AN ASSIGNMENT ON Insurance and Risk Management

                                                                           

AN ASSIGNMENT

     ON

Insurance and Risk Management

[MGT-412]

(Whole Syllabus Of The Book)

 PREPARED FOR

MD. MAMUN UR RASHID

LECTURER & COURSE TEACHER

DEPARTMENT OF BUSINESS ADMINISTRATION

PREPARED BY

Md. Sojibur Rahman

DEPARTMENT OF BUSINESS ADMINISTRATION

24^th july, 2010

The chapter shall exclusively deal in reinsurance and would bit into little bit more detail than what is usually expected of the students of this elementary course. Student can retain would be of positive use to him in his professional career.

With this aim in view this chapter shall deal in questions like:

a)      What reinsurance is?

b)     Necessity of an insurance company for taking reinsurance protection.

c)      Various types of reinsurance cover available and the implications of such cover.

d)     What types of covers are will suit to different branches of insurance.

e)      Certain legal considerations arresting out of the relationship amongst reinsured, reinsured and original insured, co-insurance, utmost good faith and insurable interest.

SOME IMPORTANT TEUMINOLOGIES: Before preceding to the study of reinsurance it is required o the students to understand the meaning of certain terminologies commonly used in the transaction of reinsurance business.

REINSURANCE/REASSURANCE: This means insurance of insurance. The original insurer gets the risk, assumed from the original insured (primary insured), and covered (reinsured) with another insurer (known as reinsurer) for the same reason as the primary insured does.

REINSURER/REASSURER:  Meaning the person, body or company giving reinsurance cover.

REINSURED/REASSURED/CEDING COMPANY DERECT CO-PRIMARY OR ORINGNAL INSURER: All these terms relate to or indicate or identify the insurer who primarily assumes the risk from the primary insured and then gets the same reinsures the same reinsured according to need.

CEDING COMPANY

 The company ceding the risk, i.e., getting the risk reinsured, and has already been discussed.

a)      Cession.

b)     Retrocession.

c)      Retention.

d)     Line.

e)      Primary.

f)       Reciprocity

What Re-Insurance is?

Ans: Broadly speaking reinsurance is insurance of insurance. This means that the original insurer (who originally accepted the risk from the original insured) gets the risk covered with another (Reinsurer) for the same reason the original inured got protection for.

Definitions: To sum up, therefore, it may be said that:

1.      In order to secure a large number of similar risks to permit the prediction of losses with a reasonable degree of certainty, insurance companies have devised the practice of reinsurance.

2.      Reinsurance is the transfer of insurance business from one insurer to another. Its purpose is to shift risks from an insurer, whose financial security maybe threatened by retaining too large an amount of risk, to other reinsurers who will share in the risk of large losses.

3.      Reinsurance tends to stabilize profits and losses and permits more rapid growth.

4.      The entire area of reinsurance and retrocession is an example of the essential need for spread of risk among many risk bearers.

5.      Reinsurance enables a risk to be scattered over a much wider area which is the primary concept of the whole business of insurance.

6.      The need for reinsurance arises in the same way as an original insured needs insurance protection.

7.      Original insured is not a party to the reinsurance contract.

Reasons for reinsurance:

1. Risk minimization by spreading.
2. Risk transfer.
3. Flexibility.
4. Accumulation.
5. Development.
6. Prediction for rating.
7. A new insurer.

Types of reinsurance:

1. Facultative Reinsurance.
2. Treaty Reinsurance.
3. Excess or loss.
4. Excess of loss Ratio.

Forms of reinsurance:

1. Participating or pro-rata.
2. Non-Proportional.

Application of reinsurance to various branches of insurance:

1. Fire.
2. Marine and aviation.
3. Accident.
4. Life.

Certain legal considerations:

