FIRE/FIRE LOP/IAR

INSURANCE

BY
R.R.JOSHI

July 21, 2011

 AGENDA
• PURPOSE OF FIRE INSURANCE
• PROPERTY COVERED
• PERILS COVERED
• EXCLUSIONS/ CONDITIONS
• TARIFF RATING SYSTEM
• SPECIAL POLICIES /CLAUSES
• FIRE LOP/IAR POLICIES

July 21, 2011

 FIRE INSURANCE
PURPOSE
TO PROVIDE FINANCIAL PROTECTION
AGAINST LOSS(OR) DAMAGE TO
PROPERTY BY FIRE & OTHER
SPECIFIED PERILS

PRICE
GOVERNED BY TARIFF TILL 31/12/2006,
PRESENTLY DE-TARIFFED ONLY AS FAR AS
RATING

July 21, 2011

 PROPERTY COVERED

a) BUILDING –
INCLUDING
ELECTRICAL INSTALLATION, PIPELINES ETC.
b) CONTENTS
i) PLANT & MACHINERY,
EQUIPMENTS, ACCESSORIES
ii) FURNITURE ,FIXTURES AND
FITTINGS
iii)STOCK
•RAW MATERIAL
•STOCK IN PROCESS
•SEMI FINISHED GOODS
•FINISHED GOODS
July 21, 2011
 VALUATION ASPECTS IN
FIRE
 CURRENT NEW REINSTATEMENT/
REPLACEMENT VALUE—CNRV
 MARKET VALUE=CNRV--
DEPRECIATION
 PURCHASE VALUE
 WRITTEN DOWN VALUE=PURCHASE
VALUE-DEPRECIATION

July 21, 2011

 STANDARD FIRE AND SPECIAL
PERILS POLICY-COVERAGE

1. FIRE
-EXCLUDING SPONTANEOUS COMBUSITON
/BURNING BY PUBLIC AUTHORITY…
(S/COMBUSTION CAN BE COVERED AT
EXTRA PREMIUM)
2. LIGHTNING
3. EXPLOSION/IMPLOSION
- EXCLUDING DAMAGE TO BOILERS etc. OR
THEIR CONTENTS DUE TO
CENTRIFUGAL FORCES
4. AIRCRAFT DAMAGE
July 21, 2011
 PERILS COVERED contd...

5 . RIOT , STRIKE AND MALICIOUS

DAMAGE
EXCLUSION- BURGLARY,
HOUSEBREAKING & THEFT ETC.
TERRORISM
6.STORM,CYCLONE,TYPHOON, TEMPEST,
HURRICANE,TORNADO,FLOOD &
INUNDATION
--EXCLUDING E/Q,VOLCANIC ERUPTION
AND OTHER CONVULSIONS OF NATURE
July 21, 2011
 PERILS COVERED…contd

7. IMPACT DAMAGE BY RAIL/ROAD

VEHICLES,ANIMALS(NOT
BELONGING TO OR
/OWNED BY INSURED/OCCUPIER OF
PREMISES)
8. SUBSIDENCE AND LANDSLIDE
INCLUDING ROCK SLIDE
9. BURSTING AND/OR OVERFLOWING
OF WATER TANKS, APPARATUS,PIPES

July 21, 2011

 PERILS COVERED…. contd.
 10.MISSILE TESTING OPERATIONS
 11. LEAKAGE FROM AUTOMATIC
SPRINKLER INSTALLATION
 12. BUSH FIRE
 ---EXCLUDING FOREST FIRE

July 21, 2011

 GENERAL EXCLUSIONS

1. EXCESS -5% OF CLAIM(MIN

Rs.10000/-)FOR AOG CLAIMS AND
Rs.10000/- FOR OTHER PERILS
LOSS OR DAMAGE DUE TO-
2. WAR AND ALLIED PERILS
3. NUCLEAR PERILS

July 21, 2011

 GENERAL EXCLUSIONS
contd..
4. POLLUTION OR CONTAMINATION UNLESS
RESULTING FROM OR RESULTING IN INSURED
PERIL
5.LOSS TO BULLION,UNSET PRECIOUS
STONES,CURIOS, WORKS OF ART
(exceedingRs10000value),SECURITIES,STAMPS,
CURRENCY,BOOKS, COMPUTER RECORDS,
EXPLOSIVES unless specifically insured

July 21, 2011

 GENERAL EXCLUSIONS contd..

