FIRE INSURANCE

Fundamentals of Underwriting 2.20

A Reliance Capital company

WHAT IS FIRE ?
One of the five natural elements Great boon to mankind Can destroy life & property A good servant but a bad master

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THE FIRE TRIANGLE

FUEL

OXYGEN

HEAT
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THE FIRE TRIANGLE

Three essential ingredients: Fuel- Coal, Timber, Jute, Rubber, Petrol, Methanol, Paraffin, Butane, LPG, Coal Gas etc. Heat- Flame

Oxygen- Free air in atmosphere

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WHY DO WE NEED FIRE INSURANCE ?

Three basic facts:

There exists a material/property susceptible to damage or destruction by fire or other perils

The property has intrinsic value in terms of money

The occurrence of a fire will result not only in loss or damage to the material property but also in consequential loss
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FIRE INSURANCE
Meaning of Fire: There should be an actual ignition. Fire must be accompanied by visible sparks or Flames. Mere heating without ignition scorching, charring and damage by SMOKE without actual burning is not considered as fire. There must be something on FIRE which ought not to be on FIRE. Fire should be fortuitous in origin and not deliberately caused at least so far as insured is concerned. Fire caused by wilful act of the third party without the connivance of the insured is covered under the policy. There must be something in the nature of an accident.

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RESULTING LOSSES
Damage during or immediately following a fire caused by SMOKE, HEAT, SCORCHING and FALLING WALLS. Damage due to WATER or any other extinguishing media used in putting out fire. Damage due to legitimate acts of Fire Brigade. Damage due to collapse of Floors and roofs consequent to Fire. Damage to property whilst being removed from the burning Building in an effort to mitigate the loss.

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FIRE INSURANCE
Contracts of insurance against Physical Damage/ Loss/Destruction by or incidental to fire or other perils covered under the policy Fire Insurance Business in India was until recently regulated by Tariff Advisory Committee, as per the provisions of the Insurance Act,1938. It was applicable to all insurers transacting Fire Insurance Business in India.

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A Reliance Capital company

DIFFERENT INTERNAL GUIDE SECTIONS

Section I General Rules and Regulations

Section II

Policy wordings

Section III Dwellings,Offices,Hotels,Shops etc. Section IV Industrial/Manufacturing Risks Section V Utilities Located Outside the Compound of Manufacturing/Industrial Risks (Stand Alone)

Section VI Storage Risks Outside the Compound of Industrial/Manufacturing Risks (Stand Alone) Section VII Tank farm/Gas Holders outside the compound of Industrial/Manufacturing Risks Section VIII Add on covers
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SALIENT FEATURES
Fire Insurance is applicable for land-based properties Block-wise Sum Insured to be shown in the policy ONE RISK ~ ONE RATE. STFI and/or RSMTD Perils can be deleted at the inception of policy for the entire property in one complex. No option for selection of property

Reduction in Premium Rates

Valued policies can be issued for Specified Items. Long-term policies (> 12 months) can be issued only for DWELLINGS subject to under-writing guidelines applicable
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SALIENT FEATURES
Mid term cover for STFI &/or RSMDT perils can be issued on

short period rates Minimum fire premium Rs. 100/- per policy except risks under Section III. Partial Insurance is not permissible Plinth & Foundations of a BLDG can be excluded. Escalation to provide automatic regular Increase in Sum Insured (Max=25%). Applicable for BMA and not for Stocks. Mid-Term Increase in Sum Insured- Premium-Pro-Rata Basis Mid-Term Decrease in Sum Insured- Premium-Short Period
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SALIENT FEATURES
Provisions for Floater/Declaration/Floater Declaration Policies
FEA Discounts- 2.5%-10% (Section III-VII) Rates reduced substantially Claims experience Discounts/Loading for Risks: Sum Insured >Rs. 500 million - 5 -10 % (Section IV - VII) based on incurred claims experience of the insured for the preceding 36 Months excluding the expiring policy period.

