CHAPTER 1

BASIC PRINCIPLES & THE FIRE POLICY

Fire Insurance Business has been defined in Sec 2 of the Insurance Act 1938

Eg Building, furniture, fixtures and fitting, household contents, plant, equipment

and machinery, stock and merchandise in premises or in the open etc.,

Social perils e.g ., riot, strike

Natural perils e.g storm, flood, etc.,
Miscellaneous types of perils e.g aircraft damage impact damage by road / rail
vehicle
Material damage caused by fire or these perils is covered under fire insurance
Consequetial losses e.g., loss of production resulting in loss of profits, etc., These
losses are covered under a separate insurance known as Consequential Loss(Fire)
Policy

Fire insurance contracts are governed by the general law of contract as embodied
in the Indian Contract Act 1872.

Fire insurance contract must have the following essential ingredients in order to
make in enforceable at law

a)Offer and acceptance

b)Consideration
c) Agreement between the parties
d)legality of the contract.

BASIC PRINCIPLES
A) Utmost good faith
B) Insurable interest
C) Indemnity
D) Subrogation
E) Contribution
F) Proximate cause
Fire insurance insurable interest should exist at the time of taking the policy,
continue throughout its currency and should exist at the time of a loss.

Indemnity means insured is indemnified only to the extent of his loss no profit or
undue benefit is allowed.

Fire tariff under sec 64 U(4) AND (5) OF THE INSURANCE Act 1938 as
amended
The IRDA after extensive discussion withdrew the tariffs effective from 1 st
January 2007.

Section I General Rules and Regulations

Section II Standard Fire And special Perils Policy

Section III Dwelling offices hotels and shops etc

Section IV Industrial/ manufacturing risks

Section V Utilities located outside. The Industrial/Manufacturing risks (Stand

Alones)

Section VI Storage risks outside The Compound of industrial/manufacturing risks

Section VII tank Farms/gas holders outside. The compound of

industrial/Manufacturing risks

Section VIII Add on Covers

The term fire for insurance purposes means actual ignition on burning under
accidental or fortuitous circumstance so far as the inured in concerned.

Spontaneous combustion can be covered on payment of extra premium

Policy form consists of
A)Operative clause
B)General exclusions
C)General conditions
EXCLUSIONS
FIRE
LIGHTNING
EXPLOSION/IMPLOSION
AIRCRAFT DAMAGE
RIOT STRIKE MALICIOUS
IMPACT DAMAGE
SUBSIDENCE AND LANDSLIDE INCLUDING ROCKSLIDE
BURSTING AND/OR OVERFLOWING OR WATER TANKS APPARATUS
AND PIPES
MISSLE TESTING OPERATION
LEAKAGE FORM AUTOMATICE SPRINKLER INSTALLATION
BUSH FIRE

GENEERAL EXCLUSIONS

There are nine exclusion under the policy

1 5% if each and every claim resulting from the operation

lighting/STFI/Subsidence & Landslide including Rockslide covered under the
policy (Minimum Rs 10,000) This is an excess or deductible
2 loss or damage caused by war, civil war and kindred perils.
3 loss or damage directly or indirectly caused to the property insured by nuclear
risks
4Loss or damage caused to the insured property by pollution contamination
excluding
5 loss or damage to bullion or unset precious stones, stamp coins or paper money
cheques
6loss or damage to the stocks in cold storage premises due to power failure
following damage due to an insured peril may be covered by endorsement add on
cover
7lss or damage to any electrical and/or electronic machine apparatus this is known
as Electrical Risks exclusion.
8 Expenses incurred on Architects, surveyors and consulting engineers fees 3%
Debris removal fees 1%
9 loss of earning loss by delay loss of market or other consequential or indirect loss
or damage of any kin or description whatsoever.
CONDITIONS
There are fifteen conditions in the policy and the salient features of these
conditions are now outlined.

1. This condition provided that the policy shall be voidable in the event of mis-
representation mis-description or non-disclosure of any material particulars

2 All insurance under the policy ceases after seven days form the date of fall off
displacement of any building or part thereof

3 Material Alteration condition Change in trade or manufacture or nature of

occupation or other circumstances
unoccupancy of the building for a period more than 30 days
Transfer of insurable interest unless by will or operation of law.