6. STOCKS IN COLD STORAGE DUE TO CHANGE

IN TEMPERATURE
7. ARCHITECTS, SURVEYORS AND CONSULTING
ENGINEER’S FEES IN EXCESS OF 3% OF CLAIM
AMOUNT
8. DEBRIS REMOVAL EXPENSES IN EXCESS OF 1%
OF CLAIM AMOUNT
9.LOSS OF EARNINGS,DELAY AND
CONSEQUENTIAL LOSSES
10.SPOILAGE OF MATERIAL DUE TO
INTERRUPTION/CESSATION OF PROCESS

July 21, 2011

 GENERAL EXCLUSIONS contd..
11.ELECTRICAL FITTINGS, ELECTRONIC
MACHINES DUE TO OVER RUNNING,
EXCESSIVE PRESSURE, SHORT CIRCUITING ,
LEAKAGE OF ELECTRICITY AND ARCING
12.THEFT DURING OR AFTER THE OCCURANCE OF
FIRE
13.PROPERTY REMOVED FROM THE INSURED
PREMISES(EXCEPT MACHINERY FOR REPAIRS
etc. UPTO 60 DAYS)

July 21, 2011

 GENERAL CONDITIONS
- 1. NON-DISCLOSURE OR MISREPRESENTATION
OF MATERIAL FACT WILL RENDER THE
CONTRACT NULL AND VOID- BREACH OF
UTMOST GOOD FAITH
2. INSURANCE CEASES AFTER 7 DAYS FROM THE
DATE OF FALL (OR) DISPLACEMENT OF
BUILDING (OR) PART OF BUILDING,IF SUCH
FALL IS NOT DUE TO AN INSURED PERIL.
INSURED MUST INFORM INSURERS WITHIN 7
DAYS OF SUCH FALL OR DISPLACEMENT IN
WHICH CASE INSURANCE MAY BE CONTINUED
SUBJECT TO REVISED RATES,TERMS AND
CONDITIONS IF REQUIRED BY THE INSURER.

July 21, 2011

 GENERAL CONDITIONS contd..

3.INSURANCE WILL CEASE TO ATTACH IF -

a) THERE IS ALTERATION IN
TRADE/MANUFACTURE/OCCUPATION IN
SUCH A WAY THAT THE RISK
INCREASES
b) THE BUILDING (OR) THE PREMISES
REMAIN UNOCCUPIED FOR MORE THAN
30 DAYS
c) CHANGE OF INTEREST IN THE
PROPERTY , OTHERWISE THAN BY WILL
OR OPERATION OF LAW

July 21, 2011

 GENERAL CONDITIONS contd..
4.IF THERE IS A MARINE POLICY COVERING
THE SAME RISK , FIRE POLICY WILL PAY
ONLY OVER AND ABOVE THE CLAIM UNDER
MARINE POLICY.
5. CANCELLATION - POLICY MAY BE
CANCELLED BY EITHER OF THE PARTIES --
i) IF INSURED CANCELS---REFUND ON
SHORT PERIOD BASIS
ii)IF INSURER CANCELS---REFUND ON
PRORATA BASIS

July 21, 2011

 GENERAL CONDITIONS contd..
6.CLAIMS PROCEDURE-
PART I -DEALS WITH THE DUTIES OF THE
INSURED ON THE HAPPENING OF THE LOSS
i. INSURED TO GIVE NOTICE OF
LOSS
ii) CLAIM FORM TO BE SUBMITTED
WITH IN 15 DAYS OF DATE OF LOSS
PART II-DEALS WITH TIME BAR AND SUIT BAR
OF CLAIMS

July 21, 2011

 GENERAL CONDITIONS contd..
7. RIGHTS OF THE INSURER-
WHEN THERE IS A CLAIM,THE INSURER
HAS THE RIGHT-
• TO TAKE POSSESSION OF PREMISES (OR)
BUILDING(OR) PROPERTY
•TO REMOVE, SORT AND SALVAGE THE
PROPERTY
•TO SELL (OR) DISPOSE OFF THE
PROPERTY IN THE INTEREST OF ALL
CONCERNED.