Discount for Voluntary Deductibles- 2%-10%

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STANDARD FIRE AND SPECIAL PERILS POLICY

PERILS COVERED:
a. Fire b. Lightning c. Explosion/Implosion d. Aircraft damage e. Riots, Strikes, Malicious and Terrorism Damage f. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood & Inundation

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PERILS COVERED
g. Impact Damage- Direct Impact h. Subsidence and Landslide including Rockslide i. Bursting and/or Overflowing of Water Tanks, Apparatus & Pipes j. Missile Testing Operations k. Leakage from Automatic Sprinkler Installations l. Bush Fire

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GENERAL EXCLUSIONS
5 % of each & every claim (Min Rs. 10,000) arising due to
lightning, STFI, subsidence & land slide including rock slide. First Rs 10,000/- for each and every loss arising out of other perils, per event per insured. War & war group of perils Nuclear group of perils Bullion or unset precious stones, curios or work of art for an amount exceeding Rs. 10,000/-; manuscripts, plans, drawings, securities, paper-money, cheques, books of accounts and computer system records

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GENERAL EXCLUSIONS
Damage to the stock in cold storage premises caused by change of temperature Electrical & / or Mechanical breakdowns due to over running, excessive pressure, short circuiting, arching, self heating or leakage of electricity

Architects, Surveyors & Consulting Engineers fee (in Excess of 3%) and debris removal (in Excess of 1%) of claim amount
Loss of earning, market or other consequential loss, loss by delay, theft during or after the occurrence of insured peril, property insured removed to other Building. Loss or Damage due to Earthquake, Volcanic Eruption or other convulsions of nature.
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ADD ON COVERS
Architects, Surveyors and Consultant Engineer Fee (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/change in temperature as a result of damage to the cold storage machinery due to an operation of an insured peril Forest fire Impact damage due to insurer's own vehicles, fork lifts, cranes, stackers and articles dropped therefrom. Spontaneous combustion Omission to insure additions, alterations or extensions Earthquake (fire and shock)
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ADD ON COVERS
Spoilage Material Damage Leakage and Contamination Loss of Rent Temporary Removal of stocks Additional Expenses of Rent

Startup Expenses

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GENERAL PRINCIPLES FOR ADD ON COVERS/ EXTENSIONS

Cover- extension of basic cover amount of insurance (S.I) may be identical. Liability limited to S.I. only All conditions of basic cover applicable except to the extent varied by special conditions in extension Endorsements Generally to exclude consequential losses Onus of proof on the Insured Excess clause No refund for cancellations of extraneous (special) perils unless basic policy also cancelled simultaneously

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CLAUSES

Architects, Surveyors and Consulting Engineers Fees

Designation of Property
Omission to insure Additions, Alterations or Extensions Removal of Debris following damage Temporary Removal of stocks Escalation Clause Deterioration of stocks in cold storage Earthquake (Fire and shock) STFI Contract Price Insurance

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CLAUSES Spontaneous Combustion

Impact Damage due to Insureds Own Rail/Road Vehicles cranes Leakage and Contamination Spoilage and Material Damage Deterioration of Stocks Loss of Rent Additional Expenses of rent for an alternate accommodation Start up Expenses
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CLAUSES

Agreed Bank Clause

Designation of Property Clause Re-instatement Value clause Local Authorities Clause Escalation Clause

Floater
Declaration Voluntary Deductible
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DECLARATION POLICY
Minimum Sum Insured: Rs. 10 million IN ONE OR MORE

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locations and not less than Rs. 2.5 million in at least one of these locations. Monthly Declarations Reduction in Sum Insured not allowed Refund of premium on adjustment based on declarations <50% of total premium Basis of Valuation - Market Value anterior to the loss. Under Insurance applicable POLICY CANNOT BE GRANTED FOR: a. Short period insurance b. Stock-in-process c. Stocks at Railway siding
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STOCKS

SPECIFIC
Specific Sum Insured for each location

FLOATER
Single Sum Insured for stocks lying at various locations

DECLARATION
Sum Insured location-wise subject to fluctuation adjusted at the end

Co. Internal Rate Schedule

Loading on Co Internal rate for all perils

Co. Internal Rate Schedule

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FLOATER DECLARATION CONDITIONS

Declaration basis- within 30 days of the succeeding month
- Average of the highest value at risk on each day or - Highest value on any day of the month Under insurance applicable if total value of stocks as on the date of loss exceeds sum insured