4 Marine clause: The policy will cover only the excess beyond the amount payable
under the marine policy

5 The insurance may be terminated at nay timey by the insured refund at short
period scale or by the company on 15 days notice and premium refund on pro-rate
basis

6 In the event of loss or damage immediate notification of the loss to the company
Submission within 15 days of the loss or. Within such extension as may be granted
by the company of a written statement of the claim giving full particulars of the
loss or damages and of the property affected and detail of other insurance.
Limitation condition twelve months from the date of the loss unless the claim is the
subject of pending action or arbitration.
If liability for any claim is declaimed by the insured and the insured has not filed a
suit in a court of law within 12 calendar moths for the date of the disclaimer.

7 This is known as the right of entry condition

8 this condition deals with fraud.

The claim is fraudulent
The claim is supported by false declaration
Fraudulent means are used by the insured or any on action on his behalf
Loss or damage is caused by the wilful act of the insured or with his connivance.
9 Reinstatement condition

10 This is the pro-rate average condition

11 This is the usual contribution condition

12 This is the subrogation condition

13 This is arbitration condition Arbitration and conciliation Act 1996

14 Every notice or other communication to the company required by the condition

must be written or printed.

15 The full sum insured has to be maintained throughout the currency of the policy.

CHAPTER 2
ADD ON COVERS & SPECIAL POLICIES

1 SPONTANEOUS COMBUSTION
Its own fermentation natural heating or spontaneous combustion

Category Rate per mille

I (Low or Non existent) 0.25
II moderate 0.50
III Variable 0.75
IV (High) 1.00

EARTHQUAKE
Each and every claim under this add on cover is subject to a deductible of 5% of
the net claim amount
Rates of premium are charged according to location

Earthquake Rate Rs per Mille

I 1.00
II 0.50
III 0.20
IV 0.10
FOREST FIRE
The fire policy covers bush fire but excludes forest fire The rare of premium is
Rs 5 per mille

IMPACT DAMAGE DUE TO INSURED.S OWN VEHICELS

Exclusions For any loss unless duration of each such failure exceeds 24 hrs

ARCHITECTS ETC FEES ( IN EXCESS OF 3%)

DEBRIS REMOVAL (IN EXCESS OF 1%)

REINSTATEMENT VALUE POLICIES This policy issued in respect of building

plant machinery furniture fixture and fitting only and not on stocks
Local Authorities clause may be extended to cover additional cost.

DECLARATION POLICIES
Stocks which are subject to frequent fluctuation in value or in quantity present a
problem for insurance. The sum insured the fire policy will have to be increased or
decreased by endorsement with consequent adjustment of premium extra or refund.
The basis of monthly declaration is
Average of the highest value at risk on each day of the month or
The highest value on any day of the month
The declaration shall be submitted by the insured latest by the last day of the
succeeding month.
If the resultant premium is less than the provisional premium the difference shall
be repaid to the insured but such repayment shall not exceed 50% of the
provisional premium
THE ARIFF RULES FOR DECLARATION POLICIES ARE AS FOLLOWS
The minimum sum insured shall be Rs 1 Crore
Reduction of sun insured shall not be allowing under any circumstances
The basis of value ofor declaration shall be the market value unless otherwise
agreed to between insurer and insured.

It is not permissible to issue Declaration policy in respect of

Insurance required for a short period
Stocks undergoing process
Stocks at Railway sidings.
FLOTING POLICY
Floating polices (also known as floater Policies) are granted to cover under a single
policy stocks which fluctuate between different location.
The stocks may be stored in different godowns at different location in the same
town, city, state or other stated as well
The premium charged is at the highest rate applicable to insureds property at one
location plus 10% loading
The changes in the address of location specifically declared at inception should be
communicated.

FLOAER DECLARATION POLICIES

The Tariff allows the issue of Floater Declaration Policyes subject to a minimum
sum insured of Rs 2 Crores and compliance with Rules for Declaration polices
except that the minimum retention shall be 80% of the annual premium.

AGREED BNK CLAUSE

All policies in which a bank/Financial Institution has interest shall be issued in the
name of bank/financial institution and owner or mortgagor and shall contain
suitable clause to protect their interest.

CONRACT PRICE INSURANCE CLAUSE

I n the cases of insurance of imported goods only (and not for goods of local
manufacture) which are sold under a contract which is cancelled tither wholly or to
the extent of loss or damages, if is permissible to issue a policy on the basis of
Contract price.

