Abstract
Abstract
Abstract
The world we live in is full of uncertainties and risks. Individuals, families, businesses, properties and
assets are exposed to different types and levels of risks. Insurance is emerging as one of the essential
requirements in the global economy. Insurance is a financial product that reduces or eliminates the
cost of loss or effect of loss caused by different types of risks. In order to safeguarding the interest of
people from loss and uncertainty, Insurance has evolved as a process of indemnifying the people
against the loss and uncertainty. In India, insurance has slowly come out of the infancy stage and is
gradually progressing towards becoming as an indispensable requisite. Indian insurers offer ample
varieties of insurance products to cover majority of the areas of human activities. This paper provides
an overview of the Fire insurance industry in. India, it starts with a brief outline of the, regulatory
regime and covers various aspects such as the origin of Fire insurance, the current situation, a short
summary of coverage, exclusions and add-ons as well as the path ahead.
INTRODUCTION
Fire insurance has not a long history. The real establishment of fire insurance came
only after the Great Fire of London in 1066.This fire lasted for four days and nights
burning, over 436 acres of ground and destroying over 13,000 buildings was the most
disastrous fire in history and forcibly awakened the people to the necessity for a form
of protection against such calamities.1
Fire insurance is property insurance that covers damage and losses caused by fire. A
fire insurance is a contract under which the insurer in return for a consideration
(premium) agrees to indemnify the insured for the financial loss which the latter may
suffer due to destruction of or damage to property or goods, caused by fire, during a
specified period. The contract specifies the maximum amount, agreed to by the parties
at the time of the contract, which the insured can claim in case of loss. This amount is
not, however, the measure of the loss. The loss can be ascertained only after the fire
has occurred. The insurer is liable to make good the actual amount of loss not
exceeding the maximum amount fixed under the policy
The term fire in a fire insurance is interpreted in the literal and popular sense. There is
fire when something burns. In other words, fire means visible flames or actual
ignition. Simmering/smouldering is not considered fire in Fire Insurance. Fire
produces heat and light but either of them alone is not fire. Lightening is not a fire but
if it ignites something, the damage may be due to fire.
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Under section 2(6A) Insurance Act 1938, the fire insurance business is defined as
follows: “Fire insurance business means the business of effecting, otherwise than
independently to some other class of business, contracts of insurance against loss by
or incidental to fire or other occurrence customarily included among the risks insured
against in fire insurance policies”.
Example The following are the items which can be burnt/ damaged through fire:
The owner of abovementioned properties can insure against fire damage through fire
insurance policy which provides financial protection for property against loss or
damage by fire. Insurance of property means insurance of buildings, machinery,
stocks etc against Fire and Allied Perils, Burglary Risks and so on.
Fire insurance policies cover the risk of loss arising out of unforeseen fire accidents
with the limit of the Sum assured. These products are more popular in Corporates than
with individuals. They are designed to provide financial protection for property
against loss or damage by fire and other specified perils. Reinstatement value clauses
are attached to Fire policies under which the amount payable is the cost of reinstating
property of the same kind or type, by new property.
The industry, trade and commercial articles have been developing and diversifying at
a faster rate in India. Along with the growth of industrial and commercial articles, the
infrastructural fields like transport, communication, finance, advertising, stock
marketing and so on, have also been developing continuously, so as to cope with the
pace of economic development. The importance of foreign trade also has been very
much for a developing country like India. All these developments in various fields
brought in much risks and uncertainties in business activities. Insurance is the only
field that provides security, against business risks. The role of the fire insurance has
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been increasing day-by-day as a means against destruction or damage of business
property caused by fire.
The significance of fire insurance can be discussed under the following points:
• As a source for minimising losses: Fire can destroy property in goods and fixed
assets worth crores of rupees or can create damage to the business property. Fire
Insurance indemnifies losses or damages done to fire and resources the mental worries
of businessmen.
• Decreases in probabilities of fire losses: The increasing uses of energy petrol like
electricity, gas and other such items have increased the probability of losses or
damages to goods and property. In order to minimize this calamity, various type of
fire extinguishing devices has been destroyed throughout the world. Moreover, the
fire insurance is another device to indemnify the losses, thus removing mental worries
by extending financial support.
• Decrease in social loss of fire: Social awareness has been created in the country to
put out fire and to reduce the effect of fire. The social organisations provide training
to the people in the use of the fire extinguishing devices and caution them in the use
of such items which causes or produces fire liabilities.
• Asset valuation: Assets are valued for obtaining a fire insurance policy. It requires
the insured to be more cautious in protecting his property or goods.