Adjustment of premium on expiry of policy

- minimum retention- 80% of the total premium paid
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SECTION III DWELLINGS, OFFICES, HOTELS, SHOPS ETC Buildings and Contents to be rated per se Deletion of STFI risks (less Rs. 0.05 %0 for dwellings and Rs.0.10%0 for others) Deletion of RSMDT risks (less Rs. 0.075 %0) Pump houses, garages, compound walls and/ or other utilities shall carry the applicable rates

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A Reliance Capital company

Section VI Storage Risks (Outside The Compound Of Industrial/Manufacturing Risks)

Premium rates are based on category of goods stored Incidental operations such as packing, selecting and assorting are allowed Utilities/miscellaneous blocks shall attract rate of Rs. 0.75%0 Discount for deletion of STFI & RSMDT risks For Central Warehousing Corp (CWC) Special rate sanctioned by TAC will continue.

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Points to receive attention while declaring Sum Insured:

Block-wise/Building-wise Sum Insured to be declared.

Breakup should be given for building/plant/machinery/ electrical installation/furniture & fixtures/stocks and stocks in process. Specific advice to be given if Plinth/Foundation are to included in Sum Insured, preferably separate value to be given. Roads cannot be covered against earthquake or flood damage.
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Points to receive attention while declaring Sum Insured:

Developmental expenses incurred at beginning of project and fees for technical know-how which are one time expenses should be excluded while declaring Sum Insured Tanks should be covered as building/structure and pumps as machinery. Item-wise single Sum Insured to be declared for following items: - Air/steam/gas/oil pipelines cables - Pipes and cable racks - Surface and underground drains.
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BASIS OF SUM INSURED

Building/Machinery Furniture/Fixtures

Stocks

Reinstatement

Value

Market Value

Market Value Basis

Reinstatement Value

Reinstatement Value- Dep.

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DISCOUNTS CLAIMS EXPERIENCE DISCOUNT: (for preceding 36 Months excluding expiring policy period)

Claim Ratio upto 10% : 10% Above 10% & upto 25% : 7.5% Above 25% & upto 45% : 5% Above 45% : To be referred to Under-writers

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DISCOUNTS - FEA FIRE EXTINGUISHING DISCOUNT

Hand Appliances +Trailer pumps/fire engines: 2.5% Hand appliances & hydrant system: 5% Hand appliances & sprinkler/fixed water spray system: 7.5% Hand appliances + hydrant system & sprinkler/fixed water spray system: 10%

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A Reliance Capital company

COMPUTATION OF RATE

Basic Rate Reduction in Rates for Deletion of STFI and/or RSMTD Perils, If Opted Out Good feature Discount/adverse feature loading on above worked out rate: Claims experience discount/loading Age of the risk Distance from neighbouring risk Class of Construction discount : Class A 10%, Class B 2.5% OR Tariff Extra for Kutcha Construction Discount for FEA on protected blocks Discount for Voluntary Deductible on the total premium calculated on the basis of final rate blocks
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FIRE POLICY SCHEDULE Construction/Occupation classification Warranties/Endorsements/Add-on Covers Clauses. Sum Insured- Reinstatement/Market value Escalation opted Location

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FIRE CLAIMS PROCEDURE

SPOT ACTIONS
Summon fire brigade

Inform police
Take internal fire fighting measures till fire brigade arrives Inform insurer for survey.
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FIRE CLAIMS PROCEDURE

OTHER STEPS TO BE TAKEN
Leave the damaged/destroyed items for survey/ inspection Take photographs of damaged property Obtain estimate of loss for different items like fixed assets and stocks

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A Reliance Capital company

FIRE CLAIMS PROCEDURE

OTHER STEPS TO BE TAKEN
Take risk minimization measures like shifting of stocks and temporary repairs of buildings to prevent aggravation of further losses. Early disposal of salvage

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FIRE CLAIMS PROCEDURE

Claim intimation to Insurers Completed Claim Form

Occurrence Report
Meteorological Report Fire Brigade Report

First Information Report (FIR)

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FIRE CLAIMS PROCEDURE

Final Report from Police Estimate of loss

Insurance Register /Books of Accounts for Surveyors verification

Survey Report

Bills/Invoices for reinstatement in respect of Building loss.

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A Reliance Capital company

THANK YOU !
A Reliance Capital company