What does a fire policy cover?

ORIGINALLY, A fire policy covered only damage by fire to properties. Now, various other risks, some of them having nothing to do with fire, are also covered under a fire policy. In fact, today the Tariff Advisory Committee (TAC) terms a fire policy as a "Standard Fire and Special Perils Policy".

One important point to remember here is that all fire insurance arrangements are under a Fire Tariff, issued and controlled by the TAC. The tariff must be uniformly followed by the Government controlled insurance companies and also the new private entrants.

On May 1, 2000, the earlier fire tariff was superceded by a welcome change in rules and regulations. It simplified the risk descriptions and ratings. It also provided for a maximum of 15 per cent low claim discount on fire insurances based on loss experience. Above all, the revised tariff made for a substantial reduction in various rates. Needless to say the market welcomed the changes.

Surprisingly the tariff has been revised again with effect from April 1, 2001. The major change relates to claims experience discount / loading. It says discounts / loadings will be applied only on buildings and contents of all blocks in one compound of one complex in one location above Rs.50 crores. At a stroke, the TAC has more or less done away with low claim discounts.

It is strange that changes were effected in the fire tariff in two consecutive years. Normally tariffs are prepared on the basis of the underwriting as well as claims experience over a long period. Revisions are just not done year after year.

Points to remember

There are important aspects to be carefully gone into before taking out a fire insurance. If and when a claim occurs, what will be scrutinised and acted upon is only the actual policy document with its attendant endorsements and not any intentions. Many industrial clients try to put the blame on the insurance company by saying that they did not look into clauses set forth in small print. The very same clients, when they tender for big contracts, go through every word, every comma and every full stop before submitting their quotations!

The main points, which must be looked into, are:

* What are the risks covered in a fire policy?

* What are the risks for which the insurer is not liable?

* What additional risks can be covered and on what terms and conditions?

* How to arrive at the sum to be insured?

* How to describe accurately the properties, proposed to be insured, in the policy schedule?

The need for care and attention do not stop with obtaining the policy. If and when changes occur in the location / description / value of the property covered, the insurer must be informed and a suitable endorsement to the policy must be taken. If the policy covers stocks on declaration basis, monthly declarations must be made.

Last, but not least, prompt action should be taken to get claims, if and when they occur, properly and speedily settled.

Excess

Except in regard to fire policies covering dwellings, the insured must bear:

(a) The first 5 per cent of each and every claim subject to a minimum of Rs. 10,000 in respect of each and every loss arising out of "Act of God Perils" such as Lightning, STFI, subsidence, landslide and rockslide covered under the policy.

(b) The first Rs.10,000 for each and every loss arising out of other perils in respect of which the insured is indemnified by the policy.

The next instalment will deal with what additional risks can be covered, how to keep the policy updated at all times and what to do if and when a claim arises. The third instalment on fire insurance will explain how to take care of consequential losses if and when a fire loss reduces or totally stops productivity in a commercial unit.

N. Ramachandran

(The author is an insurance consultant. He can be contacted at: nramac@md3.vsnl.net.in.)

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