July 21, 2011

 GENERAL CONDITIONS contd..
8.FRAUD-
THE INSURED IS NOT ENTITLED TO ANY
BENEFITS UNDER THE POLICY IF-
I) THE INSURED CAUSES LOSS TO THE
PROPERTY WILLFULLY (or)
ii) PRODUCES FALSE EVIDENCE FOR THE
SETTLEMENT OF THE CLAIM (or)
iii) THE CLAIM IS FRAUDULENT

July 21, 2011

 GENERAL CONDITIONS contd...
9. INSURER’S OPTION TO
REINSTATE OR REPLACE THE
DAMAGED PROPERTY OR REPAIR OR PAY
BY CASH 10.
CONDITION OF AVERAGE:-IF THE SUM
INSURED IS LESS THAN THE VALUE OF
PROPERTY ON THE DATE OF LOSS,THE
INSURED HAS TO BEAR A PROPORTION OF
THE LOSS.AMOUNT PAYABLE WILL BE = S/I
X LOSS
M/V

July 21, 2011

 GENERAL CONDITIONS contd..
11. CONTRIBUTION:- ALL CONCERNED
INSURERS FOR THE SAME PERIL/PROPERTY
WILL SHARE THE LOSS PROPORTIONATELY
12.SUBROGATION:- THE INSURED IS
TO GIVE ALL ASSISTANCE TO THE
INSURER TO RECOVER LOSS FROM
THIRD PARTY
13. ARBITRATION :- DISPUTE IN AMOUNT OF
CLAIM PAYABLE MAY BE REFERRED TO
ARBITRATION

July 21, 2011

 GENERAL CONDITIONS contd..
14. NOTICE (or) OTHER COMMUNICATION TO
THE INSURER MUST BE IN WRITING
15.AUTOMATIC REINSTATEMENT OF SUM
INSURED-THE S/I MUST BE MAINTAINED AT THE
SAME LEVEL THROUGHOUT THE POLICY PERIOD.
PRO-RATA PREMIUM ON THE AMOUNT OF LOSS
RELATING TO THE UNEXPIRED PERIOD OF THE
POLICY WILL BE DEDUCTED FROM THE CLAIM
PAYABLE, UNLESS INSURED DESIRES OTHERWISE .

July 21, 2011

 SECTIONS OF THE FIRE TARIFF
TOTAL NO.OF SECTIONS ARE EIGHT
SECTION I - GENERAL RULES &
REGULATION
SECTION II- STANDARD FIRE & SPECIAL
PERILS POLICY (SF &SP)
SECTION III – RATING OF
DWELLINGS/SHOPS etc-SIMPLE RISKS
-

July 21, 2011

 SECTIONS OF THE FIRE TARIFF…
contd

SECTION IV- RATING OF INDUSTRIAL AND

MANUFACTURING RISKS
SECTION V - RATING OF UTILITES
LOCATED OUTSIDE INDUSTRIAL AND
MANUFACTURING RISKS
EXAMPLE : BOILER HOUSE , PUMP HOUSE
LABORATARY , PIPE LINES

July 21, 2011

 SECTIONS OF THE FIRE TARIFF…
contd

SECTION VI - STORAGE RISKS OUTSIDE

THE COMPOUND OF INDUSTRIAL
/MANUFACTURING RISKS
- RATES PROVIDED ACCORDING TO THE
TYPES OF GOODS--HAZARDOUS , NON-
HAZARDOUS, ETC.

July 21, 2011

 SECTIONS OF THE FIRE TARIFF…
contd
SECTION VII –RATING OF TANK
FARMS/GAS HOLDERS OUTSIDE THE
COMPOUND OF INDUSTRIAL/
MANUFACTURING RISK
- STORAGE OF LIQUAFIED GAS
- LIQUIDS/CHEMICALS /OIL
- INFLAMMABLE LIQUID/ GAS

July 21, 2011

SECTIONS OF THE FIRE TARIFF…
contd
SECTION VIII -
- ADD-ON COVERS AND RATING FOR
EARTHQUAKE PERIL
RATES DEPEND ON EARTHQUAKE ZONE
ZONE I - 1.00
ZONE II- 0.50
ZONE III-0.20
ZONE IV 0.10

