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FIRE/FIRE LOP INDUSTRIAL ALL RISK MEGA RISK INSURANCE POLICIES

FIRE/FIRE LOP INDUSTRIAL ALL RISK MEGA RISK INSURANCE POLICIES. BY RAJIV R. JOSHI VICE PRESIDENT DECCAN INSURANCE & REINSURANCE BROKERS Ltd. MUMBAI. AGENDA. PURPOSE OF FIRE INSURANCE PROPERTY TO BE INSURED

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FIRE/FIRE LOP INDUSTRIAL ALL RISK MEGA RISK INSURANCE POLICIES

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  1. FIRE/FIRE LOPINDUSTRIAL ALL RISK MEGA RISK INSURANCE POLICIES BY RAJIV R. JOSHI VICE PRESIDENT DECCAN INSURANCE & REINSURANCE BROKERS Ltd. MUMBAI

  2. AGENDA • PURPOSE OF FIRE INSURANCE • PROPERTY TO BE INSURED • VALUATION ASPECTS IN FIRE INSURANCE OF BUILDING/ PLANT & MACHINERY • TYPES OF FIRE POLICIES • SALIENT FEATURES OF THE FIRE TARIFF AND SECTIONS OF THE FIRE TARIFF • FIRE LOSS OF PROFITS POLICY • INDUSTRIAL ALL RISK POLICY • MEGA RISK POLICY

  3. PURPOSE OF 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 IS CONCERNED SUITABILITY--FIRE INSURANCE IS SUITABLE FOR- OWNERS OF PROPERTY/ TENANTS /LESSEES ONE WHO HOLDS PROPERTY IN TRUST / COMMISSION AS BAILEES/TRUSTEES INDIVIDUALS/FINANCIAL INSTITUTIONS WHO HAVE FINANCIAL INTEREST IN THE PROPERTY AS MORTGAGEES

  4. PROPERTY TO BE INSURED FIRE INSURANCE POLICY CAN BE ISSUED TO COVER ALL IMMOVABLE AND MOVABLE PROPERTY LOCATED AT A PARTICULAR PREMISES SUCH AS- BUILDINGS PLANT AND MACHINERY FURNITURE, FIXTURES, FITTINGS AND OTHER CONTENTS STOCKS AND STOCK IN PROCESS ALONG WITH GOODS HELD IN TRUST OR IN COMMISSION INCLUDING STOCKS AT SUPPLIERS/ CUSTOMER'S PREMISES MACHINERY TEMPORARILY REMOVED FROM THE PREMISES FOR REPAIRS CAN BE INSURED Note: Plinth & Foundation to be insured for EQ Risks only and Land need not be Insured In a typical Industrial Premises, the Sum Insured has to be specified Blockwise and the insurable property will include--- a) BUILDING –INCLUDING ELECTRICAL INSTALLATION,PIPELINES ETC. b) CONTENTS i) PLANT &MACHINERY,BOILERS, ELECTRONIC EQUIPMENTS & ACCESSORIES, EFFLUENT TREATMENT PLANT,ELECTRIC SUB-STATION ii) FURNITURE ,FIXTURES AND FITTINGS, iii)STOCK---- RAW MATERIAL/STOCK IN PROCESS/SEMI FINISHED GOODS/FINISHED GOODS

  5. VALUATION ASPECTS IN FIRE INSURANCE OF BUILDING/PLANT & MACHINERY • CURRENT NEW REINSTATEMENT/ REPLACEMENT VALUE—CNRV • MARKET VALUE=CNRV--DEPRECIATION • PURCHASE VALUE • WRITTEN DOWN VALUE=PURCHASE VALUE-DEPRECIATION Note:Insurance should never be taken for Purchase Value or WDV. The best option should be CNRV and if the same is not possible, then Market Value

  6. Basis Of Sum Insured Reinstatement Value Current New Reinstatement/Replacement Value Market Value • Amount at which property of the same age and condition can be bought or sold : Market Value = Current New Reinstatement/Replacement Value – depreciation Factors determining depreciation : • Building--- • Age • Usage • Climatic conditions • Type of construction • Plant & Machinery--- • Age • Usage & Maintenance • Number of Shifts working & Climatic conditions

  7. Example CNRV and Market Value of Building in the year 2012 constructed in the year 1980 Year of Construction = 1980 Total Cost of construction = 10cr Life of Building = 100yrs Rate of depreciation = 1% per year Depreciation for 32yrs = 32% New cost of construction as on 2012 = 40cr Current New Reinstatement Value = 40 cr Market Value = 40cr - 12cr 80lacs(depreciation) = 27cr 20lacs

