FIRE INSURANCE

1 MODULE - 4 Practice of General InsuranceNotes 1 fire InsuranceDIPLOMA IN INSURANCE INTRODUCTIONI nsurance sector is divided in two parts as under: InsuranceLife insuranceNon-life orGeneral insuranceIn this module we will explain various INSURANCE polices relatedto non-life /general INSURANCE . Non-life /general insurancemeans the INSURANCE of various tangible or non-tangible assetsother than human life. Even loss of human life or damage tohuman body due to accidents are covered by general , human life relates to life INSURANCE and the properties of human beings fall under this there are various general INSURANCE policies but wewill discuss only the following important INSURANCE (Transit) Accident INSURANCE Policies1 fire INSURANCE diploma IN INSURANCE SERVICESMODULE - 4 NotesFire InsurancePractice of General INSURANCE 2 The above said policies are being sold only by general insurancecompanies and cannot be sold by life INSURANCE restriction is imposed only in India but not in other partsof the India also, prior to nationalization, general insurancebusiness was conducted by life INSURANCE companies also butafter nationalization in 1972, consequent upon passing of theGeneral INSURANCE Business Nationalisation Act (GIBNA)

2 General INSURANCE Corporation of India was formed and wasconferred the exclusive power to regulate and conduct thebusiness of General INSURANCE in 1973 the GIC and its four subsidiary companies namelyNew India Assurance Co. Ltd., National INSURANCE Co. Ltd.,Oriental INSURANCE Co. Ltd., and United India INSURANCE had been the sole players in the field until the passing ofthe IRDA Act 1999 which allowed the entry of private the past few years a few private players have entered thearena. The new players have entered the General Insurancefield but are playing cautiously. These are still early days butthe field is wide open, the future is bright and the customer isthe one who will be benefited the most by the growingcompetition. We hope to see international level of service andproducts in the country soon and a multiple choice to the end of this lesson, you will be able to: Explain the meaning of fire INSURANCE Buy the fire INSURANCE Settle the claim under fire INSURANCE Know the practice of fire INSURANCE in India.

3 Know what is not covered under fire insuranceIn the following pages, we shall be discussing the HISTORY OF fire INSURANCEThe development of fire INSURANCE can be traced back to when the Poor Relief Act was passed in England. Videthis act, letters called briefs were read from the church askingfor collections from the public to help those who suffered lossesfrom fire . There was a great fire in London a historical disaster MODULE - 4 Practice of General InsuranceNotes 3 fire InsuranceDIPLOMA IN INSURANCE SERVICESin which within span of three days from 2nd to 5th Sept. 1666,80% of the city was destroyed which sowed the seeds of fireInsurance as we know it , only buildings were insured and the first fire office wasestablished by a builder Nicholas Barbon in 1680. In 1708,Charles Povey founded the Traders Exchange for insuringmovable goods, merchandise and stocks against loss or damageand this was the first to insure both the building and MEANING OF fire INSURANCEThe term fire in a fire INSURANCE is interpreted in the literaland popular sense.

4 There is fire when something burns. Inother words fire means visible flames or actual smoldering is not considered fire in FireInsurance. fire produces heat and light but either of themalone is not fire . Lightening is not a fire but if it ignitessomething, the damage may be due to section 2(6A) INSURANCE Act 1938, the fire insurancebusiness is defined as follows: fire INSURANCE business meansthe business of effecting, otherwise than independently tosome other class of business, contracts of INSURANCE againstloss by or incidental to fire or other occurrence customarilyincluded among the risks insured against in fire insurancepolicies .Example: The following are the items which can be burnt/damaged through fire : Buildings Electrical installation in buildings Contents of buildings such as machinery, plant andequipments, accessories, etc.

5 Goods (raw materials, in process, semi finished, finished,packing materials, etc.) in factories, godowns Goods in the open Furniture, fixture and fittings Pipelines (including contents) located inside or outsidethe compound, owner of abovementioned properties can insure againstfire damage through fire INSURANCE policy which providesDIPLOMA IN INSURANCE SERVICESMODULE - 4 NotesFire InsurancePractice of General INSURANCE 4financial protection for property against loss or damage FEATURES OF fire INSURANCE :(Dear learner, most of the features to be discussed in thefollowing paragraphs of fire INSURANCE you must have studiedunder Principles of General INSURANCE in other module)1) Offer & Acceptance : It is a prerequisite to any , the property will be insured under fire insurancepolicy after the offer is accepted by the insurancecompany. Example: A proposal submitted to the insurancecompany along with premium on 1/1/2011 but theinsurance company accepted the proposal on 15/1 risk is covered from 15/1/2011 and any loss prior tothis date will not be covered under fire ) Payment of Premium: An owner must ensure that thepremium is paid well in advance so that the risk can becovered.

