Presentation on fire insurance

Submitted by : Group -3

Definition of Fire Insurance

Fire insurance is a contract whereby the insurer, in consideration of the premium paid,
undertakes to make good any loss or damage caused by fire during a specified period upon the
amount specified in the policy.

Principles of Fire Insurance

The following are the principles of fire insurance:

1. Insurable Interest in fire insurance.

2. The principle of Good Faith in fire insurance.
3. The principle of indemnity.
4. Proximate Cause of fire insurance.
5. The doctrine of Subrogation.
6. Warranties in fire insurance.

1.Insurable Interest in Fire Insurance

Insurable interest is the general concept of insurance without which an insurer cannot be legally
applied because insurance without insurable interest is a gambling transaction.

2.The principle of Good Faith in Fire Insurance

The arrangement of fire insurance is one in which the observance of the utmost good faith
(uberrima files) by all parties is critical. The highest level of good faith in fire insurance has two
components: first, the disclosure of relevant evidence, and second, the protection of the insured
property.

3.Principle of indemnity

The theory of indemnity seeks to compensate the insured for a loss suffered, and the
reimbursement should be designed to put him in as close to the same financial condition after the
loss as he was before the incident.
4.Proximate Cause of Fire Insurance

The rule is that the immediate cause, rather than the remote cause, is to be considered as causa
proxima non-remota spectatur. The proximate trigger is important in fire insurance.

5.Doctrine of Subrogation

Subrogation refers to the right of one person to act in the place of another and assert the latter's
rights and remedies. Subrogation is merely a corollary to the concept of indemnity.

6.Warranties in Fire Insurance

Warranty is the assurance given by the assured that something specific will be done or will not
be done, or that certain conditions will be met, or that he affirms or denies the existence of a
certain state of truth.

Elements of fire insurance contract

1. Offer and Acceptance

2. Insurable interest
3. Principle of Good Faith Principle of Indemnity
4. Doctrine of subrogation
5. Warranties
6. Proximate cause

Classification of fire insurance.

1. Valued policy :-

In this policy the indemnity is a fixed amount agreed upon at the time of signing the contract.

The insured is benefited when the market value of the property declines, but suffer loss when the
market value appreciates.

The valued insurance policy is usually offered for such items like jewellery, furs, or paintings,
which value is difficult to estimate once they are damaged or destroyed by fire.

2. Floating Policy :-
 It is taken to cover loss on goods, which are lying in different places and the stock of which is
almost continuously fluctuating.

It is taken out for those goods which are frequently changing in all warehouse.

Floating policies are suitable to those traders or products whose raw-materials or merchandise
are lying at different localities or godowns. .

For example:-Some of the goods of other trader are kept in one godown, and few kept in another
godown, some kept in the railway godown or some at the sea port open places.

3. Declaration Policy :-

This policy is taken in respect of stock inventory of the policyholder.

Since the level of stock which are subject to frequent fluctuations in value the businessman takes
a policy for a maximum amount considered to be at risk and the premium is paid accordingly.

> On a fixed date of every month the policyholder declares the amount of stock covered under
the policy to the insurance company.

4.Adjustable Policy

In this policy, premium rate shall be adjusted according to increase or decrease in the value of
stock, this change will be notified to the insurer by the insured.

• In case of loss by fire, the amount notified by the insured at the maturity of the policy is taken
as final and indemnified up to that limit.

• It is a contract limited to merchandise or stock in trade other than farming stock.

5.Specific Policy

A specific policy is a type of policy in which the property is insured for a specific sum
irrespective of its value.

If there is loss, the stated amount will have to be paid to the policyholder.

The actual value of the subject matter is not considered in this respect.
For example: If a property is insured for Rs. 10000 though its actual value is Rs. 20000. In the
event of loss to property, not more than Rs. 10000 can be recovered.

6.Average Policy

• Where a property is insured for a sum which is less than its value, the policy contain a clause
that the insurer shall not be liable to pay the full loss but only that proportion of the loss which
the amount insured for, bears to the full value of the property.

For example: A value of the property is Rs.1,00,000. It is insured for Rs.60,000 (60% of the total
value) The amount of loss is Rs 60,000.The insurance company will not pay Rs.60,000 to the
policyholder but will pay Rs.36,000 (60% of Rs.60,000).

Condition of fire insurance are two types:

1. Express condition
2. Implied condition

Express conditions

Conditions which are set out in the policy are known as express conditions which may be either
of general nature and therefore printed on the policy or conditions specially designed with
reference to a particular contract and are incorporated in the policy

1. Misdescription: The policy shall be voidable in the event of Misdescription, misrepresentation,

or non-disclosure of any material fact

2.Alteration: The insurance contract may be avoided if there is any alteration after the
commencement of the insurance

3.Exclusions: The risk which are excluded from the fire policies are called exceptions or
exclusions

4. Fraud: Fraud would forfeit all the benefits under the policy as well as invalidates the contract

5. Claim: On the happening of any destruction or damage the insured shall forthwith give notice
thereof in writing within 15 days after destruction

6. Reinstatement Clause: The insurer has the option to discharge his liability by reinstating the
damaged property
7. Subrogation: The clause is corollary to the doctrine of indemnity. It makes clear that the
insured is precluded from obtaining more than the actual loss.