  8. TYPES OF FIRE POLICIES • In Fire Insurance, the Standard Fire & Special Perils Policy is issued to cover – • Simple Risks like Dwellings/Offices/Shops, etc. • Storage Risks like Godowns, etc. • Industrial & Manufacturing Risks • Standalone Utilities and Tank Farms • Modifications depending upon the type of Property covered and compulsions of trade are as follows- • Valued Policy can be issued to cover Obsolete Machinery and Jewellry/Valuables • Long Term Policy can be issued to cover Dwellings • Declaration Policy can be issued to cover stocks • Floater Policy can be issued to cover stocks • Floater Declaration Policy can be issued to cover Stocks • Reinstatement Value Policy can be issued in respect of Building /Plant & Machinery

  9. Salient Features Standard Fire & Special Perils Policy

  10. MEANING OF FIRE IN A FIRE POLICY • MEANING OF FIRE • The term FIRE for the purpose of a policy of fire insurance has wider meaning than ordinarily associated with the word Fire • Fire means actual Ignition under Accidental circumstances. There should be actual ignition of the property which ought not have been on fire under accidental circumstances so far as the Insured is concerned • Fire Insurance Policies are designed to provide protection for property against material loss or damage by fire & other specified perils • Fire or Combustion is normally the result of fuel, oxygen and initial source of heat combining in suitable quantities. The consumption of the material by fire is a chemical reaction in which a heated substance is combined with oxygen. Heat, light smoke & toxic gases are produced. Fire Triangle comprises of Fuel/Oxygen/Ignition Temperature as its three vertices

  11. CONTINGENCIES COVERED BY THE TERM FIRE IN A FIRE POLICY The fire policy covers fire & fire related contingencies . Thus loss or damage to property insured due to the following contingencies will be covered by the fire policy— Fire including fire resulting from explosion Smoke, Scorching Lightning, whether or not fire starts when lightning strikes Water or other fire extinguishing appliances used in putting our the fire Fire brigade in the execution of its duties Falling of wall as a result of fire During removal from the burning building, caused by exposure to weather

  12. Scope Of Cover 1. Fire – Excluding destruction or damage caused by-- a) Its own fermentation, natural heating or spontaneous combustion. Its undergoing any heating or drying process. b) Burning of property insured by order of Public Authority. 2. Lightning – All direct loss/damage caused by lightning, whether fire results or not, is covered. 3. Explosion/Implosion - Excluding loss, destruction of or damage a) To boilers (other than domestic boilers), economizers or other vessels, machinery or apparatus (in which steam is generated) or their contents resulting from their own explosion/implosion. b) Caused by centrifugal forces.

  13. Scope Of Cover...contd. 4. Aircraft Damage Loss, Destruction or damage caused by Aircraft, other aerial or space devices & articles dropped there from excluding those caused by pressure waves. 5. Riot, Strike, Malicious Damage Loss of or visible physical damage or destruction by external violent means by Riot ,Strike and Malicious Damage but excluding loss/damage caused by ---- a. Total or partial cessation of work or the retardation or interruption or cessation of any process or operations or omission of any kind b. Permanent or temporary dispossession of any building or plant or unit or machinery resulting from the unlawful occupation by any person of such building or plant or unit or machinery c. Burglary, housebreaking, theft, larceny or any such attempt or any omission of any kind of person (whether or not such act is committed in the course of a disturbance of public peace) in any malicious act.

  14. Scope Of Cover...contd. 6. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood & Inundation Loss, destruction or damage directly caused by Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood or Inundation excluding those resulting from earthquake, volcanic eruption or other convulsions of nature. 7. Impact Damage Loss of or visible physical damage or destruction caused due to impact by any Rail/Road vehicle or animal by direct contact not belonging to or owned by---- a. The insured or any occupier of the premises or b. Their employees while acting in the course of their employment

  15. Scope Of Cover...contd. 8. Subsidence and landslide including rock slide Loss, destruction or damage directly caused by subsidence of part of the site on which the property stands or land slide/rock slide excluding: a. the normal cracking, settlement or bedding down of new structures b. the settlement or movement of made up ground c. costal or river erosion d. defective design or workmanship or use of defective materials e. Demolition, construction, structural alterations or repair of any property or groundwork or excavations 9. Bursting & /or overflowing of water tanks, apparatus & pipes

  16. Scope Of Cover...contd. 10. Missile testing operations These operations are conducted by the Govt. of India. 11. Leakage from automatic sprinkler installations Excluding loss, destruction or damage caused by a. Repairs or alterations to the buildings or premises b. Repairs, removal or extension of the sprinkler installation c. Defects in construction known to the insured. • Bush Fire Excluding loss, destruction or damage caused by Forest Fire

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

  18. 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 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)

