Session 4 ..Fire Insurance.. Floater and Declaration Policy

7/30/2019 Session 4 ..Fire Insurance.. Floater and Declaration Policy

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Session 4


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Floater policy..the need2

A garment manufacturer has stocks of finished goods and semi-

finished goods kept inside his two factories as well as in 10

warehouses spread across the country . The stocks keep moving

every day from one location to another and the finished goods also

gets delivered to customers .. He proposes to take a fire policybutis unable to ascertain the sum insured of the stocks location wise (

stocks are of fluctuating nature & there is lot of inter location

movements )..But he is aware of his total stocks position at all

locations put together .

Insurance company says that fire is a location specific policy and

they need to have the exposure of each location ..

A single policy can cover all his stocks in 12 locations under

a SINGLE SUM INSURED , which should be the sum total of

stocks in all his locations .. He need not provide location

wise breakup of sum insured This is called a FLOATER

POLICY


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Floater policyconditions3

Complete address of all the locations have to be provided policy

Cannot be provided for unspecified locations .

This policy can be given mainly for stocks or movable properties

.. Not for fixed property .

The insured should have sound internal audit and accountingpractices, so that the total value at risk for all locations as well

as the locations can be established at any point of time .

Any addition or deletion of locations should be communicated to

insurers immediately

A client has taken a floater policy covering stocks in Mumbai (Andheri), Delhi( Okhla) , Greater Noida, Gurgaon ( Sector 14) and

Chennai ( Whites road ) ..for total sum insured of 100 crores . Policy

period 1.4.2012 to 31.3.2013. On 5th of July he shifts his stocks from

Gurgaon Sector 14 to Gurgaon Sector 29 he does not intimate to

insurer as the location is still in Gurgaon On 10th September there

is a fire loss in Gurgaon , Sector -29 !!!


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Floater policy..Rating4

A floater extra of 10% is charged over

and above the base rate .

In case the stocks are kept in

locations which have different base

rates .the highest rate among thosewould be the base rate .

Earthquake rate would be for the

highest zone among the locations

covered .

The highest STFI rate for any of thelocations would get charged ..e.g. if

stocks are floating among factory and

warehouse , STFI rate for warehouse

being the higher one, would get

applied .

No loading for Kutcha construction

Fa

ctory

W 1

W2

Stocks floating among

The three blocks within

One compound wall

No floater extra to be

charged


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Declaration policy the

need

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Client has stocks in three locations he is able to arrive at value for

each location . But the stocks are of fluctuating nature and due to

constant inward and outward movements, he is unable to decide

on the maximum value at risk at any point of time within a

location

Policy is issued on DECLARATION BASIS can be given only

for stocks

Based on a provisional sum insured, an initial premium is

charged at a rate agreed by both parties .

Monthly declarations are provided to the insurer by the insured

At the end of the year the premium is adjusted


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Declaration policy

qualifying criteria

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Minimum total sum insured for all locations covered should be

1 crore or more .

Sum insured of at least one insured location should be 25 lacsor more .

Declaration policy cannot be issued for the following :

1. Stocks undergoing process

2. Stocks kept in railway siding

3. Short period policies i.e. declaration facility can be given

only for annual policies


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conditions

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Basis of declaring the values monthly : Client can choose any of the

following basis and the same needs to be mentioned on the clause

attached to policy :

1. the average of the values at risk on each day of the month

2. the highest value at risk during the month

Reduction in sum insured is not allowed under a declaration

policy.

Increase in sum insured is allowed on pro-rata basis

Stocks covered under Industrial all risk policy cannot be given theDeclaration facility .


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conditions for computing

refund

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1. Monthly declarations should reach the insurers by end of the

succeeding month i.e. declaration for September should

reach the insurer by 31stOctober .in case of of more than

one location covered individual declarations for each

location to be provided2. Non receipt of declaration or late receipt of declaration would

mean that for refund computation , the provisional sum

insured will be considered the declaration for that month .

3. In case of NO stocks in any month , NIL declaration needs to

be provided in time .

4. In case in any month, the declaration made exceeds theprovisional sum insured , the provisional sum insured is

considered for refund computation and not the higher

declaration .

5. Maximum refund allowed under this policy would be 50%

of the total premium charged i.e. including any premium for

increase in sum insured


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Declaration policy refund

computation

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Sum total of all declarations considered ( not made )

Determine average declaration ==

Sum total of all declarations considered / 12

Average declaration * Rate == Actual premium to becharged

Provisional premium charged actual premium to be

charged == refund (subject to max. 50% of total premium)

Such refund computation needs to be done for each of the

locations covered


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10 Declaration policy

Cancellation by Insured Without a loss

1. Short period retention of premium on average ofdeclarations received till date of cancellation (includingmonth of cancellation)

2. Subject to min. retention of 50% of provisional premium

After a loss :Premium to be retained by the insurer will beSUM of

1. Pro rata premium on average ofof declarations received till

date of cancellation (including month of cancellation)2. Pro rata premium on amount of loss paid from date of loss

till expiry of policy

3. Subject to minimum of 50% of provisional premium


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11 Declaration policy

Cancellation by insurerThe premium to be retained by the Insurer shall be appropriate

pro-rata premium calculated on the average amount insured

Up to the date of cancellation subject to the minimum retention

of the premium


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Declaration policy special

condition of average

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Possibility of under insurance being applied twice

The provisional sum insured (x) is compared with value atrisk as on date of loss (y)

Last available declaration immediately before the loss( w) iscompared with value which ought to have been declared forthat month( z)

Adjusted loss= Loss * x /y * w/z..in case x is less thany and w is less than z

Both the factors of underinsurance may or may not beapplied depending on the value


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13 Declaration policy claims

case study

Insured has his stocks in warehouse covered under

a declaration policy for the period 1.1.2012 to 31.12.2012 . The

provisional sum insured under the policy was 200 crores . A fire

loss was reported on 20thMay 2012 . Clients last two declaration

for the month of February and March were : 150 crores and 175

crores .

On checking insureds records the surveyor had following

observations :

1. Actual stock value as on date of loss was 250 crores

2. The stocks position ( highest value of the month ) in February

and March was 175 crores and 190 crores respectively

3. The loss was assessed at 25 crores

Whether under insurance would be applied and if yes, how ?


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Floater Declaration policy14

Combination of floater and declaration policy

All conditions of floater and declaration policy will apply

Minimum sum insured required to qualify---Rs 2 croresfloating among all locations

Maximum refund that can be given after adjusting

declarations--- 20% of provisional premium(80% of

provisional premium will be retained )

Documents

Session 4 ..Fire Insurance.. Floater and Declaration Policy