the insurer,
the policy number and the sum insured.
Sound value of all the property.

The Claim is recorded in the docket of claim, where facultative reinsurance is

involved, an advice of the loss is sent to the insurers.

The survey report of the assessor contains the following information:

1. Cause of loss: It is necessary to know whether the fire was caused by an
excepted peril or was caused by the negligence of a third party or there was
any evidence of fraud, So, the cause of fire is clearly obtained. Often the
exact cause and origin of fire annot be accurately established. In such cases
the available evidence will have to be carefully examined to support a
plausible cause:
2. The amount recommended for payment which is determined, on the basis of
current market value and under-insurance.
3. Detail and value of salvage. The method to dispose it of
4. Details of expenses involved in extinguishing fire and salvage corps charges.
5. The position in respect of compliance with the warranties.
6. Apportionment of the loss and expenses among the insurer where there are
more than one insurer.
7. The assessor can judge whether the fire has been started at more than one
place and whether it is a case of arson. He will inquire whether there is a
breach of warranty or negligence on the part of the insured.
8. The exact amount of loss payable by the insurer. The presences of the
average clause in the policy will determine the amount of loss payable.
On receipt of the claim form dull completed and the survey report the claim is
processed and, if it is in order, a discharge voucher is to be signed by the insured.
The amount of loss payable by the insurer is usually settled by agreement between
the insurer and the insured otherwise the matter has to be referred to arbitration.

Market value of the damaged property is usually taken into account while
calculating the amount of loss. Sometimes the cost of replacement is considered for
the purpose. But, it is prevalent only in advanced countries because the insurers
have we equipped staff of replacement.
Before the cheque in settlement of the claim is released , the payment is
recorded in the claims register and the claim docket. It is essential that the salvage
recoveries should be correctly recorded in the claims register. The payment is
recorded in the relative policy file and the sum insured is reduced by the amount of
the claim. The sum assured can be reinstated on payment of proportionate premium
from the date of reinstatement of the sum insured to the date of expiry of the
policy. When the amount of loss is estimated to be small and the cost of
investigation is disproportionately high, the survey is dispensed with and the claim
is processed and settled on the basis of the complete claim form. When the
insurance is on co-insurance basis, the surveyor is appointed by the leading office.
Each co-insurer is sent a preliminary advice of the claim followed by a copy of the
final survey report which indicates the apportionment of the loss among the coinsurers. Generally the leading office settles the entire loss and recovers the
proportionate shares of the loss and expenses from the co-insurers.
Salvage Corps
Fire Salvage Association was incorporated in 1925 as a company registered by
guarantee and the insurance companies are members of the Association. The main
objects of the Association are to provide a fully trained corps to salvage materials
from the buildings on fire, to protect them from water damage, to restore them to
serviceable conditions after fire fighting operations are completed. The corps also
renders following services to the fire M-committee, Bombay, of the Tariff
Advisory Committee.
i.
ii.
iii.
iv.
v.

Checking the fire hydrants in the Cotton Green Storage area.

Inspection of sprinklers in the godowns in the Cotton Green area.
Training of the fire fighting squads in the textile mills.
Provision of facilities to the Fire Sub-committee to test sprinkler heads and
other fire extinguishing appliances.
Reporting on unusual features observed on the time of fire extinguishment.

Application of Average Clause in Payment of Claim

When insurance is subject to the ordinary, or Pro-Rata conditioning of Average,
i.e., under-insurance, the liability of the insurers is restricted to that proportion of
the loss that the sum insured bears to the value of the property at the time of the
destruction or damage. The insurers liability in th3e event of a claim under a
policy subject to average, the loss is assessed in the ordinary manner, but the
amount payable is determined after a comparison of the sum insured and the value
of the property. Where under-insurance exists, the liability of the insurers is
limited.
The Pro-Rata Condition of Average
Whenever a sum insured is declared to be subject to average, if the property
covered thereby shall at the breaking out of any fire or at the commencement of
any destruction of or damage to such property by any other peril hereby insured
against the collectively of greater value than such sum insured, then the insured
shall be considered as being his own insurer for the difference and shall bear a
ratable share of the los accordingly.
The insurers cannot be called upon to pay the full sum insured. If the property is
totally destroyed, there will be a total loss under the policy.
Special Condition of Average
Whenever a sum insured is declared to be subject to special conditions of average,
then, if such sum shall at the bring out of any fire or at the commencement of any
destruction or of damage to the property by any other peril hereby insured against,
be less than three-fourths of the value of the property insured in that amount the
insured shall be considered as being his own insurer for the difference between the
sum insured and the value of the property at the time of such fire or at
commencement of such destruction or damage and shall beat ratable share of the
loss accordingly.

