Fire Ins

FIRE/FIRE LOP/IAR INSURANCE

BY R.R.JOSHI

October 14, 2008

AGENDA •

PURPOSE OF FIRE INSURANCE

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

October 14, 2008

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

October 14, 2008

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 October 14, 2008

VALUATION ASPECTS IN FIRE  CURRENT

NEW REINSTATEMENT/ REPLACEMENT VALUE—CNRV  MARKET VALUE=CNRV-DEPRECIATION  PURCHASE VALUE  WRITTEN DOWN VALUE=PURCHASE VALUE-DEPRECIATION October 14, 2008

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 October 14, 2008

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 October 14, 2008

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 October 14, 2008

PERILS COVERED…. contd.  10.MISSILE

TESTING OPERATIONS  11. LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATION  12. BUSH FIRE  ---EXCLUDING FOREST FIRE

October 14, 2008

GENERAL EXCLUSIONS 1. EXCESS -5% OF CLAIM(MIN Rs.10000/-)FOR AOG CLAIMS AND Rs.10000/- FOR OTHER PERILS LOSS OR DAMAGE DUE TO2. WAR AND ALLIED PERILS 3. NUCLEAR PERILS

October 14, 2008

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

October 14, 2008

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 October 14, 2008

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)

October 14, 2008

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. October 14, 2008

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 • THE BUILDING (OR) THE PREMISES REMAIN UNOCCUPIED FOR MORE THAN 30 DAYS • CHANGE OF INTEREST IN THE PROPERTY , OTHERWISE THAN BY WILL OR OPERATION OF LAW October 14, 2008

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

October 14, 2008

GENERAL CONDITIONS

contd..

6.CLAIMS PROCEDUREPART 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 October 14, 2008

GENERAL CONDITIONS

contd..

7. RIGHTS OF THE INSURERWHEN 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.

October 14, 2008

GENERAL CONDITIONS 8.FRAUD-

contd..

THE INSURED IS NOT ENTITLED TO ANY BENEFITS UNDER THE POLICY IFI) 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

October 14, 2008

GENERAL CONDITIONS

contd...

9. INSURER’S OPTION TO REINSTATE OR REPLACE THE DAMAGED PROPERTY OR REPAIR OR BY CASH 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 THE LOSS.AMOUNT PAYABLE WILL BE X LOSS M/V October 14, 2008

PAY 10.

OF = S/I

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

October 14, 2008

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 .

October 14, 2008

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 October 14, 2008

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 October 14, 2008

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 , NONHAZARDOUS, ETC.

October 14, 2008

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 October 14, 2008

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

October 14, 2008

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

October 14, 2008

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

October 14, 2008

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

October 14, 2008

SECTIONS OF THE FIRE TARIFF…contd 

  

ADDITIONAL EXPENSES OF RENT FOR ALTERNATIVE ACCOMODATION (NONMANUFACTURING 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

October 14, 2008

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% October 14, 2008

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. 

October 14, 2008

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. October 14, 2008

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.

October 14, 2008

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 October 14, 2008 old

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.

October 14, 2008

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. October 14, 2008

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 October 14, 2008

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. October 14, 2008

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. October 14, 2008

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. October 14, 2008

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. October 14, 2008

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. October 14, 2008

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. October 14, 2008

INDUSTRIAL ALL RISK POLICY

October 14, 2008

IAR - Industrial All Risk Policy

Fire Insurance Boiler insurance

October 14, 2008

BI (Fire)

Electronic equipment insurance

Machinery Insurance

BI (MB)

Burglary insurance

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 October 14, 2008

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. October 14, 2008

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

October 14, 2008

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. October 14, 2008

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

October 14, 2008

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 October 14, 2008

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 October 14, 2008

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. October 14, 2008

 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

4. Any restriction on reconstruction or operation imposed by the public authority

5. Insured’s lack of sufficient capital for reinstatement 6. Damage due to Mechanical / Electrical Breakdown 7. Damage to boilers, Turbines or any other pressure vessels 8. Damage to Electronic installation, computers etc. 9. 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. October 14, 2008