Implied Conditions:

The following conditions are implied conditions in fire insurance.

(a) Existence of property:

The subject-matter of insurance should exist 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 and fully, and should try to prevent the fire and extinguish the fire, if it occurred, with a
reasonable care.

(e) Identity:

The subject-matter of insurance should be described in the policy as to identify it clearly and so
define the risk which insurers have undertaken,

Fire insurance claim procedure

If you own fire insurance and in the position of having to claim your fire insurance policy, the
below easy steps will help you ensure a fast claim settlement.

1. Make Use of any Available Financial or Resources Advance

In case of a fire occurrence, you may have been forced to vacate the space and seek temporary
shelter. If you don't have enough money in hand to buy the essentials, you can intimate the
insurer to extend some financial help in advance. However, the amount released as an advance
payment will be adjusted with the total claim later, only if the insurer has such provision.

2. Estimate the Losses

It is essential to estimate the total loss to get reimbursed fully. Try keeping a track of the losses
incurred after the incident. While doing so just ensure that

- Not to dispose of the burnt items

-Not to repair the damaged infrastructures

-Keep the evidence of damaged or lost items

3. Approach the Insurance Provider and File a Claim

It is advisable to inform the insurance provider as soon as a fire incident occurs. You can either
call on their toll-free number or write them informing about the loss and request them to access
the loss. You may need to submit a proof of loss claim indicating the loss or damaged items. The
claim request should contain the below information

-Date of loss

-Type of loss or damage

-Any related injuries

-Condition of the home or office

-Description of damaged contents

-Location of damage

-Others involved

-Police FIR copy in case Police is involved

4. Estimation of Loss by the Surveyor

A surveyor will be appointed by the insurance company to estimate the actual loss or damage in
the spot of the incident. The claim estimation will be done basis on the report made by the
surveyor. Help in the investigation to get reimbursed fully. Also, keep the original reports of the
investigation or related documents for future reference.
5. It's not Over until You Say So

The insurance company might be in hurry to close your case, especially if there is a mass
disaster. The reason is longer your claim is open, the greater the chance for you to find
something that was overlooked earlier. In such a stressful situation, the probability is there that
you may forget something important to list down in your initial claim. That's why it is
recommended to take your time before finally closing your claim.

Rate Fixation in Fire Insurance :

The rate fixation in fire insurance is not as scientific as in life insurance.The physical hazard can
be eatimated satisfactorily but the moral hazard being varied and unknown can not be ascertained
so correctly. While calculating the premium, various relevant factors of both the hazards are
properly estimated and evaluated.

The method of rate fixation consists of three steps:

1.Classification

2.Discrimination

3.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 a)Common or ordinary b) Hazardous c)Doubly
hazardous.Different premium rates are fixed for each class.Now the risk are classified into
various classes accordingly to factors affecting fire risk.

A)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, fireproof building and second building without fire-
proof.

B)Occupancy: The risk considerably varies accordingly to the nature of accupancy i.e., the use to
which the building is devoted.One building can be used as a dry goods store,hardware store or
furniture store or for residential purposes.The building may have different risk because of the
different substances and processes which they contain and the different uses to which they are
put.
C)Nature of Flooring:The nature of flooring influences tge risk to a greater extent.Existance of
wooden floors in the building introduces an additional physical hazard.Wooden floor becomes
fuel in the event of fire.

D)Height: The height adds difficulty in fighting a fire on the upper floors.

E)Floor and wall opening: 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.

F)Exposure: The chances of risk differ from property to property accordingly to the degree of
exposure.A building or property may be situated in a congested locality involving greater danger
to the property.

G)Lighting,Heating and power: The fire may occur due to short circuit.Combustion can also
arise from faulty installation and dampness.The lighting system for example by gas or
oil,leakage of fuel and naked flames cause more hazard to property.

H)Place or Situation : The location of the property,the distance from the fire brigade station or
the source if water supply, the degree of congestion in the area are some of the important factors
to influence the degree of risk.

I)Protection: The availability of protection against fire influence the degree of risk. The
protection facilities may be public or private.When protection facilities are available the fire may
be extinguished at the beggining.

2. Discrimination : The differentiation of the rates for jndividual risk in a particular class is
known as discrimination. Each additional feature of risk is charged extra premium.The better
types of risk are encouraged and attracted by the insurer.Lesser premium is charged where fire
extinguishing appliances or fire resisting construction are present.

PRINCIPLES OF RATE FIXATION

The fire insurance rates are determined by two ways:

1. Personal judgement,

2. Tabulated experience

1. Personal Judgement Rating

This method was the first to be generally used. Under this method, the rates so made indicate the
opinion or judgement of the rate makers. The judgement is the result of the experience and
observation of many years. The rate made were equitable. No attempt was made to take account
of minor differences. All the good features and all the defective features were put together and
the rate was calculated by differentiating from the average premium. Since the personal
judgements differ greatly, different rates may be determined to the same

risk. With the increasing complexities of modem 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 judgement in making rates.

2. Experience Rating

The method is not essentially based upon judgement. The combined judgement 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.