• Loss preventing efforts and advice by the insurer: An insurer not only offers
indemnity against fire losses, but also advises the insured to reduce the incidence of
fire. Fire Insurance companies establish, ‘salvage corps’, to extinguish fire so that the
extent of loss can be minimised.
• Helpful in business progress: Due to the facilities provide by the fire insurance
companies, the business enterprises undertake large scale production and invest in
business and marketing activities without any botheration. This lead to continuous
progress in industrial and commercial activities, leading to economic growth.
• Beneficial for new industries: The new industrial units usually face complex
problems of production, finance, competition and sales and so on. In such a situation,
they cannot afford the losses/damages due to fire. The fire insurance relieves such
entrepreneurs from worries by indemnifying the loss/damages, if any, from the
occurrence of fire.
• Credit facility: Where the assets are secured by fire insurance, it becomes easier for
such enterprises to get credit from banks and other financial institutions. This will
increase the credit worthiness of the enterprise.
Need for Fire Insurance: Fire accidents are very much unexpected but heavily
destructive. Hence, having fire insurance is very much essential. Fire Insurance policy
covers your home ‘s structure, or fixing and fittings, against hazard and provides you
with the financial resources to replace what you have lost, so that you can get back to
normal as soon as possible. If the worst were to happen and your house burned down,
where would you go, knowing that you have relatives who will pitch in to help you
out during such a difficult time is great, but if you don ‘t have those resources, what
would you do? This is where you need a fire insurance policy. Fire insurance provides
the security for home, stock, furniture, business buildings, etc.; it provides the cost of
replacement of properties and assets, which gets damaged due to the fire accident. For
example, if your home is destroyed or damaged enough by a fire to the point that it
renders you homeless, a fire insurance policy will often pay for the reasonable
increase in your living expenses, such as the additional cost of hotel stays, restaurant
bills, etc. Secondly, if you had property worth 1 million, then the insurance firm can
be able to restore you to the same old position, gaining back your momentum is very
easy as you just have to rebuild what you had once more. Benefits of having fire
insurance It is bad enough when your house burns down due to some unavoidable
accident, but when you don ‘t have an insurance cover to help you slide back to your
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normal life, it’s even worse. With that being said, it is well to consider the importance
of a fire insurance cover, especially if you know you cannot afford to replace the
house in your own financial efforts. One of the major benefits of fire insurance in
general is coverage of belongings that are destroyed in a fire. This includes major
appliances within the home, furnishings, clothing, jewelleries, and other items of
value that are specifically covered within the terms of the policy. Fire insurance
provides the price of damage for the building, if any home furnishing is damaged due
to the fire incident, it provides alternative maintenance price for the electronic items
like television, computer, air conditioners, which is destroyed by fire. Having fire
insurance can save you from financial disaster. Along with replacement and
reimbursement of lost belongings, fire insurance can also provide financial assistance
in finding a new place to live and compensating the insured party for losses not
covered under a homeowner insurance plan. Your home is probably your most
valuable asset. Failing to insure it against fire damage could put you in a precarious
financial situation if you leave yourself no recourse in the event of a fire. You ‘ve
worked hard all your life to have the things that you deserve why put all of that in
jeopardy by failing to have adequate insurance coverage for fire? Fire is a
commonplace occurrence, but this doesn’t mean that it is destined to happen to you.
But if it does, having fire insurance to help cover your financial losses. It is a critical
safety net that nobody should do without.
INTERNATIONAL SCENARIO4
The need for fire insurance was felt after the great fire of London in 1666. The fire
originated in a baker's shop in Pudding Lane on September 2, and fanned by winds in
three days, it spread over to 36 acres of London from the Tower to Temple Church.
The fire destroyed 13,200 houses, Old St. Pauls Guild halls and buildings. It was the
greatest and most destructive peace time fire that even afflicted the cities of the
British Isles. The Industrial Revolution that resulted in far reaching changes in
manufacturing process owing to the introduction of machines, created a phenomenal
expansion in material wealth like factories, machinery, warehouses, ships, docks,
mercantile buildings for the storage of goods after transit and the stocks of
consumable goods. For the protection of all these properties, the demand for fire
insurance grew in proportion to the value of the property. Fire insurance flourished for
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all practical purposes after the great fire 1666. Before that, guilds provided some
measures for relief where the fire was not the result of the own fault of the member of
the guild. Relief was also given through briefs, the authoritative letters given to each
parish to be read in churches and collections were made by church wardens. The
system was abused and the amount subscribed bore little relation to needs. In 1638,
however, a petition was made to the King in England for a patent under which it was
proposed that an annual payment should be made by house owners in return for which
they had the right to have their premises rebuilt in case of destruction by fire.