This condition shall operate only if the sum assured is less than the three-fourths of
the value of the property. If the sum assured exceeds this proportion of the value at
risk, the insured recovers the full amount of his loss up to the sum insured.
The assessor in the fire insurance deals with some typical tasks which is described
in the following paragraphs. The assessor also called Adjuster
Task of Adjuster
The adjuster has to examine and collect the following information:
1. What policies and agreement covered the property at the time of loss?
2. Whether the property described in the policy is really located and placed at
the described place. Whether property had be removed at the safer place at
the time of loss
3. Tile nature and extent of the insurers interest in the property.
4. Loss occurred after the commencement and before the expiration of the
contract.
5. Whether loss was the direct result of fire or other insurer perils
6. Whether loss was the direct result of fire or other insurer perils
7. Whether any part o the loss was caused directly or indirectly by enemy
attack, military offence etc.
8. Whether the loss occurred while the hazard was increased by any means
within the control or knowledge of the insured.
9. Whether before or after the loss the insured willfully concealed or
misrepresented any material facts.
The adjuster must do the following:
1) Fix by agreement with the insured or by appraisal, the all cash value of
the property at the time of loss and the amount of loss there to.
2) Exclude from the claim, uninsurable property or accepted property.
3) Determine the extent of the application of the insurance the contribution
to be made by the insurer to the loss.
4) If there are two or more policies covering the property, portion the loss
among these policies.

5) See that the requirements in case of loss that are necessary produce
informative essentials to establish the status of liabilities under the policy
or the value or loss of the property are complied
6) Consider the interest of any mortgagee name as payee in policy and the
action that should be taken by the insurers.
7) Investigate any disputed cancellation of the policy.
8) Exercise the option to take all or any part of the property at the agreed or
appraised value.
9) Preserve any right of recovery from third, parties to the loss.
PAYMENT AND-DISCHARGE BY ADJUSTER
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
xiv.

Meet the insured or the person who will act for him in adjustment, discuss
the loss with him and make any necessary, mination of records.
Examine his policy if it cannot easily be produced, the record of insurers
agents or brokers record should be searched.
Inspect the scheme of the loss and examine any of the property still
evidence.
Examine available records or reports covering the occurrence of the loss,
those of fire department, peril or salvage corps, ice, etc.
Examine available records or reports covering the occurrence of the loss,
those of fire department, peril or salvage corps, ice etc
Consider whether any insurance held by others should bear the loss or any
part of it.
Withdraw if the insurance is not liable for the loss contract with the insured
and report to the insurer or have n waiver agreement.
Estimate the situation and the probable results to adjustments.
Choose the method of adjustment used.
Make any necessary preparation for conducting the adjustment according to
the method chosen.
Negotiate an agreement with the insured as to value and submits the
disagreement.
Check any claim for possible errors and omissions also for which any policy
or contract is liable.
Forward to insurer with final report and supporting papers.
Account the salvage and its proceeds with the final report.

WAIVER AND ESTOPPEL

Waiver
Waiver is defined as the voluntary relinquishment of a known right. The waiver
may be
1) Expressed
2) Implied.
An insurer is informed that a policy under which claim is made is void because the
person insured had no insurance interest in the property but still, the insurer is
going to pay it as a waiver.

Estoppel
Estoppel is the legal bar raised by a persons own action against asserting a right
that he once possessed or making a choice that once was open to him. An, insurer
may be stopped from exercising its option to take all or any part of the property at
the agreed or appraised value it it delays notice to the insured that it intends to do
so.

