RELEVANT INFORMATION FOR COTTON UNDERWRITING/CLAIMS IN

COTTON GINNING AND PRESSING FACTORIES

--------------------------------------------------------------------------------------------During my professional career of 29 years in cotton zone i.e. Multan; I have conducted
thousands of surveys related to cotton fire losses in cotton ginning and pressing factories
through out the Punjab and Sindh on behalf of number of Insurers working in Pakistan.
Lot of experience gained during these years, was shared with people related to this
industry i.e. underwriters, surveyors, Bankers, Industrialists, fire fighters, salvage dealers,
buyers & sellers of cotton etc.
Technical, theoretical, practical, information regarding safety, measures to minimize the
expected losses, measures to minimize the quantum of loss, measures to improve the
design, ginning/pressing process, stacking of raw cotton, cotton waste, baled cotton,
maintenance, house keeping, handling hazardous materials, waste specially, providing
clean and tidy atmosphere for stack of cotton, observation of insurance warranties,
conditions, availability of fire fighting facilities in order to arrest the initial spreading of
fire, training of factory, fire brigade, Banks staff to handle emergencies etc have been the
topics under discussion.
Briefly I would comment upon the topics to provide some information to the concerned
people to make their policy, to suggest further measures to be taken, care/cautions to be
taken against certain factors, making the warranties up to date, training of staff, creating
awareness regarding the insurance conditions/warranties etc.
We start with the common causes of fire origination in factories come to our experience
during the past 27 years to give a look at and address the safety measures to be taken.
CAUSES OF FIRE ORIGINATION
1. ARSON
2. ELECTRIC SHORT CIRCUITING.
3. SMOKING ACTIVITY.
4. FRICTION OF ANY HARD MATERIAL WITH MACHINERY FAST MOVING
PARTS LIKE SAWS, ROLLERS, FANS BLADES ETC.
5. CONGESTION IN FEEDER/DELIVERY SYSTEM.
6. SPARKS FROM THE OVER-HEATED ELECTRIC MOTORS, SWITCHES,
STARTERS ETC.
7. SUDDEN BREAKAGE OF IRON HOOP WHICH PRODUCES SPARK.
8. SMOLDRIG LINT PRESSED IN THE BALE WHICH BURST OUT IN TO FIRE
AFTERWARD.
9. MALICIOUS INTENTION
10. FIRE WORKS DURING MARRIAGES/SHAB-E-BARAT ETC.

11. BURNING OF BUSHES/CLEARANCE OF LAND BY FIRE OUTSIDE THE

FACTORY.
12. MOVEMENT OF VEHICLES IN THE FACTORY.
13. COOKING IN THE FACTORY IN EMPLOYEES/LABOR QUARTERS.
14. FROM ANY EXPOSURE HAZARD.
15. WELDING/MAINTENANCE WORK IN THE FACTORY.
16. RAW COTTON SPREADING/DRYING/CLEANING MACHINE.
17. PRESENCE OF GLASS PIECES IN THE STOCK OF RAW COTTON WHICH
REFLECT AND FOCUS SUN RAYS LIKE CONVAX LENS.
18. SUN RAYS PASSING THROUGH THE DROPS OF WATER CREATING THE
SIMILAR AFFECT.
19. SPONTANEOUS COMBUSTION (VERY RARE)
CAUSES OF FIRE SPREADING
1. ARSON
2. NON-AVAILABILITY OF INITIAL FIRE FIGHTING FACILITIES IN THE
PREMISES.
3. NON-AVAILABILITY OF LABOR DURING OFF-SEASON OR HOLIDAYS.
4. LOCATION OF FACTOR (REMOTE AREAS)
5 NOTICING THE FIRE ORGINATION AT LATE STAGE WHEN IT ALREADY
SPREADED OUT BEFORE TAKING ANY COUNTERS MEASURE
6. INCORRECT STACKING.
7. PRESENCE OF HAZARDOUS MATERIAL NEAR AND AROUND THE STOCK.
8. KEEPING RAW COTTON CLOSE TO COTTON BALES
9. STORAGE OF WASTE MATERIAL NEAR THE STOCK.
10. UN-SKILLED WORKERS AND MANAGEMENT.
11. LONG DISTANCE OF FIRE BRIGADE.
12. NON-AVAILABILITY OF ELECTRICITY IN THE PREMISES AT THE TIME OF
FIRE.
13. STRONG WIND CURRENT.
14. UN-SKILLED FIRE FIGHTERS.
15. LOOSE PRESSED COTTON BALES.
16. SUB-STANDARD IRON HOOPS/WIRES.
17. SUB-STANDARD BALE MAKING PROCESS.
18. BREAKAGE OF HOOPS OF FEW BALES IN THE STOCK
19. STACKING OF RAW COTTON WITH OUT MAINTAINING DISTANCE IN
BETWEEN THE HEAPS
20. NON-AVAILABILITY OF WATER LOCALLY FOR FIRE BRIGADES TO RECHARGE.
21. HIGH TEMPERATURE.
22. LOW MOISTURE CONTENTS IN THE COTTON.
MEASURES TO BE TAKEN

