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7/29/2019 Fire Insurance ITC
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Fire InsuranceAnurag Rastogi
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Principles & Policy
Coverage
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Copyright Bajaj Allianz 3/21/2013 3
Anurag Rastogi
Basic Principles
Insurable Interest
Utmost Good Faith
Proximate Cause
Indemnity
- Subrogation
- Contribution
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Fire Insurance
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Originating or Inception Fire
HazardElectrical
Smoking
Friction
Overheated Materials
Hot Surfaces
Burner Flames
Combustion Sparks
Spontaneous Combustion
Cutting and Welding
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Incendiarism
Mechanical Sparks
Molten Substances
Chemical Action
Static Sparks
Lightning
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Fire Policy
FIRE
LIGHTNING
EXPLOSION
AICRAFT DAMAGEImpact damage
Subsidence,landslide
Bursting of pipes/tanks
Missile testing
Sprinkler Leakage
Bush fire(excluding forest fire)
Debris removal & Architect fee
RIOT
STRIKE
MALICIOUS DAMAGE
STORM
TEMPEST
FLOOD
INUNDATION
RSMD
STFI
OTH
ERS
FLEXA
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Exclusions
Excess of Rs.10,000 for each and every loss(Max of 5% or 10000 for AOG perils)
War group of perils
Nuclear perilsPollution or Contamination, excluding :
- Resulting from insured peril
- Insured peril resulting from pollution orcontamination
Per insured per
event
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Exclusions
Stocks in Cold Storage premises caused by change in
temperature
Architects, surveyors fees exceeding 3% of claim
amount
Debris Removal expenses exceeding 1% of the claimamount
Loss of earnings, loss by delay, loss of market and
other consequential and indirect losses
Spoilage of materials caused by insured perils
Loss by theft during or after operation of insured perils
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Exclusions
Earthquake, Volcanic eruption or any other convulsions
of nature
Insured property removed from the insured premises,
however
- Equipment temporarily removed for repairs, cleaning,renovation or other similar purposes for a period of
60 days are covered
Electrical exclusion
Goods held in Trust,bullion, curios etc above
Rs.10,000, manuscripts, securities, documents,
money, explosives unless specifically covered
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Conditions
MisrepresentationPolicy expiry after 7 days from fall /displacement of any building-if not caused byinsured peril
Changes in risk, insurable interest
Unoccupied building
Coverage of same property by marine insurance
Policy termination
Notice of loss within 15 days
Disclaimer after 12 months
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Conditions
Rights of company on damaged propertyFraudulent claims/means
Companys option to repair, replace or
reinstateAverage clause-separately for each item
Contribution clause
SubrogationArbitration
Auto-reinstatement
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Add On Covers
Architects, Surveyors & Consulting Engineers
Fees upto 7.5% of adjusted loss
Removal Debris ( > 1% of claim amount)
Deterioration of Stock (cold storages), FOESextension
Forest Fire
Impact Damage due to Insureds own vehicles
Spontaneous Combustion
Omission to insure additions, alterations orextensions (5% 0f SI)
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Add On Covers
Terrorism Earthquake (Fire & Shock)
Spoilage Material Damage
Leakage and Contamination Cover (for oilsand chemicals only)
Temporary Removal of Stocks Clause
Loss of Rent Clause Insurance of Additional Expenses of Rent for
An Alternative Accommodation
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Customization
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Declaration Policy
For fluctuating stocks above 1 crorePremium adjustment at the end of policy,
refund maximum 50%
Basis of declarationOmission to declare
Two average conditions
No reduction in sum insured
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Floater Policy
For several specified locations where location-
wise sum insured can not be ascertained
One sum insured floats over all the locations
No floater extra for stocks floating within thesame complex/compound
Floater Declaration Policy
Amalgamation of floater & declaration conceptsMinimum sum insured Rs. 2 crores
Maximum refund 80%
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Reinstatement Value Policy
New for Old(?), for Buildings, P&M, FFF onlyNot for Stock
Applies only if property actually reinstated, elseclaim settlement on Market Value basis
Reinstatement should be completed within 12months (extra time allowed by company) ofdamage/destruction
Insureds option to accept settlement on RIV or
indemnity basisAverage Clause applies as usual. Often MVsettlement better that RIV settlement in case ofheavy underinsurance
New price of old asset if available as new today
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Other Clauses
Escalation(upto 25%) ClauseLocal Authorities Clause
Agreed Bank Clause
Contract Price Clause
Designation of property clause
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Fixing Sum
Insured
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Sum Insured
Recognized facts about Sum Insured
Always fixed by proposer
Is the limit of insurers liability
Is the amount on which rate is applied to determinepremium
Should represent actual value of property beinginsured
Over insurance means definite loss of premium
Underinsurance means a probable loss onoccurrence of claim
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Buildings
Below plinth / above plinthInclusion of embedded items like pipes, electric
& telephone wiring
Inclusion of Furniture, fixtures and fittingsValue to insure for?