However, the scheme did not materialise. According to tradition, Nicholas Barbon set
up an office for insuring houses against fire in 1667 and there is no proof of this, and
so, there was no office for fire insurance until 1680. Categorically, there was no
organised fire offices before the great fire in London.
The first organised fire insurance office in "Phoenix", which offered first insurance
for seven years on houses. Double rates were charged for timber built houses. The
next fire insurance scheme was brought into force by a petition to The Common
Council of London. The scheme was abandoned due to the impropriety of the citizens,
who mismanaged the revenues of the scheme. In 1683, the "Friendly Society" came
into operation as a competitor for the Phoenix office. Members joined with an
undertaking to subscribe for indemnifying loss up to a specified sum along with a
deposit. Last came was the "Amicable contributors for insuring from loss by fire"
better known as the "Hand in Hand". The said four fire insurance schemes were
carried only on mutual basis, and there was no guarantor other than the members
themselves. The Industrial Revolution brought sea changes in the industrial structure,
and after that, there was a rapidly increasing demand for fire insurance, and various
joint stock companies were formed for the transaction of fire business in London.
Gradually, all the other countries of the globe started practising fire insurance.
INDIAN SCENARIO5
In 1825, The Alliance British and Foreign Fire Insurance Company established an
agency office at Madras, and was probably the first to issue fire insurance policy in
the sub-continent. Meanwhile, many leading foreign trading houses operating actively
in India, added insurance, to their existing business by undertaking the representation
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of several foreign offices. Their existing connections were large and their organisation
well spread and their influence in the commercial life of the country was so complete
as enabled them to develop a sustained insurance market among the commercial
community. Following the Alliance Company, "Royal Insurance Company" appointed
their agents first in Calcutta and soon after in Bombay. "The Liverpool and London"
and "Globe" commenced fire business through local agents in 1853, and the "North
British" followed in 1861, the "Commercial Union" in 1870, and by 1885 nearly 50
offices most of them British, some colonial and a few continentals had begun to
transact business through agencies. 8 Fire insurance, in the beginning, was popular
only in India and a majority of the transactions were confined only to the major cities
of India. "Fire insurance, first grew around the commercial community in India. The
early fire insurance transactions seem to be confined to the principal cities of Calcutta,
Bombay and Madras..."
Developments:
Insurance Act, 1938: - In 1938, the Insurance Act was passed in order to
protect the interest of the public. The Act contained various provisions for
regulating the insurers' activities.
In 1957, the General Insurance Council was formed. The Council framed a
code of conduct so as to ensure fair conduct and sound insurance business
practices.
The General Insurance Business (Nationalization) Act was passed in the year
1972. As a result, the general insurance business was nationalized and the 107
insurers were combined and grouped into four companies - National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd and the United India Insurance Company Ltd. The
General Insurance Corporation of India was incorporated as a company in
1971.
In determining the value of property damaged or destroyed by fire for the purpose of
indemnity under a policy of fire insurance, it was the value of the property to the
insured, which was to be measured. Prima facie that value was measured by reference
of the market value of the property before and after the loss. However, such method
of assessment was not applicable in cases where the market value did not represent
the real value of the property to the insured, as where the property was used by the
insured as a home or, for carrying business.
Basic Principles: The following are the fundamental principles essential for a valid
contract of fire insurance.6
1. A contract of indemnity: Its object is to place insured as far as possible in the same
financial position after a loss as that occupied immediately before the loss. The
insured can recover only the amount of actual loss subject to the sum assured.
2. Insurable Interest: In fire insurance the insurable interest must exist at the time of
affecting the insurance as well as at the time of the loss. The interest, however, may
be legal or equitable or may arise under a contract of purchase or sale. It should
however, be noted that persons can insure only to the extent of such limited interest.
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3. Contract of Good Faith: The contract of fire insurance is a contract of Uberrimae
fidei i.e., a contract based upon absolute good faith, and therefore, the insured must
make full and detailed disclosure of all material facts likely to affect the judgement of
fire officials in determining the rates of premium or deciding whether the proposal
should be accepted. The description of the property, when asked for, should be
correctly give, and all information that may be required as to the class of goods and
articles that are kept on the premises or in the surrounding neighbourhood, should be
accurately supplied.