CHAPTER 6. REINSURANCE
Reinsurance is an arrangement whereby an original insurer has insured a
risk insures a part of that risk again with another insurer, that is to say,
reinsures a part of the risk in order to diminish his own liability. The
difference between the retention and the total amount of acceptance is
reinsured. The sting or retention and effecting of reinsurance brings about a
wider distribution of the risks and secures to the insurer the full Vantages of
the low of average.
Reinsurance is the transfer of insurance business from one insurer to
another. The insurer transferring the business is called the principal or

ceding or original office and the office to which the business is transferred
is called for reinsurer or guaranteeing office. It is also a contract of
indemnity. The original company must disclose all the material facts to the
reinsurer. At the time of loss the reinsurer indemnifies the loss up to the
amount of reinsurance. The reinsurance amount is obtained by deducting to
tension amount from the original policy.
Advantages of Reinsurance
1. The original insurer can accept the risk to the extent of his limit. In
absence of reinsurance , a person desiring a large amount of
insurance will have to take a number of policies from several
insurers. This reinsurance contract makes it possible to purchase.
Only one policy from an insurer.
2. Reinsurance contract makes it possible to accept each risk for the
very amount desired by the proposers and to transfer the excess
above the retention limit to another insurer.
3. The reinsurance gives the benefit of the greater stability resulting
from a widespread of business. By accepting many risk and scaling
down, by reinsurance, all those that are larger than the normal
carrying capacity of the insurer justifies, certainty in business is
substituted for uncertainty through the better application of the law of
average.
4. The reinsurance makes stability in underwriting and consistency in
underwriting results over a period.
5. It provides a safeguard against serious effects of conflagration.
6. The reinsurance has the effect of stabilizing income and losses over a
period of year.

Chapter 7. VARIOUS POLICIES OFFERED BY PUBLIC SECTOR

COMPANIES

VARIOUS POLICIES OFFERED BY PUBLIC SECTOR COMPANIES

The policies can be of various types which are offered by public sector companies
are as follows1. Valued Policy: The value of the property to be insured determines at the
inception of the policy. In this case, the insurer pays the total admitted value
irrespective of the then market value of the properties. The measure of
indemnity is, in consequences, not value at the time of fire, but a value
agreed at the inception of the policy. The insurer pays the insured a fixed
sum following the destruction of the insured property. The amount fixed
may be greater or less than the actual market value of the property destroyed
by fire at the time of loss. In this policy, the measure of indemnity is based
on the value of properties rather than on the market values of the property
destroyed. This policy is used for insuring specially pictures, sculptures, and
works of jewelry, rare things, and articles of everyday use. Since the value
of damage of these articles cannot be easily denied a the time of loss, the
valued policies are commonly Strictly speaking the valued polices are
betrayal from principle of indemnity because the market price is not paid in
case.
The valued policy is beneficial to the insured because he is reed of proving the
value of property at the time of loss by search of invoices and receipts. The
disadvantages are that the new purchases and replacement cannot be added to the
valued policy valuation, therefore, is revised at frequent intervals. The insurer will
have to pay more than the actual loss if the market price the property has gone
down. IT may increase the moral hazard. The valued policies can be disputed on
grounds of fraud.
2. Valuable Policy: Valuable policy is that policy is claim amount is to be
determined at the market price of the aged property. The amount of loss is

not determined at the time place of loss. This policy is truly representing the
doctrince indemnity.
3. Specific Policy: Where a specific sum is insured you a specified property in
case of a specified period , the whole of actual los is payable provided it
does not exceed the insurance amount. Here the value of property insured
has no relevance arriving at the measure of indemnity in a specified policy
the insured sum sets a limit up to which the loss can be good.
4. Floating Policy: The floating policy is the policy taken to cover one of more
kinds of goods at one time less than one sum a assured for one premium and
in relation to the, same owner. This policy is useful to cover fluctuating
stocks in different localities. Since the properties are spread over various
localities and in different forms, the physical and moral hazards are also
varying and, therefore, it makes difficult to determine premium rate. In
India, the premium rate is approximately the same in such case except the
case of most hazardous risk. Such policies are specially taken by big
manufacturers or traders whose merchandise might be laying in parts at
warehouse, godown, port, or railway station. In such cases, it is very difficult
for the owner of such goods to take specified policy of each good because
the quantities of the goods deposited in each will fluctuate from day to day,
place to place, according to sales or consumption or Consequent removal
and replacement. The average rate of premium is ascertained by taking into
account the total premium payable ha the property been insured by specific
policies. The floating policy contains the average and marine clause.
5. Average Policy: Policy containing average clause is called an Average
Policy. The amount of indemnity is determined with reference to the value
of the property insured. I f the policy holder has taken policy for lesser
amount than the actual value of the property, the insured will be deemed to
be his own insurer for the amount of under-insurance. The insurer will pay
only such proportion of the actual loss as his insurance amount bears to the
actual value of the property at the time of loss. For example, the property
worth Rs. 30,000 is insured for Rs. 20,000 is damaged up to Rs. 12,000, the
insurer will pay only Rs. 8,000 as is evident from the following:
Claim = Insured amount/value of property X actual loss = 20,000/30,000 x
12,000= Rs. 8,000