July 21, 2011

 SECTIONS OF THE FIRE
TARIFF…contd
 ADD-ON COVERS:
 ARCHITECTS/SURVEYERS FEES IN EXCESS
OF 3% OF CLAIM UPTO MAX. 7.5% OF
ADJUSTED LOSS
 REMOVAL OF DEBRIS IN EXCESS OF 1% OF
CLAIM UPTO MAX.10%OF TOTAL S/I
 DOS IN COLD STORAGE PREMISES DUE TO:
 1)FAILURE OF ELECTRIC SUPPLY ARISING FROM
DAMAGE CAUSED BY ID./ PERILTO PROPERTY ON
ID. PREMISES/ELECTRIC SUBSTATION
 2)DAMAGE TO REFRIGERATION MACHINERY DUE
TO ID./PERIL

July 21, 2011

 SECTIONS OF THE FIRE
TARIFF…contd
 FOREST FIRE
 IMPACT DAMAGE DUE TO INSURED’S OWN
VEHICLES/FORKLIFTS/CRANES/STACKERS etc. AND
ARTICLES DROPPED THEREFROM
 SPONTANEOUS COMBUSTION/NATURAL
HEATING/OWN FERMENTATION
 OMISSION TO INSURE
ADDITIONS/ALTERATIONS/EXTENSIONS UPTO
MAX.5%OF S/I BY EACH ITEM
 SPOILAGE MATERIAL DAMAGE COVER DUE TO
PERILS OF THE STANDARD FIRE AND SPECIAL
PERILS POLICY

July 21, 2011

 SECTIONS OF THE FIRE
TARIFF…contd
 EARTHQUAKE(FIRE AND SHOCK)-
 A)IF OPTION TO DELETE STFI IS EXERCISED---DAMAGE DUE TO
FLOOD/OVERFLOW OF SEA/LAKES/RIVERS DUE TO E/Q WILL NOT
BE COVERED
 B)IF OPTION TO DELETE STFI IS NOT EXERCISED---DAMAGE DUE
TO FLOOD etc. WILL BE COVERED
 LEAKAGE AND CONTAMINATION COVER—FOR OILS
AND CHEMICALS ONLY
 TEMPORARY REMOVAL OF STOCKS (not exceeding
10% of the sum insured on stock) TO OTHER PREMISES
FOR FABRICATION,PROCESSING,FINISHING
 LOSS OF RENT (LIMIT=RP/RENT INSURED TERM XS/I

July 21, 2011

 SECTIONS OF THE FIRE
TARIFF…contd
 ADDITIONAL EXPENSES OF RENT FOR ALTERNATIVE
ACCOMODATION (NON-MANUFACTURING RISKS
ONLY)—MAX. INDEMNITY PERIOD WILL BE THREE
YEARS:
 For Tenant:-A/E=NEW RENT- ORIGINAL RENT(if he is not
obliged to pay rent for protecting tenancy rights)
 A/E=NEW RENT(if he is obliged to pay rent for protecting
tenancy rights)
 For Owner-Occupant :-
 A/E=NEW RENT –STANDARD RENT
 MOLTEN MATERIAL DAMAGE
 START-UP EXPENSES

July 21, 2011

 Floater Policy
 Some times, an Insured is not able to keep day to day
account of his stocks in various godowns. He can give
only the total value of all his stocks lying in various
locations / godowns. To cater to such clients a floater
policy is issued.
 The floater policy covers in one sum insured , stocks
stored in different godowns/locations
 The policy can be granted only on stocks. The address of
each location/godown must be declared by the insured.
 The highest rate applicable is charged with a loading of
10%

July 21, 2011

 Declaration Policy
 Many insured may have stocks which frequently fluctuate in value.
To take care of such fluctuation in quantity/ value , a declaration
policy is issued.
 The sum insured will be the maximum possible value at any point
of time during the policy period. The minimum sum insured will be
Rs. 1 cr. in one or more locations and shall not be less than Rs.25
lacs in atleast one of these locations.
 Monthly declarations based on

a) The average of the values at risk on each day of the month or

b) The highest value at risk during the month.
must be submitted by the insured before the end of the succeeding
month.