  19. GENERAL CONDITIONS - • BREACH OF UTMOST GOOD FAITH • NON-DISCLOSURE OR MISREPRESENTATION OF MATERIAL FACT WILL RENDER THE CONTRACT NULL AND VOID • FALL OR DISPLACEMENT • 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

  20. GENERAL CONDITIONS ….contd. • 3. ALTERATION • 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 4. CO-INSURANCE TOP-UP WITH MARINE POLICY IF THERE IS A MARINE POLICY COVERING THE SAME RISK , FIRE POLICY WILL PAY ONLY OVER AND ABOVE THE CLAIM UNDER MARINE POLICY

  21. GENERAL CONDITIONS..contd. 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 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

  22. 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 • 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

  23. INDEMNITY • INSURER HAS THE 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 GENERAL CONDITIONS …..contd.

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

  25. GENERAL CONDITIONS…contd. 14. NOTICE 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

  26. Add-On Covers • Terrorism • Removal of debris (in excess of 1%) • Architects, Surveyors and Consulting Engineers fees (in excess of 3%) • Deterioration of Stock in cold storage premises due to: 1)failure of electric supply arising from damage caused by Insured peril to property on Insured premises/electric substation 2)damage to refrigeration machinery due to Insured peril

  27. Add-On Covers.....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 Sum Insured by each item • Spoilage material damage cover due to perils of the standard fire and special perils policy • Molten material damage • Start up Expenses

  28. Add-On Covers.....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= Rent Paid/Rent Insured term x S/I)

  29. Add-On Covers.....contd. • Additional Expenses of rent for alternative accomodation (non-manufacturing risks only)—max. indemnity period will be three years: 1. 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) 2. For Owner-Occupant :- A/E=NEW RENT –STANDARD RENT

  30. SALIENT PROVISIONS OF ALL INDIA FIRE TARIFF 1. Policy -Only Standard Fire and Special Perils Policy with the permitted “Add-on” covers if any, can be issued. 2.Valued policy can be issued only for property whose Market Value cannot be ascertained e.g. Curios, Works of Art, Manuscripts, Obsolete Machinery, etc subject to the valuation certificate. 3.Cancellation: For cancellation of policy at the option of insured, the retention of premium will be at Short Period rate for the period the policy has been in force. For cancellation of policy at the option of the insurer, refund of premium will be on pro-rata basis for the unexpired term. 4. Mid term revision in sum-insured: • Increase in sum insured: On pro-rata basis • Decrease in sum insured: On short-period basis

  31. SALIENT PROVISIONS OF ALL INDIA FIRE TARIFF..contd. 5. Escalation Clause: Escalation clause will apply to policies covering Building, Machinery and Accessories only and will not apply to policies covering stock. Insurers allow automatic regular increase in the sum insured throughout the period of the policy in return for an additional premium to be paid in advance. The terms and conditions for this extension shall be as follows: a.The selected percentage increase will not exceed 25% of the sum insured. b.The additional premium payable in advance will be at 50% of the full rate to be charged on the selected percentage increase. c.The sum insured at any point of time would be assessed after application of the Escalation clause.

  32. SALIENT PROVISIONS OF ALL INDIA FIRE TARIFF…contd. 6. EXCLUSION OF STFI AND RSMD PERILS AT INCEPTION It is permissible to exclude Storm, Tempest, Flood and Inundation group of perils and/or Riot, Strike, Malicious Damage perils at inception of the Policy only . The deletion shall apply for the entire property in one complex/compound/location covering the entire interest of the Insured without any option for selection. Reduction in premium rates for such deletion(s) may be allowed as per Tariff provisions 7. MID-TERM COVER Generally, it is not permissible to grant mid-term cover for STFI and/or RSMTD perils. In case such covers are granted mid-term they will be subject to special provisions 8. RATING OF RISKS IN MULTIPLE OCCUPANCY INDUSTRIAL ESTATE Risks in Multiple Occupancy Industrial Estate shall be rated `Per se'. If the entire building of the Industrial Estate is insured under one sum insured, a rate of Rs. 1.80%o shall be chargeable to 'building'.