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Valuation
Capitalized CostBook Value/WDV
Market Value
- Depreciation on merit
Reinstatement Value- CPWD rates
- Cost indices by National
Building Organization
Capitalized Cost Book Value RIV Market Value
1976 1000000 1000000 1000000 1000000
1986 1000000 300000 1500000 1200000
1996 1000000 102000 15100000 4080000
2006 1000000 39000 17340000 13872000
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Indicative Building
Depreciation
RCC construction 1%
Factory sheds with RCC frame 1-2%
Factory sheds with AC sheets roofs on
steel / wooden framework
2-4%
Other construction 2-2%
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Old plant might have undergone technologicalimprovements May be out of production Imported earlier, but available indigenously now P & M may be obsolete
Old P&M-RIV-from where?
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Plant & Machinery
Methods of finding RIV
Current replacement value of similar machinery, if
available, OR
Current replacement cost of available machineryLESS adjustments for improvements, OR
Landed cost of (imported) machinery, (+) Fall / (-)
Gain in value of Rs. Vis-a-vis foreign currency (+)
Inflation (foreign currency) (+) Increase / (-)Decrease in duty
Alternatively, inflate landed cost by RBI index
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Plant & Machinery
Book Value Market Value
For marketable P&M
For specialized P&M
Depreciation as per plant load, usage,
maintenance
Maximum depreciation and residual value
A special case of computers and other
electronic machinery
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Stock
Raw material-Cost at which material availableon the date & place of loss
Finished goods-Manufacturing cost includingoverheads, OR ex-factory cost MINUS sales
overheads and profit Imported goods-Contract price/Landed cost
Stocks In Process-Cost of raw material plusother inputs and processing cost
Waste Products: Commercial value asindicated by earlier sales
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Extra Protection
EscalationRemoval of debris
Architects, surveyor and Engineers fee
Omission to insure additions, alterations orextensions
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All India Fire Tariff
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Section I - General regulationsSection II - Policy Cover / Exclusion / Conditions
Section III - Non Industrial risk
Section IV - Industrial / Manufacturing risk
Section V - Utilities outside IndustriesSection VI - Storage risk outside Industries
Section VII - Tank farms / Gas holders outsideIndustries
Section VIII - Add-ons
Annexure A - Standard clauses
Annexure B - Standard proposal form
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General Regulations
For land based
properties only
Separate block wise SI
for bldg, machineries,
stock & SIP, FFF, other
contents
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General Regulations
STFI & RSMD could
be deleted at
inception
No partial insurance
Insured Uninsured
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General Regulations
SI increase any no. of times at prorata premiumEscalation 5%-25%, for B&M only
Claim experience discount/loading for SI>50 cr
in one location, 5-15% Discount, 2.5-15%loading
FEA discount, 2.5-10%
Silent risks
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Claims-The Acid Test
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Essentials
Intimation & surveyCoverage
- Date, risk, insurable interest, peril
Adequacy
Damage quantification
Policy conditions, warranties, clauses
Claim valuation & reinstatement adjustment
Salvage
Claim recipient & discharge
Recovery
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Salvage
An important component of most fire claimsInsured is the best buyer of salvage!
Hence, salvage needs special care and prompt
actionSalvage is adjusted before application of
underinsurance and excess
Branding issues
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Duties of insured
Common law duty to avoid/minimize the lossCost of minimizing losses payable by policy
Duty to give notice
Onus of Proof & associated duties-listed perilVs All risks policy
- Facts and only facts
- Figures, accurate and authenticated- Access to premises and records
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Rights of insured
To receive proper and dispassionate adviceTo receive a copy of proposal
Receive an offer of claim settlement within 30
days of the receipt of survey reportReceive penal interest in case of delay in claim
payment
Source: IRDA Policyholders protection regulations, 2002
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Rights of insurer
After claim- To enter, take & keep possession of thepremises
- To take possession of insured property
- To exercise removal, sorting or examinationetc of property
- To sell such property for account of all
concernedExercise of these rights does not prejudiceinsurers right to deny or diminish liability
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Irritants
Loss Valuation- Value at the time of loss
- Value at the place of loss
- Real or intrinsic value (sans sentimentalvalue)
Depreciation
Average ClauseExcess
Salvage Value
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The Golden Rule
Learn form others mistakes andavoid the usual pitfalls
Claims optimization begins at the
stage of buying insurance and not
after loss occurrence
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QUESTIONS?
Thank You