4. Loss Through Fire: Loss resulting from fire of some other cause which is the
proximate cause is the risk covered under a fire insurance contract. But where the fire
is caused by the insured himself or with his connivance or by the operation of a peril
specifically excluded under the policy like earthquake, the loss will not be covered.
In India, under fire insurance policy, in addition to fire, other perils are also included
and the policy is known as “Standard Fire and Allied Perils Policy”. The perils
specified in the fire policy are:
A. Fire: The most popular property insurance is the standard fire insurance policy.
The fire insurance policy offers protection against any unforeseen loss or damage
to/destruction of property due to fire or other perils covered under the policy. The
different types of property that could be covered under a fire insurance policy are
dwellings, offices, shops, hospitals, places of worship and their contents
industrial/manufacturing risks and contents such as machinery, plants, equipment and
accessories; goods including raw material, material in process, semi-finished goods,
finished goods, packing materials etc in factories, godowns and in the open; utilities
located outside industrial/manufacturing risks; storage risks outside the compound of
industrial risks; tank farms/gas holders located outside the compound of industrial
risks etc.
B. Lightning: Any lightning due to cloud burst may damage the property and the same
will be covered under the fire policy.
D. Aircraft Damage: Any damage to the property due to any droppings by aircraft or
by itself will also be covered under the fire policy.
E. Riot, Strike and Malicious Damage (RSMD): Any damage to the property due to
public or strike by employees or malicious damage (intentional damage) by any
person will be covered under this policy.
G. Impact Damage: Damage to the property due to impact by any Rail / Road vehicle
or animal by direct contact, but not belonging to or owned by the Insured or any
occupier of the premises or their employees while acting in the course of their
employment.
L. Bush Fire: It means fire spread from the bushes (small fire) but will not include
forest fire.
1. Valued Policy:
In this policy the value of the subject-matter is agreed upon at the time of taking up
the policy. The insurer agrees to pay a pre-determined amount if the subject-matter is
destroyed or damaged by fire. The principle of indemnity is not applicable to this
policy. The agreed value may be more or less than the market value at the time of
loss. These policies are generally issued for those goods or property whose value
cannot be determined after their loss or damage. These goods may include works of
art, jewellery, paintings, etc.
2. Specific Policy:
Under this policy the risk is insured for a specific sum. In case of loss of property, the
insurer will pay the loss if it is less than the specified amount. It can be explained with
an example: An insurance policy is taken for Rs. 50,000 and the value of the property
is Rs. 80,000. If the property worth Rs. 40,000 is lost, the insured will get the whole
amount of loss. If the loss is up to Rs. 50,000, it will be paid in full. In case loss
exceeds Rs. 50,000, say it is Rs. 60,000, the indemnity will only be upto the amount
insured i.e. Rs. 50,000. Under this policy the insured is not punished for getting a
policy for lesser sum. The actual value of property is not taken into consideration.
3. Average Policy:
If the ‘average clause’ is applicable to a policy, it is called Average Policy. Average
clause is added to penalise the insured for taking up a policy for a lesser sum than the
value of the property. The compensation payable is proportionately reduced if the
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value of the policy is less than the value of the property. Suppose a person takes up a
fire insurance policy of Rs. 20,000 and the value of the property is Rs. 30,000. If there
is a loss of property worth Rs. 50,000, the underwriter pays compensation of Rs.
10,000 (20,000/30,000 x 15,000) and not Rs. 15,000. It discourages the insured to get
under-valued policy.
4. Floating Policy:
A floating policy is taken up to cover the risk of goods lying at different places. The
goods should belong to the same person and one policy will cover the risk of all these
goods. This policy is useful to those businessmen who are engaged in import and
export of goods and the goods lie in warehouses at different places. The premium
charged is generally the average of the premium that would have been paid, if specific
policies would have been taken for all these goods. Average clause always applies to
these policies.
5. Comprehensive Policy:
A policy may be taken up to cover up all types of risks, including fire. A policy may
be issued to cover risk like fire, explosion, lightening, burglary, riots, labour
disturbances etc. This is called a comprehensive policy or all-risk policy.
7. Replacement Policy:
The underwriter provides compensation on the basis of market price of the property.
The amount of compensation is calculated after taking into account the amount of
depreciation. A replacement policy provides that compensation will be according to
the replacement price. The new asset should be similar to the one which has been lost.
The amount of compensation will depend upon the market price of the new assets so
that it is replaced without additional cost to the insured.