6 If the payment is made through cheque and it isdishonored then the coverage of risk will not exist. It is asper section 64VB of INSURANCE Act 1938. (Details underinsurance legislation Module).3) Contract of Indemnity: fire INSURANCE is a contract ofindemnity and the INSURANCE company is liable only tothe extent of actual loss suffered. If there is no loss, thereis no liability even if there is fire . Example: If the propertyis insured for Rs 20 lakhs under fire INSURANCE and it isdamaged by fire to the extent of Rs. 10 lakhs, then theinsurance company will not pay more than Rs. 10 ) Utmost Good Faith: The property owner must discloseall the relevant information to the INSURANCE companywhile insuring their property. The fire policy shall bevoidable in the event of misrepresentation, mis-descriptionor non-disclosure of any material information. Example:The use of building must be disclosed whether thebuilding is used for residential use or manufacturing use,as in both the cases the premium rate will ) Insurable Interest: The fire INSURANCE will be valid only ifthe person who is insuring the property is owner or havinginsurable interest in that property.

7 Such interest mustexist at the time when loss occurs. It is well known thatMODULE - 4 Practice of General InsuranceNotes 5 fire InsuranceDIPLOMA IN INSURANCE SERVICES insurable interest exists not only with the ownership butalso as a tenant or bailee or financier. Banks can alsohave the insurable interest. Example: Mr. A is the ownerof the building. He insured that building and later onsold the building to Mr. B and the fire took place in thebuilding. Mr. B will not get the compensation from theinsurance company because he has not taken theinsurance policy being a owner of the property. Afterselling to Mr. B, Mr. A has no insurable interest in ) Contribution: If a person insured his property with twoinsurance companies, then in case of fire loss both theinsurance companies will pay the loss to the ownerproportionately.

8 Example: A property worth Rs. 50 lakhswas insured with two INSURANCE companies A and B. Incase of loss, both INSURANCE companies will ) Period of fire INSURANCE : The period of INSURANCE is to bedefined in the policy. Generally the period of fire insurancewill not exceed by one year. The period can be less thanone year but not more than one year except for theresidential houses which can be insured for the periodexceeding one year ) Deliberate Act: If a property is damaged or loss occursdue to fire because of deliberate act of the owner, thenthat damage or loss will not be covered under the ) Claims: To get the compensation under fire insurancethe owner must inform the INSURANCE companyimmediately so that the INSURANCE company can takenecessary steps to determine the QUESTIONS is utmost good faith? is period of INSURANCE ? diploma IN INSURANCE SERVICESMODULE - 4 NotesFire InsurancePractice of General INSURANCE PROCEDURE TO INSURE THE PROPERTY UNDERFIRE INSURANCE :For insuring any property under the fire INSURANCE policy,the following is the procedure:1)Filling of proposal form2)Inspection of the property3)Payment of premium4) Issue of Cover note/ Policy document in lieu ofacceptance of the )Filling of Proposal FormThe fire proposal includes the following information :Description of the property.

9 This would include:I)(i) Construction of external walls and roof, number ofstoreys.(ii)Occupation of each portion of the building.(iii)Presence of hazardous goods.(iv)Process of manufacture.(v) The sums proposed for INSURANCE .(vi)The period of INSURANCE .(vii)History of previous losses.(viii) INSURANCE history - whether previously other insurershad declined the risk, )Inspection of the property: In case of property of anybusiness organization, whether manufacturing or othertype of organization, a risk inspection report is submittedby the insurer s engineers. The engineers submit in theirreport the nature of risk involved in the factory/manufacturing )Payment of Premium: Based on the proposal form andthe inspection report of the engineers, the insurancecompany will submit the premium rates to the propertyowner and if these rates are acceptable to him then heshould pay the amount to the INSURANCE company.

10 It isalso a legal requirement under section 64VB of InsuranceMODULE - 4 Practice of General InsuranceNotes 7 fire InsuranceDIPLOMA IN INSURANCE SERVICESAct 1938 that the premium is paid in advance in full tothe INSURANCE )Issue of Cover note/ Policy document: On receipt of acompleted proposal form and / or inspection report, thecover note is issued, pending preparation of the policydocument. The cover note is an unstamped documentissued to provide evidence of cover till the time the policyis issued. The cover note provides INSURANCE againstspecified perils on the usual terms and conditions of thecompany s printed policy form provides for a schedule in which theindividual details of the contract are typed. The items aresimilar to those in the Cover Note but with more issuing the policy document, it is likely that there maybe some changes in the nature of property or sum insuredmay increase or decrease.