DESIGNATION OF PROPERTY CLAUSE

For the purpose of determining where necessary the item under which any property
is insured the insurers agree to accept the designation under which the property has
been entered in the insureds books.

OMISSION TO INSURE ADDITIONS, ALTERRATION OR EXTENSION

CLAUSE
By this clause which is incorporated at the time of issuing the policy. The
insurance is extended to cover Building and or machinery, plant furniture and
fitting (But not stocks) as defined in the Schedule of the policy which the insured
may erect or acquire or for which they may become responsible
The silent features of this clause are.
The liability under this extension shall not exceed 5% of the sum insured under the
relevant property.
Additional premium on 5%of the sum insured at the policy rate is collected in
advance.

RATING
Firstly the rate of premium must be commensurate with the physical hazards
involved.
Secondly, classification of risks, based on hazards evaluation, into homogeneous
group, is adopted. Each group comprises risks exposed to more or less the same
degree of exposure.
Thirdly the rates of premium are based on the past loss experience of each group.

CHAPTER 3
FIRE HAZARDS AND FIRE PREVENTION

The system of fire insurance ration is based on classification of risks which in turn
is based on assessment of fire hazards and loss experience in each class

ORIGINATING HAZARDS

The following is a list of common causes arranged in order of their frequency of

occurrence.

Electrical
Smoking
Friction
Overheated Materials
Hot Surfaces
Burner Flames
Combustion sparks
Spontaneous combustion
Cutting and welding
Incendiarism
Mechanical sparks
Molten substances
Chemical Action
Static sparks
Lightning

CONTRIBUTORY HAZARDS
Construction
HAZARDS ARISING FROM CONSTURCTION
A) Low fire load: generally residential premises, offices, hotels
B) Moderate fire load: Generally retail shops and factory building.
C) high fire load: Generally bulk storage godowns and warehouses.
The National Fire Code of India has classified the fire resistance of building as
under
Class I 4 hours fie resistance
Class II 3 hours fie resistance
Class III 2 hours fie resistance
Class IV 1hours fie resistance

The different types of external walls and hazards associated with them are

Concrete or Reinforced cement concrete

Tiber
Corrugated iron sheeting
Asbestos cement sheeting
Glass
Roof

The mail type of the roofing materials are considered below

Thatch
Timber Shingles
Tarred or Bituminous felt
Glass roofs
Floors
Floor Openings
False Ceilings
Internal partitions
Exposure

SILENTRISK
A risk is deemed to be silent when it is not used for manufacturing purpose. A
lower rate of premium is charged for the silent period but a warranty is inserted
stating that during the currency of the policy, the said premises are silent and that
no part of the machinery is used for the purpose of manufacture, and that all stocks
of whatever nature are removed from the premises and no part of the premises is
used for deposit of any goods or merchandise.

Kutcha construction rate Rs 4.00 per mille.

HAZARDS ARISING FROM GOODS

1.Ease of Ignition
2 Speed and Intensity of burning
3 Method of packing
4 explosion
5 Contamination
6 Interaction with other materials
7 Toxicity
8 Difficulty of fie extinguishment

SPONTANEOUS COMBUSTION

Slow Oxidation
MISCELLANEOUS HAZARDS
FIRE PROTECTION SYSTEM
The different fire extinguishment systems are as follws
FIRST AID APPLIANCES
EXTERNAL APPLIANCES
SPRINKLER INSTALLATION
SPECIAL EXTINGUISHMENT SYSTEMS
GOOD HOUSEKEEPING

CHAPER 4
ERSTWHILE TRIFF-RULES AND RATING
Only standard Fire and Special Perils Policy (as per wording shown in section
II)with the permitted Add-on covers(Section VIII) if any can be issued.

Policies should be read together with the proposal for, schedule, specification,
endorsement, warranties and clauses for which suitable formats may be devised by
insurers.