July 21, 2011

 Declaration Policy …contd
 If declaration is not received for a particular month,
the sum insured will be treated as the declaration
for the month.
 Reduction in sum insured is not allowed. Increase
in sum insured can be done with prior agreement.
 Refund of premium on adjustment basis on the
declarations / cancellations shall not exceed 50% of
the total premium.
 Basis of value for declaration will be the market
value.
 Declaration policy cannot be issued for stock in
process/ retail stores /short period insurance.
July 21, 2011
 Floater Declaration Policy
 Floater Declaration policy can be issued subject to
a minimum sum insured of Rs. 2 crs. and
compliance with rules for floater and declaration
policy.
 Minimum retention of premium on the expiry of
the policy will be 80% of the annual premium.

July 21, 2011

 Reinstatement Value Policy
 This policy can be issued for Building, Plant and
Machinery, Furniture Fixture & Fittings only.After the
World Wars, when inflation was high, the indemnity on
market value basis was grossly inadequate to rebuild the
factories/ plants.Hence this policy was launched on
public demand
 The Standard Fire & Special Perils policy is issued with
the reinstatement value clause attached thereon.
 The policy indemnifies the cost of reinstatement of
building/ replacement of machinery to a condition equal
to but not better or more extensive than its condition
when new. Hence this policy is new for old

July 21, 2011

Reinstatement Value Policy ..contd.
 Any technical improvements will go to the account of the
insured.
 Reinstatement must be carried out by the insured in order to
obtain the benefits of the special basis of settlement.
 The work of reinstatement must be completed within 12
months from the date of loss, failing which the claim will be
settled on market value basis.
 The sum insured must be equal to the cost of reinstatement of
the entire property on the date of reinstatement, otherwise
underinsurance will apply.
 The RIV basis of settlement will not apply if the insured fails
to intimates within 6 months from the date of loss, his
intention to replace / reinstate the damaged property.

July 21, 2011

LOCAL AUTHORITIES CLAUSE
 RIV policy may be extended to cover additional cost of
reinstatement incurred solely by reason of the necessity
to comply with the regulations of the local authority.
 No additional premium is charged for inclusion of this
clause in the policy. However sum insured must include
such additional cost.
 The clause excludes any tax, duty, development or other
charges arising out of capital appreciation of the
property.

July 21, 2011

 REMOVAL OF DEBRIS CLAUSE
 Removal of debris is covered upto 1% of the admissible
claim amount under the Standard Fire & Special Perils
policy.
 The indemnity applies to removal of debris from the
premises and dismantling / demolishing / shoring or
propping up in case of loss damage to Building/ Plant &
Machinery.
 This tantamounts to a supplementary contract between the
insured and insurer and no additional premium is charged
for the same.
 By charging additional premium, removal of debris may be
covered in excess of 1% of claim amount

July 21, 2011

 ESCALATION CLAUSE
 Escalation clause is attached to the Standard Fire and Special
Perils policy to take care of the escalation of the value of
building / plant and machinery during the policy period.
 An additional premium @ 50% of the applicable premium rate
is charged on the escalation sum insured.
 The selected percentage increase shall not exceed 25% of the
sum insured.
 The indemnity is provided by increasing the sum insured by 1 /
365th ( for each day ) of the specified percentage increase per
annum.

July 21, 2011

 Architects, Surveyor’s And
Engineers’ Fees Clause
 The Standard Fire & Special Perils policy covers
the above fees upto 3% of the adjusted loss
amount.
 The indemnity will not include the cost in
connection with the preparation of the insured’s
claim / estimate of loss due to the operation of the
insured’s perils.
 By payment of additional premium, the Architects
etc. fees may be paid upto 7.5% of the adjusted
loss.
July 21, 2011
CONTRACT PRICE CLAUSE
 This clause is applicable in case of insurance of
imported goods only which are sold under a
contract which may be cancelled either wholly or
to the extent of loss or damage due to the
operation of insured perils
 The indemnity will apply to goods sold but not
delivered and for which the insured is
responsible
 The company’s liability will be on the basis of the
contract price i.e. this is an agreed value policy
and not a pure indemnity policy.