The insured thus will suffer himself up to Rx 4,000 and the surer will pay
only Rs. 8,000 out of its 12,000. In this case, if the insurance was taken up to
the full value of the property, the assured would have been paid all the
financial loss, i.e. Rs.12,000. Since the insurance was taken for lesser than
the actual of property, the assured is compensated the loss in that proportion.
The average clause is operative only in case of under-insurance. This clause
is ineffective when the property is insured are the full value as in that case
the insured is protected to the extent of his total loss. The under-insurance
penalizes the assured inserting average clause to the policy because he is
supposed insure himself for the amount by which he under-insures his
property and, therefore, is supposed to contribute in that ratio to the as
sustained.
6. Excess policy: Sometimes, the stock of a businessman any fluctuate from
time to time and he may be unable to take one hey or specific policy. If he
takes policy for a higher amount, has to pay a higher premium. On the other
hand, if he takes insurance to lower amount, he will have to bar the
proportionate amount of loss. The insured in this case can purchase two
policies, one First LOSS Policy will cover that stock below which the stock
never goes. The minimum level of stock can be found out from the past
experience and for the other portion of stock which exceeds the minimum
limit, he can purchase another policy called excess policy, the actual value
of the excess stock is declared every month. The amount of premium is
calculated on the average monthly excess amount. Since the chances of
payment on the excess amount are very remote, the rate of nominal premium
as compared to the premium payable on the total amount had the policy been
specific. The average clause also, applies to this policy.
7. Declaration Policy: The excess policy contributes to a ratable proportion of
the loss because if the amount of excess stock exceeds the sum set in the
excess policy the business will not have a full cover owing to average
condition. Moreover, if the First Loss Policy was also subject to average
condition the assured will be at a loss, the stock fluctuates from time to time.
Under the declaration policy, the insured takes out insurance for the
maximum amount that he considers would be at risk during the period of the
policy. The insured takes out insurance for the maximum amount that he

considers would be at risk during the period of the policy. On a fixed date of
every month or a specific period, the insured furnishes a declaration of the
amount. The premium is provisionally paid to 75% of the annual premium
amount, practically, the annual premium is determined on the average of
these declarations. If the premium is higher than the provisional premium
already paid, the insured has to pay the difference to the insurer. On him
other hand if the premium so calculated is lesser than the premium already
paid, the excess return to the policy holder. The declaration must be made on
a specified day or within the next 14 days, otherwise the sum insured will be
deemed to be the declaration value.
The great advantage of this policy is that the premium is limited to the actual
amount at risk irrespective of the sum insured. Unlike the excess policy, the
premium is not unnecessarily paid. Moreover, the insurer may pay up to the
full sum insured throughout the period of the policy because the premium
amount can be adjusted accordingly. The policy is very advantageous to
those businessmen whose stocks fluctuate from time to time. The amount of
the declaration offers scope for fraud because the insurer may pay lesser
premium by undervaluing the stock. Therefore, this policy is issued only to
reputed concern.
8. Adjustable Policy: The above disadvantage is removed by adjustable
policy. This policy is nothing but an ordinary policy on the stock of the
businessman with liberty to the insured to vary at his opinion, the premium
is adjustable pro-rata according to the variation of the stock. In case of
declaration policy, since the excess premium is refundable at the end of the
year, the insured may put fire to the property. This danger is avoidable in an
Adjustable Policy. This is issued for a definite term on the existing stock.
The premium is calculated in the ordinary manner and is paid in full at the
inception of the policy. Whenever, there is variation in the stock, the
insured informs the insurer. As soon as the information of variation is
received, the policy is suitably endorsed and the premium is adjusted on a
pro-rata basis. The policy amount will, thus, be changeable form time to
time. The Premium is also settled accordingly.
9. Maximum Value with Discount Policy: Under this policy declaration or
adjustment of policy is required, but the policy taken for a maximum amount
and full premium is paid thereon. The end of the year, in case of no loss,