Policy covering building and/or contents shall show block wise separate amounts
on:
A)building
B) Machinery and Accessories.
C) Stock and Stock-in-process
D) Furniture and other contents

PARTIAL INSURANCE

It is not permissible to issue a policy

a) Covering certain portion only of a building
However, plinth and foundation or the foundation only of a building may be
exclude
b) Covering only specified machinery(except Boilers) parts of machine or
accessories thereof housed in the same block/building

SHORT PERIOD RATED

Policies for a period of less than 12 months, must be issued at the Short Period
scale of rates set out hereunder:
For a period no exceeding 15 days 10% of the annual rate
For a period not exceeding 1 month 15% of the annual rate
For a period not exceeding 2 months 30% of the annual rate
For a period not exceeding 3 months 40% of the annual rate
For a period not exceeding 4 months 50% of the annual rate
For a period not exceeding 5 months 60% of the annual rate
For a period not exceeding 6 months 70% of the annual rate
For a period not exceeding 7 months 75% of the annual rate
For a period not exceeding 8 months 80% of the annual rate
For a period not exceeding 9 months 85% of the annual rate
For a period not exceeding 9 months the full annual rate
CANCELLATION OF POLICIES
The Insured Short period scale
The Insurer on Pro-rate basis

Pro rate refund of premium bay be allowed if a policy is cancelled

On account of Govt., Order or
On completion of Building in course of construction or
Where building is demolished.

MID-TERM COVER

Generally it is not permissible to grant mid-term, the following provision shall

apply
Insurers must receive specific advice form the insured accompanied by payment of
additional premium,

Cover shall commence 15 days after the receipt of premium

Premium rates shall be charged on short period scale of full sum insured for the
balance period i.e., up to the expiry of the policy.

Mid-term increases in sum insured is allowing on pro-rate basis

SIMPLE RISKS

Section III of the Tariff prescribes rates for 4 types of simple occupancies
Dwelling, offices, Colleges, Hospitals, Showrooms, where goods are kept for
display and no sales are carried out.

Restaurants, Hotels.
Shops(non-hazardous goods) Laundries, Amusement parks
Shop(hazardous goods)

The list of hazardous goods is provided in the tariff

1 Celluloid Goods
2 Coir loose
3 Crackers & Fire works
4 Explosives of any kind
5Hay/straw
6Hemp
7 Jute loose
8 Matches
9 Methylated spirit
10 Nitro Cellulose Plastic
11 Oil/Ether/Industrial solvents and other flammable liquids flashing at and below
32 C(closed cup test)
14 Disinfectant liquids and liquid insecticide-other than in sealed tins or drums
15 Vegetable fibers of any kind including Rayon fiber

INDUSTRIAL/MANUFACTURING RISKS (SECTION IV)

UTILITIES (SECTION V)
STORAGE RISKS (SECTION VI)
TANK/GAS HOLDERS (SECTION VII)

CHAPER 5
DOCUMENTS
PROPOSAL FORM
Details about proposer
Coverage
Details of property
Details of Sum Insured
Declaration by Insured
Risk inspection report
SCOP OF A RISK INSPECTION REPORT
General Information
Lighting heating and power
Process of manufacture
Exposure
Fire protection
Management and supervision
Moral Hazard
Adequacy of Sum insured
Insurance and loss experience
Risk improvement
Cover Note
Warranties and clauses
Class of construction
FEA Warranty

CHAPTER 6
UNDERWRITING

The term Underwriting is broadly used to denote the principles and practices
concerning the fixing of rates, the acceptance or rejection of the risks.
Several factors enter into underwriting and these may be broadly classified as
follows.
a)The production of a well spread and a large volume of business
b)The selection of the business
c)The determination of the limits to be retained and
d)The reinsurance of the surplus
REINSURANCE
Reinsurance is an arrangement whereby an original insurer who has insured a risk
insures a part of that risk again with another insurer, that is to say reinsures a part
of the risk in order to diminish his own liability.

The other objects of reinsurance are

a) Limitation of liability to an amount which is proportionate to their finances is
made possible for insurers.
b) It makes for stability in underwriting and consistency in underwriting results
over a period.
c) It provides a safeguard against serious effects of conflagration
d) A sound system of retention and reinsurance assists in the steady accumulation
of reserves
e) Creates an automatic capacity to accept large risks.

There are two main methods or reinsurance

1. Facultative
2Treaty - Proportional and Non proportional The most common forms of
proportional treaties are
1) Quota Share treaty and
2) Surplus treaty

NON-PROPORTIONAL TREATIES
EXCESS OF LOSS TREATY