July 21, 2011

 DESIGNATION OF PROPERTY
CLAUSE
 Sometimes, following a loss it is found that a
particular item is capitalized by the insured under
a heading which may or may not be acceptable to
the insurer. e.g. Compound wall may be
capitalized as plant or air conditioner may be
classified as machinery and not electrical
installation.
 To avoid disputes, the insurers agree to accept the
designation under which the property has been
entered in the insured’s books of accounts.
July 21, 2011
 AGREED BANK CLAUSE
 All policies in which a bank/ financial institutions
has insurable interest will be issued in the name of
Bank/ Financial Institutions and owner / mortgagor.
 The insurer will pay the claim amount to the Bank
whose receipt shall be complete discharge and shall
be binding on all the parties to the insurers contract.
 The interest of the Bank will not be prejudiced in
case the insured commits a breach of Condition 3
(Alteration Condition) of the Standard Fire & Special
Perils Policy.
 Any notice under the policy is sufficient if given by
or to the Bank.
July 21, 2011
 OMISSION TO INSURE ADDITIONS, ALTERATIONS
& EXTENSIONS CLAUSE
 This clause must be incorporated
 at the time of issuing policy.
 Indemnity is provided against building / plant and
machinery which the insured may erect or acquire or for
which they may become responsible during the course of
the policy.
 The liability will not exceed 5% of the sum insured by
each item under the policy.
 All additions/alterations/ extensions during the currency
of the policy must be declared at the end of the year and
additional premium paid on pro-rata basis from the date
of completion till the policy expiry.
July 21, 2011
 INDUSTRIAL ALL RISK
POLICY

July 21, 2011

 IAR - Industrial All Risk Policy

BI
(Fire) Machinery
Fire BI (MB)
Insurance
Insurance

Boiler Electronic Burglary

equipment
insurance insurance
insurance

July 21, 2011

 Scope & Structure of IAR Policy
 Section I – Material Damage including
(a) Fire & All special perils
(b) Burglary
(C) Machinery Breakdown
(d) Boiler Explosion
(e) Electronic Equipment Insurance

 Section II - Business Interruption

 Following Fire & All Special Perils – Compulsory
 Following Machinery Breakdown / Boiler Explosion /
Electronic Equipment - Optional
July 21, 2011
 INDUSTRIAL ALL RISK POLICY

Salient Features –
 Comprehensive, convenient and cost effective policy
 Package policy of All Risk Nature.
 Not a named peril policy
 All perils covered except certain specific exclusions.
 Presently wording is governed by Tariff
 Eligibility – Industrial Risks having overall Sum
Insured in excess of of Rs. 100 Cr. at one or more
locations.
July 21, 2011
Salient Features of IAR Cont….
 Single Document Policy
 Losses (MD as well as BI) due to Burglary covered.
 Transit Risk inside industrial compound covered
 Considerable premium saving possible due to lower
rates (especially for MB cover) .
 Underinsurance up to 15 % is ignored
 No depreciation deducted from MB loss (Total or
Partial) for Limited Life Equipments.
 Handsome discount available for opting higher
deductibles as well as good claims experience

July 21, 2011

Salient Features of IAR Cont….
 BI due to Fire & Allied perils - Compulsory.
 BI due to Machinery Breakdown / Boiler
Explosion / Electronic Equipment - Optional.
 Compared to traditional policies, higher excess
is applicable
 No declaration facility available
 Insurance under IAR on Reinstatement value
basis only except Stocks. Stocks on Market
Value basis.
July 21, 2011
Salient Features of IAR Cont….
Excluded Causes in Section I (MD Section)
 Faulty or defective design
 Defective Material or Workmanship
 Inherent vice / Latent defect
 Gradual deterioration / deformation / distortion
 Wear and tear
 Interruption of water supply, gas, electricity, fuel
systems( Unless resulted directly by a cause not
excluded in the policy)
 Collapse or cracking of buildings

July 21, 2011

Excluded Causes in Section I (MD) Cont..
 Corrosion, rust, shrinkage, pollution etc.
( Unless resulted directly by a cause not excluded in the
policy)