JUDICIAL AAPROACH
Repudiation of claim under a Standard Fire & Special Perils Policy: The
Complainant’s house was insured under STANDARD FIRE & SPECIAL PERILS
POLICY of the respondent Insurer. On 02/02/2016, the floor tiles laid at the Bedroom
got cracked and on very next day the floor tiles laid in the other room also found
damaged. A claim was preferred with the Insurer, which has been repudiated stating
that the claim does not fall under any of the perils covered under the policy. They also
confirmed that the damage was due to bad workmanship which does not come under
the purview of the policy. He appealed to the grievance Cell of the Insurer for a
review of the claim but was in vain. Hence, he filed a complaint before this Forum,
seeking direction to the Insurer for admission of the claim.
Decision: The Respondent insurer is directed to Pay Rs.25ooo/- as ex-gratia payment.
The complainant had taken a Fire insurance policy w.e.f. 13.03.15 to 12.03.2016. He
alleged that during the period of policy his premises and contents therein suffered a
loss of Rs. 19.37 Lacs due to entry of rain water into the building but the claim was
rejected by the Insurance Company on the ground that loss due to direct entry of rain
water was not covered under the policy. The Insurance Company vide its Grievance
Management Services had informed to the complainant that the loss due to direct
entry of rain water was not covered under the policy. The root cause of entry of water
was foreseen in nature. Furthermore, the operating peril is due to “Direct entry of rain
water” which is not covered in the policy. Apart from this, the property of the
complainant remained unoccupied for more than 60 days and as per policy condition
no. 3 (b) if the building becomes unoccupied and so remains for a period of more than
30 days, the insurance ceases to attach as regards the property affected. Hence
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Insurance Company had rejected the claim and communicated to the complainant
accordingly.
During the course of personal hearing the complainant stated that rain water entered
the building through gaps/holes left by earlier tenants (HDFC Bank) after removal of
ACs outlets etc. The Insurance Company reiterated that loss to building and contents
occurred due to direct entry of rain water which was not covered under the policy
terms and conditions. On perusal of papers placed on record it was find out that the
damage to building and contents attributed due to direct entry of rain water through
holes/ gaps which were due to removal of ACs/Outlets by the earlier tenant. As per
clause no.VI of the standard fire and special perils policy covers “the loss, destruction
or damage directly caused by storm, cyclone, typhoon, tempest, hurricane, tornado,
flood or inundation.” In the instant case operating peril was direct entry of rain water
which was not covered under policy terms and conditions as stated above.
The decision of the Insurance Company upheld Accordingly the complaint filed by
the complainant is hereby disposed off.
Complaint was filed about the non-settlement of a claim under a Fire & Allied Perils
policy about damages to a residential building due to landslide in a hilly place. A
portion of the building was damaged owing to landslide, whereas its two floors were
demolished under the instructions of the District Administration for safety reasons.
The complainant had stated that at the time of making a proposal for insurance, i.e.,
on 9.08.2012 the entire building was intact. He pointed out that a similar claim of an
adjoining building, from where the landslide had started and affected his premises,
was settled by the same Company. The Company’s representative explained that
landslide that affected the entire area started on 19.08.2012, wherein a major portion
collapsed on 22.08.2012. He informed that insurance was obtained on 21.08.2012,
i.e., after the onset of landslide.
In response to a specific query in the proposal form about condition and maintenance
of the proposed building, the insured had given wrong information. Hence,
Company’s decision to reject a claim on the ground of a pre-existing loss and non-
discloser of facts was held justified and complaint was dismissed.
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LOOPHOLES
SUGGESTIONS
Following are the suggestions given by the researcher to minimize the gap between
public life insurance company and private life insurance company activities and to
achieve unique development of life insurance business in India:
CONCLUSION
The Law of Insurance has gained greater importance in view of the growing risks and
massive investments in modern businesses, as also the increasing risks to the
individual’s life and limb. The development of new technologies and the opening up
of the economy has further added to the risk factors. Over time, an increased
understanding of the many factors that contribute to the risk of fire has led to positive
developments in the fire protection of commercial structures. Improvements in public
fire protection systems and services, as well as increased use of private active or
passive systems through fire-protection and loss-control engineering, has meant an
overall decrease in the cost of fire. A fire insurance could be bought as a part of
property insurance or as a stand-alone policy. It offers compensation for the costs
incurred in the replacement, repair or reconstruction of a property that was damaged
due to fire. Since the estimation of loss from fire is unpredictable, this policy is issued
with fixed value compensation as an upper limit set by the property insurance policy.
The actual loss or the maximum amount agreed beforehand is paid as compensation
when someone file a claim for fire insurance.