1. MORAL HAZARD
This factor has been penetrated in the society, the black sheep of insured/insurers
community deeply setting up negative trends in the market. Principals, ethics, morality,
truth have been obscured and dreams to become multi-millionaire by all humanly
possible means have been over-casted in minds. Cheating, lies, fraud, embezzlement,
drawing un-due and illegal benefits, have become the practice of the day.
Psychology of the insured community is quite strange and illogical. At first they do not
take the insurance policy as security and mental peace but they take it as a compulsion by
the financer. 2ndly they tend to draw un-due advantages out of the insurance policies.
Return of major portion of the premium has now become their right and they draw all
these un-due benefits because of un-healthy/negative competition and also presence of
bad elements in the offices of insurers as well as surveyors.
This is quite un-fortunate that few of the largest insurers, in the name of their reputation
are contributing to this malpractice.
Some times the property is put on fire because of gross shortage in stock as compared to
the stocks pledged in the Bank, some times for material gain after putting the stock of
inferior quality and less quantity on fire. In most of such cases the Bank officials, Insurers
local Management, Muccaddam are involved. Some surveyors are involved after the
claim is lodged.
We have seen in many cases where bales of less weight bounded with inferior grade of
cotton and waste mixed cotton have been used. Purchasing already burnt cotton bales
from black sheep present in salvage dealers and using the same in fresh claims is one of
the most recent trends of seeking un-due benefits out of insurance policy.
At the time of settlement of claims all negative means are utilized to pressurize the
Surveyors and insurance companies and some times the surveyors who refused to take
part in the show have been harassed and kidnapped in the factory.
As per insurance Ordinance the function of a surveyor is not to settle any loss. They are
supposed to examine any goods, property or interest insured under a contract of non-life
insurance to express an independent opinion as to the cause, extent, location and amount
of loss. So if the surveyors are advised in writing not to exceed their mandatory scope of
function this sort of malpractice and aggravation of losses would stop.
In order to combat against the moral hazard few measures are suggested.
1. Great care and caution is taken while selecting the field and office staff both by the
Surveyors and Insurers. Field staff should be restricted to the procurement of business
only and all paper work should be handled by the office staff. Strict monitoring regarding
issuance of cover notes, policies, premium receipts, endorsements etc should be adopted.
Office staff should visit the field to check the stock positions or risk inspection with the
field staff periodically and send reports to the head office. Services of independent
surveyors/inspectors may be utilized for this purpose. It would be of great help if the

Bank stock report may be tallied with the Mortgagors stock registers and stock physically
present in the premises periodically specially during the last days of season. There is no
harm in putting few bales on weighing scale at random in order to check the average
weight. A surveyor may be asked to accompany where any doubt as to the quantum of
raw cotton is felt who would make an opinion regarding the quantum and quality. History
sheet (statistical data) of each and every ginner must be maintained regarding their
activity in terms of payment of premium, claims and the general attitude.
Clever/prudent field staff may collect the necessary information about the insured
regarding the business activities, strength, liabilities, relationship with the financer and
sellers and their claim history.
2. Prime importance should be given to the phenomenon of selecting the surveyor.
Insurance companies who have retired surveyors in the fleet of Management are lucky
enough to know all about the market reputation of a surveyor. Experience counts a lot in
the matter of investigating the cause of loss, detail and extent of loss, observation of
conditions and warranties and to convince the insured regarding the view point of
surveyor. His honesty, promptness, professional skill based on his field experience and
general reputation in the market should be monitored. It should be kept in mind that the
survey assignments should not be given to the busiest surveyors as they have no time to
make justice with the profession and settle the claims haphazardly without going through
the complete detail of loss assessment even if he is honest. He would cause to aggravate
the loss just to settle it for the sake of his reputation with out creating any sense of
obligation for the insurers by paying more than the actual loss and thus the moral hazard
co-exist.
It should also be kept in mind that few complaints from insured side would come up in
case of an honest surveyor taking part in survey proceedings because he would not be
accommodating out of the way. Surveyors working with the bad reputed insurers should
be avoided.
Few corrupt field Managers of big insurance companies are also responsible and they
contribute in moral hazard in many ways. Mostly they take the advantage of inability of
co-insurers to appoint their independent surveyors and so the surveyors appointed by the
leaders are all in all. They make money, aggravate the amount of loss, accommodate their
favorite insured, bargain and adjust overriding commission through claims etc.
Attempt should be made to issue an independent cover note. Working with bad reputed
insurers or Managers should be avoided and the local Manager is already well aware of
these culprits.
Big business enterprises are just white elephants and we have hardly witnessed any
profitability by underwriting those giants who dictate their terms from start to end. So in
that case a proper strategy should be evolved. There are many good reputed big business
enterprises setting up good examples which should be facilitated maximum.
Non-professional & non-serious business community should be avoided like adventurers,
gamblers, farmers who have merged in ginning business in last 10 years. They gamble on
fluctuation of prices in the market and tend to hold the stock in wait of fetching
maximum price level. Defaulters of taxes, fees, other Government dues, parties working