one-third of the premium is returned to the policy holder. This policy is

similar to the declaration policy where the botheration of checking and
record declarations is avoided. It serves as a rough and ready method
overage for maximum amount. This policy is not issued on all types of
commodities and is confined only to selected commodities.
10.Reinstatement Policy: This policy is issued to avoid the conflicts of
indemnity. In other types of policies only the market value of the damage or
loss is indemnified but, this policy undertaken to reinstate the insured
property lost by fire to new condition irrespective of its value at the time of
loss.
In other types of policies, in case of building or machinery, the actual loss is
arrived at by deducting the regular depreciation and the original cost of it.
The amount of indemnity will be lesser than the amount to be spent in
reinstating the property destroyed or damage. In order to provide full
coverage reinstatement or replacement policies are issued. Under this
policy, the basis of settlement in the event of destruction is the cost of
rebuilding the premises or in cse of plant and machinery, the placement done
by similar machinery. The reinstatement of the damaged property indicates
the meaning of repair of the damages. The restoration of the damaged
portion of the property to a condition substantially the same is but not better
or more extensive than its condition. At the time of its renovation the cost of
the property when partially destroyed will not be more than the cost which
would have been insured if such a property has been totally destroyed. The
payment of the actual expenditure on replacement will not be made, until the
expenditure has actually been incurred. This policy is also called New for
Old policy is not issued on stock, merchandise or materials. Each item of
the insured property is subject to average. The policy provides the definite
amount in case of purchase of new property in place of the old property
destroyed.

CHAPTER 8. FINDINGS AND CONCLUSIONS

FINDINGS AND CONCLUSIONS

In the primary data collected from the experts from the insurance
industry, the following are the findings
Findings from the insurersPeople have a faith in public sector companies because of government backing
and their long and strong background. They clearly mention during one to one
interview that even though they are not as much customer friendly as the people
that have been created because of their long history.
They admitted that the working of the public sectors not quick and fast. But
they want the public to understand the reason behind this. The reason is that
they have to consult to the higher authority if they have to cross the border
drawn by MoA & AoA as they are dealing with the public money. In brief, they
lack of decision taking power.
There is a lot of untapped market in India rather not even 10% market has been
tapped in India. The main reason behind this is lack of awareness. Another
reason behind this is that If the event does not occur than the amount paid by
the insured is non refundable.
There is no threat to the public sector from private sector because of
government backing and their long and strong background.

Conclusions
Conclusions from all above is as follows

People have more faith in public sector that private sector.

The working of the public sector is not as efficient as the private sector.
There is a lot of untapped market in India which has to be tapped.
Private is not a threat to the public sector as far as the insurance sector is
concern.

In the primary data collected from the experts from the insurance industry, the
following are the findings.
In the primary data collected from the experts from the insurance industry, the
following are the findings
Findings from the insured-

 Many of the businessmen do not take a fire insurance cover as they consider
it as an overhead cost and not as the risk coverage.
Many few have taken for insurance policy. They include fire cracker shop,
grocery shop, hardware shop, etc.
Among them most have complaint that the public sector companies dont
have a customer centric approach
They also dont have innovative products.
ConclusionFrom the above finding we can conclude that
There is a need of awareness of the fire insurance as the loss due to fire
insurance is huge which effects countries progress
Most of the customer of the public sector companies are not happy and are
demanding more innovative product.
SUGGESTION
From the above information we, can see the worsening situation of the fire
insurance business. The following are the suggestions

Improvement in the working of the public sector insurance company

Launching new innovative products
Shifting from product centric approach to customer approach
In case of no event returning back 25% amount to the public