  33. SALIENT PROVISIONS OF ALL INDIA FIRE TARIFF….contd. 9. SILENT RISKS: Risks rateable under sections IV and V are allowed silent rates as per the following table: 10. LONG TERM POLICIES Policies for a period exceeding 12 months shall not be issued except for "Dwellings". 11. PARTIAL INSURANCE Where portions of a building and/or machinery therein are under different ownership, it is permissible for each owner to insure separately but to the full extent of his interest on the building/machinery The Insured's interest must be clearly defined in the policy

  34. SHORT PERIOD SCALE

  35. Type of Installation Hand Appliances & trailer Pumps/ fire Engines Hand Appliance & hydrant systems Hand Appliances & Sprinkler / Fixed Water Spray System Hand Appliances + Hydrant System & Sprinkler/ fixed water spray System Discounts 2.5% 5% 7.5% 10% FEA Discounts

  36. Rating The computation of the premium rate shall be in the following sequence: • Basic Rate • Reduction in rates for deletion of STFI &/ or RSMTD perils , if opted out • Tariff extra for “ Kutcha” construction applicable • Discount for claims experience • Discount for FEA ( Fire Extinguishing Appliances) on protected blocks • Good Feature Discount

  37. SECTIONS OF THE FIRE TARIFF TOTAL NO.OF SECTIONS = 8 SECTION I - GENERAL RULES & REGULATIONS SECTION II- STANDARD FIRE & SPECIAL PERILS POLICY SECTION III – RATING OF SIMPLE RISKS eg. DWELLINGS/ SHOPS/OFFICES/HOSPITALS/ EDUCATIONAL INSTITUTIONS SECTION IV-RATING OF INDUSTRIAL AND MANUFACTURING RISKS SECTION V - RATING OF STAND-ALONE UTILITES LOCATED OUTSIDE INDUSTRIAL AND MANUFACTURING RISKS eg. BOILER HOUSE , PUMP HOUSE AND PIPE LINES,ANALYTICAL LABORATARY,ELECTRIC SUBSTATION,etc.

  38. 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. SECTION VII -TANKS FARMS/GAS HOLDERS OUTSIDE THE COMPOUND INDUSTRIAL/ MANUFACTURING RISK - STORAGE OF LIQUAFIED GAS - LIQUIDS/CHEMICALS /OIL - INFLAMMABLE LIQUID/ GAS

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

  40. FLOATER POLICY-SALIENT FEATURES • 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 charge with a loading of 10%

  41. FLOATER POLICY-SALIENT FEATURES..contd. • Policy is issued to take care of fluctuation of stocks (and hence values) in more than one location where total value of stocks at all the locations at any given time remains more or less constant • Unspecified locations are not covered • No floater extra, if stocks within godown/ process blocks in the same compound are covered • For the purpose of application of condition of average and and to check adequacy of insurance cover, the policy sum insured is compared with total value of all stocks in all locations at the time of loss

  42. DECLARATION POLICY--FLUCTUATION IN STOCK VALUES

  43. DECLARATION P0LICY • Many times insured may have stocks which frequently fluctuate in quantity/value due to frequent incoming and outgoing.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. • Basis of value for declaration will be the market value. • Declaration policy cannot be issued for covering-- • stock in process/ retail stores • short period insurance • stocks at railway sidings

  44. DECLARATION POLICY..contd. • Monthly declarations basis is agreed in advance and can be 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 • Monthly Declaration of Stock as per agreed basis must be submitted by the insured before the end of the succeeding month • If declaration is not received for a particular month, the sum insured will be treated as the declaration for the month

  45. DECLARATION POLICY…contd. • Reduction in Sum Insured during currency of policy is not allowed. Mid-term increase in Sum Insured can be done with prior agreement and is allowed on payment of premium on pro-rata basis • Actual premium on expiry = rate x average sum insured • Average sum insured = total value of Monthly Declarations/ number of declarations

  46. DECLARATION POLICY…contd. • Refund of Premium on expiry of policy-- = Provisional premium collected at inception (-) Actual premium calculated on average sum insured • Refund of premium on adjustment basis on the declarations / cancellations shall not exceed 50% of the advance premium collected • Underinsurance will apply if--- • Value of Stock at the time of loss > Sum Insured • Stock Declared vide Declaration immediately preceding the loss < Value ought to be declared

  47. FLOATER DECLARATION POLICY • Floater Declaration Policy is a combination of floater and 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 • Normally suitable for Organisations having multiple Storage Facilities across State/Country like Rashtriya Chemicals & Fertilizers, Food Corporation of India, State Warehousing Corporation Ltd. ,etc.

  48. WHY RIV POLICY FOR BLDG./P & M-COMPARISON OF VALUES Note: Depreciation= 2% per annum

  49. 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 • The Standard Fire & Special Perils policy is issued with the Reinstatement Value Clause attached thereto • 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 • Any technical improvements will go to the account of the insured.

  50. REINSTATEMENT VALUE POLICY ..contd. • Reinstatement must be actually carried out by the Insured in order to obtain the benefits of the special basis of settlement. Thus,until expenditure is incurred by the insured in reinstating the property destroyed or damaged, the insurer’s liability will be on depreciated value basis only • 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. Relaxation may be allowed in hardship cases and where loss/damage to property is extensive • The sum insured must be equal to the cost of reinstatement of the entire property on the date of reinstatement, otherwise underinsurance will apply.

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