with extra-high liabilities of the market, parties who could not pay back their loans and
other liabilities, parties who are habitual claimants etc may easily be identified.
Presence of sub-standard weight of cotton bales, inferior quality of cotton, long storage of
raw cotton with out ginning, no movement of stock for a long time, no business activities
in the premises, disturbance among the sellers, great difference in value of stock shown
as pledged and value of stock physically existed are enough indications to avoid
insurance at that particular premises. Observance of conditions and warranties is another
factory which should be given due importance.

PHYSICAL HAZARDS
1. Bad housekeeping.
2. Poor maintenance of machinery.
3. Sub-standard electric wiring, fitting and fixtures.
4. Improper storage of waste material.
5. Long running/use of machinery/electric motors etc.
6. Presence of hazardous material.
7. Not maintaining the proper distance between the stocks.
8. Not maintaining the proper distance between the stocks and buildings.
9. Improper electric wiring.
10. Huge storage of raw cotton, cotton bales and seed.
11. Exposure hazards.
12. Cooking in the premises.
13. Smoking.
14. Frequent movement of vehicles.
15. Non-availability of proper fire fighting facilities in the premises.
COTTON POLICY
While making cotton policy the above factors should be kept in mind. Moral
hazards are not infrequent and so as the physical hazards are. For a newly launched
insurance company aggressive cotton policy particularly for cotton ginning and
pressing factories, keeping in view the above facts would not be feasible. Focus
should be made to establish a good infrastructure by appointing loyal and sincere
workers establishing the branches in key areas. Gradual start in this respect would
be advisable and in the meantime market study, behavior of other insurers and their
policies, behavior of insured community and surveyors working in the region, data
collection regarding claims history and bad reputed parties, should be gone through.
After establishing a compatible infrastructure and practical study of the market in
first 2-3 years the cotton policy should be modified/up-dated accordingly.
At start the business of cash in safe/transit, building/machinery, stock in process etc
should be underwritten on minimum level.

We suggest that at start the cover note of stocks should not be issued exceeding the
sum insured of Rupees 5 million in first quarter of the season. In 2 nd quarter great
care and caution should be taken and no cotton business after the month of March
should be underwritten in starting 2-3 years.
To take control over claims the choice of surveyors should be given prime
importance. Pet Surveyors working with leaders (big insurers) would always be
loyal to the leaders even if they are not appointed by them to survey few claims. It
has been the practice of the market that few Managers of some big insurance
companies get all the surveyors loyal to them appointed on a claim and then achieve
the results of their choices.
Further more the Surveyors who are working with the Banks by fetching valuation
business always take influence of the Banks while settling the losses because of the
business interest of surveyors with the Banks. So the surveyors enlisted on the
panels of Banks for valuation business should be used with great care and caution.
Prompt intimation of claims to the head office should be assured and in return
prompt appointment of surveyors in order to secure the prima facie evidence of loss.
The right of appointment of surveyors should not be given to the branch who mostly
have their vested interests.
Keeping in view the above data more suitable warranties should be drafted in
English as well as in Urdu. A set of warranties already in use should also be attached
with the policy in Urdu language. We may provide the same if so required.
I already have taken the privilege to make suggestion to IAP and some Insurance
Companies regarding drafting of new cotton GP warranties.
Heavy risks should be inspected specially at the end of season by a competent and
honest surveyor. We had undertaken the job of risk inspection including the
quality/quantity of stocks in relation to stock reports/DP on behalf of National Bank
of Pakistan and as a result of that inspection in whole of Bahawalpur Circle some
surprising results had come in to light so it is always helpful for the underwriters to
go for risk inspection periodically.
NOTE: The purpose of this article is not to hurt the feelings of any body in
particular but I have tried to share my personal experience with the community for
positive intent. Bad and good elements exist in every community including
Surveyors, Insurers, Insured and I am proud of those who are contributing to the
society in positive manners.
QAYYUM PERVEZ MALIK
qayyum@qpmalik.com