Portfolio Discount for Good Claims Ratio(Applicable after 2 years) Claims ratio below 30 % Discount 2 years 3 years 4 years 5 years 6 years & above 25%

October 14, 2008

5% 10% 15% 20%

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 INTO1)VARIABLE CHARGES- WHICH VARY IN PROPORTION TO THE VOLUME OF BUSINESS 2)STANDING CHARGES-WHICH ARE FIXED IN NATURE,IRRESPECTIVE OF THE VOLUME OF BUSINESS TRANSACTED

October 14, 2008

CONSEQUENTIAL LOSS (FIRE) INSURANCE POLICY….contd. 

DURING THE INTERRUPTION OF BUSINESS AS A CONSEQUENCE OF THE OPERATION OF THE PERIL-

❂

1)VARIABLE CHARGES ARE EITHER NOT INCURRED OR GET REDUCED IN PROPORTION TO THE TURNOVER MAINTAINED 2)RAW MATERIALS ARE NOT CONSUMED OR CONSUMED IN PROPOTRTION TO THE TURNOVER MAINTAINED 3)LIABILITY TO PAY STANDING CHARGES CONTINUES,RESULTING IN REDUCED PROFITS OR A LOSS 4)NET PROFIT WILL REDUCE IN PROPORTION TO THE REDUCTION IN TURNOVER 5)ADDITIONAL EXPENDITURE MAY HAVE TO BE INCURRED TO AVOID STOPPAGE OF BUSINESS.THIS IS CALLED INCREASED COST OF WORKING

❂ ❂ ❂ ❂

October 14, 2008

L.O.P.JARGON  Gross Profit  Turn Over  Rate of G.P.  Working Expenses  Time Exclusion  Indemnity Period  Standing Charges  Standard Turnover  Annual Turnover October 14, 2008

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 October 14, 2008

COMPONENTS OF LOP COVER

Turnover Working Expenses

Gross Profit Standing Net Charges Profit

October 14, 2008

COMPONENTS OF COVER H G

F

0,0 A A A F A

-

A

B D C G

October 14, 2008

B

C

D

TIME

TIME EXCLUSION INDEMNITY PERIOD (I.P) ACTUAL I.P. L.O.P (ACTUAL) OCCURANCE OF ACCIDENT

1990

1991

JAN APR JULY OCT JAN APR JULY

1992

1993

FINANCIAL YEAR

OCT JAN APR JULY OCT JAN

October 14, 2008

STANDARD TURNOVER

ANNUAL TURNOVER

INTERUPTION PERIOD

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 October 14, 2008

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

October 14, 2008

Interruption Period - Indemnity Period

LOSS

accident

time

Int. P. 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 October 14, 2008 - loss of market

Monthly Turnover

Trend

Annual Turnover

Reduction in Turnover

T.O. Reference Period

1991 1

2

3

1991 1992 4 5 6 7 8 9 10 11 12 1 Reference Period 12 months before the accident

October 14, 2008

Actual Turnover

2 3 4 5 6

1992 1993

7 8 9 10 11 12 1 2

Interruption Period Indemnity Period Indemnity Period Limited Date of accident

3

4 5 6

7

Time

100 90 80

$ p.a. Costs Turnover Gross Profit

}

Net Profit

70 60 50 40

Break-Even Point

Net Loss

specified working expenses (variable costs )

{

30 20 10

October 14, 2008

Gross Profit ^ = Sum Insured

standing charges (fixed costs) 1

2

3

4

5

6

7

8

9

10

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

October 14, 2008

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 October 14, 2008

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

Discount

Rs. 10 Lakhs Rs. 15 Lakhs Rs. 20 Lakhs Rs. 25 Lakhs

10 % 15 % 20 % 25 %

October 14, 2008

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 October 14, 2008 still higher discounts