 Larceny
 Acts of fraud or dishonesty
 Inventory shortage, misplacement, unexplained
disappearance.
 Coastal or River erosion
 Normal Settlement of new structures
 Willful act or negligence on part of insured
 Cessation of work
July 21, 2011
Excluded Causes in Section I (MD) Cont..
 Delay or loss of market and other indirect losses
 War, Invasion act of foreign enemy, Civil war.
 Permanent or temporary dispossession
resulting from nationalization commandeering
or unlawful occupation
 Destruction of property by order of public
authority
 Nuclear weapons
 Ionizing radiations, contamination by
radioactivity from nuclear fuel.
 Impact due to floating / waterborne objects
 Act of Terrorism
July 21, 2011
Excluded Property under IAR
Unless specifically mentioned as insured -
 Money, Cheques, Stamps, Bonds, Credit Cards,
 Jewellery, Precious Stones, Precious Metals,
 Curios, Works of Art
 Goods held in trust, Documents/Manuscripts/Business Books
 Computer Systems Records
 Patterns / Models / Moulds
 Plans, designs, explosives
 Land, Road, Rail Lines
 Dams, Reservoir, Canals, rigs, wells, tunnels, pipelines
 Bridges, Docks, Jetties, Offshore Property etc.

July 21, 2011

 Special Exclusions of Section II (BI)
Similar to normal BI (Fire) policy . In brief …..
IAR policy does not cover loss resulting from interruption due to
1. Any restriction on reconstruction or operation imposed by the
public authority
2. Insured’s lack of sufficient capital for reinstatement
3. Damage due to Mechanical / Electrical Breakdown
4. Damage to boilers, Turbines or any other pressure vessels
5. Damage to Electronic installation, computers etc.
6. Damage resulting from distortion or corruption of information
on computer system (Unless resulting from Fire & allied perils)
Note – If BI due to MB/Boiler Explosion/ Electronic Equipment is
opted, exclusions 3, 4, 5 and 6 are deleted.
July 21, 2011
Portfolio Discount for Good Claims
Ratio(Applicable after 2 years)
Claims ratio below 30 %
Discount
2 years 5%
3 years 10%
4 years 15%
5 years 20%
6 years & above
25%

July 21, 2011

 CONSEQUENTIAL LOSS (FIRE)
INSURANCE POLICY
 FIRE INSURANCE COVERS MATERIAL DAMAGE TO
PROPERTY DUE TO THE PERILS INSURED i .e.
 IT DEALS WITH CAPITAL LOSS
 L.O.P.INSURANCE DEALS WITH LOSS OF EARNING POWER
COSEQUENT UPON DAMAGE/DESTRUCTION TO THE
CAPITAL ASSETS/STOCKS.THUS,SUBJECT MATTER OF LOP
INSURANCE IS THE BUSINESS OF THE INSURED
 ITEMS OF EXPENSES CAN BROADLY BE DIVIDED INTO-
1. 1)VARIABLE CHARGES- WHICH VARY IN PROPORTION TO
THE VOLUME OF BUSINESS
2. 2)STANDING CHARGES-WHICH ARE FIXED IN
NATURE,IRRESPECTIVE OF THE VOLUME OF BUSINESS
TRANSACTED

July 21, 2011

 CONSEQUENTIAL LOSS (FIRE)
INSURANCE POLICY….contd.
 DURING THE INTERRUPTION OF BUSINESS AS A
CONSEQUENCE OF THE OPERATION OF THE PERIL-
1. 1)VARIABLE CHARGES ARE EITHER NOT INCURRED OR GET
REDUCED IN PROPORTION TO THE TURNOVER MAINTAINED
2. 2)RAW MATERIALS ARE NOT CONSUMED OR CONSUMED IN
PROPOTRTION TO THE TURNOVER MAINTAINED
3. 3)LIABILITY TO PAY STANDING CHARGES CONTINUES,RESULTING
IN REDUCED PROFITS OR A LOSS
4. 4)NET PROFIT WILL REDUCE IN PROPORTION TO THE REDUCTION
IN TURNOVER
5. 5)ADDITIONAL EXPENDITURE MAY HAVE TO BE INCURRED TO
AVOID STOPPAGE OF BUSINESS.THIS IS CALLED INCREASED COST
OF WORKING

July 21, 2011

 L.O.P.JARGON

 Gross Profit
 Turn Over
 Rate of G.P.
 Working Expenses
 Time Exclusion
 Indemnity Period
 Standing Charges
 Standard Turnover
 Annual Turnover

July 21, 2011

 INTEREST COVERED - LOP

Loss of Gross Profit

(covers also any loss minimising cost upto
the cost thereby avoided)
due to Reduction in Turnover

or

Increase in Cost of Working (ICOW)

(without cover of loss of G.P.)

Provided interruption caused by

an indemnifiable MATERIAL DAMAGE LOSS
July 21, 2011
 COMPONENTS OF LOP COVER

Turnover

Working Gross
Expenses Profit

Standing Net
Charges Profit
July 21, 2011
 COMPONENTS OF COVER

H
H

0,0 A B C D TIME
A - B TIME EXCLUSION
A - D INDEMNITY PERIOD (I.P)
A - C ACTUAL I.P.
F - G L.O.P (ACTUAL)
A OCCURANCE OF ACCIDENT
July 21, 2011
1990
JAN
APR
FINANCIAL YEAR
JULY
OCT
1991 JAN
APR STANDARD TURNOVER
JULY
OCT
1992 JAN ANNUAL TURNOVER
APR
JULY
OCT INTERUPTION PERIOD
1993 JAN
July 21, 2011
 TYPICAL LIST OF STANDING CHARGES
1. Employee Cost
2. Interest & Finance Charges
3. Depreciation
4. Repairs & Maintenance including Stores & Spare parts utilised.
5. Minimum demand charges for utilities
6. Rent, Rates & Taxes
7. Insurance
8. Travelling & Conveyance
9. Communication expenses
10.Printing & Stationery
11. Advertisement & Publicity
12.Legal & Professional Charges
13.Auditors Remuneration & Expenses
14.Director`s Fees, Remuneration & Profit Commission
15.Sundry & Miscellaneous Expenses
July 21, 2011
 SPECIFIED WORKING EXPENSES

☞ Consumption of raw materials

☞ Consumption of utilities (net of minimum demand)
☞ Consumption of stores/spares
(variable linked to production)
☞ Packing materials
☞ Excise Duty
☞ Sales/Turnover tax
☞ Discounts/brokerage/commission
☞ Inward/outward freight

July 21, 2011

 Interruption Period - Indemnity Period

LOSS

time
Int. P.
accident
I. P.
I.P.L.
INDEMNITY PERIOD ends, when actual T.O. reaches the same amount, as if no damage would d have occurred.
e.g. - restarting requires several days
July 21, 2011 - loss of market
Monthly Turnover
Annual Turnover

Trend
Reduction
in
T.O. Turnover
Reference
Period

Actual
1991 1991 1992 Turnover 1992 1993
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7
Interruption
Reference Period
Period Indemnity
Period
12 months before Indemnity Period Limited
Time
the accident Date of accident
July 21, 2011
 100 $ p.a.
Costs
90 Turnover

}
80 Gross Profit
Net Profit
70

60

50 Break-Even Point
specified working
40 Net Loss
{ expenses Gross Profit
30
(variable costs ) ^
=
Sum Insured
20

10
standing charges (fixed costs)

1 2 3 4 5 6 7 8 9 10
July 21, 2011 units p.a.
 Discounts
Fire & Allied Perils
 F.E.A discount for approved installation
 Claims experience discount
 Discount for higher excess

Breakdown risks
 Discounted flat rate
 Discount for higher excess

July 21, 2011

 Deductibles
For material damage claims :
5 % of the claim amount subject to a minimum of
Rs. 5 lakhs and the maximum is Rs. 50 lakhs
For business interruption claims:
 FLOP--three days gross profit subject to a minimum of Rs. 5
lakhs and the maximum is Rs. 50 lakhs for Fire LOP claims.
 MLOP--Shall be as decided by TAC in case of MLOP claims

July 21, 2011

 Voluntary Deductibles
Material Damage Claims
5 % of claim amount with a minimum of
Deductible Discount

Rs. 10 Lakhs 10 %
Rs. 15 Lakhs 15 %
Rs. 20 Lakhs 20 %
Rs. 25 Lakhs 25 %
July 21, 2011
 Voluntary Deductibles
Business Interruption Claims
Deductible Discount
No.of Days Minimum
7 days Rs. 10 Lakhs 5%
14 days Rs. 15 Lakhs 10 %
21 days Rs. 20 Lakhs 15 %
28 days Rs. 25 Lakhs 20 %
35 days Rs. 30 Lakhs 25 %
Opting for higher deductibles entails still higher
discounts

July 21, 2011