1. As a general rule, reinsurance is a contract between the direct insurer and the reinsurer to which the original assured is not a par5ty and which does not obligate the reinsurer to the assured.
2. Contracts of reinsurance require Utmost Good Faith on the part of the insurer.
3. The contract of reinsurance is equally subjected to the requirement of Insurable Interest.
4. Reinsurance is an agreement to indemnify the direct insurer, partially or altogether, against a risk assumed by him in a policy issued to a third party.
5. The reinsurer is obligated to the ceding company. The direct company, down as the reinsured, by its contract with the reinsurers, obtains power to collect from the reinsurers.
6. From the business relationship established between the reinsurer and the reinsured there may arise a contract of reinsurance?
7. Reinsurance does not mean double insurance.
8. Reinsurance does not mean coinsurance for the same reason as explained under double insurance.
9. Usually reinsurers are liable as per liability of the original insurer.
10. When after making payment of a claim the insurers make any recovery from the liable third party as per policy terms and conditions.
11. As reinsurance contracts are contracts of indemnity.

NATURE OF LIFE INSURANCE CONTRACT

Life insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay certain sum o money either on the death of the insured or on the expiry of a fixed period.

Features of Life Insurance Contract:

1. Nature of general contract.
2. Insurable Interest.
3. Utmost good faith.
4. Warranties.
5. Proximate cause.
6. Assignment and Nomination.
7. Return of premium.
8. Other features.

Nature of general contract:

1. Offer and Acceptance.
2. Competency of the Parties.
3. Free Consent of the Parties.
4. Legal Consideration.
5. Legal Objective.

Utmost Good Faith:

1. Material Facts
2. Duty of both parties.
3. Full and True Disclosure.
4. Extent of the Duty.
5. Legal Consequence.
6. Indusputability of Policy.

CLASSIFICATION FO POLICIES

The life insurance contract provides elements of protection and investment. After getting insurance the policy-holder feels a sense of protection because he shall be paid a definite sum at the death or maturity. The life insurance policies can be divided on the basis of:

1. Duration of policy.
2. Methods of Premium payments.
3. Anticipation in profit.
4. Number of lives covered.
5. Method of payment of claim amounts.
6. Non-conventional Policies.

Policies according to duration of policies:

1. Whole-life4 policies.
2. Term insurance.
3. Endowment insurance.
4. Survivorship policy.

Term insurance polices:

1. Straight –Term insurance.
2. Renewable Term Polices.
3. Convertible Term Policy.

Endowment policies:

1. Pure endowment policy.
2. Ordinary endowment policy.
3. Joint life endowment policy.
4. Double endowment policy.
5. Fixed term endowment policy.
6. Educational annuity policy.
7. Triple benefit policy.
8. Anticipated endowment policy.
9. Progressive protection policy with profits.
10. Anticipated whole life policy with profits.
11. New Jana raksha policy.
12. Mortgage redemption assurance policy.
13. Children have deferred endowment assurance.
14. Children anticipated policy with profits.
15. Jeevan saathi.
16. Married woman’s property act policy.
17. Survivorship reversionary or contingent assurance.

Policies according to premium payment:

1. Single premium policy.
2. Level premium policy.

Policies according to participation in profits:

1. Without profit policies or Non-participating policies.
2. With profit policies or participating policies.

Policies according to the number of persons insured:

1. Single life policies.
2. Multiple life policies.

Non-Conventional policies:

1. Policies under LIC Mutual Find.
2. Jeevan Akshay.
3. Jeevan Dhara.
4. Jeevan Kishor.
5. Jeevan Chhaya.;

Policies under lic mutual fund:

1. Who can apply for Dhanasahayog units?
2. How much one can invest?
3. Where can you submit your application with subscription?
4. Selling and Repurchase price of the units.
5. Incentive for early subscription.
6. Plans of Investment.
7. Benefits.
8. Tax benefits.
9. Liquidity.

Dhan 80 CCB (1):

1. Who can apply for Dhan 80CCB (1) Units.
2. Minimum Investment.
3. Where can you submit your application with subscription?
4. Scheme period and Issue period.
5. Selling and Repurchase price of the units.
6. Incentive for early subscription.
7. Plan of Investment.
8. Tax Benefits.
9. Termination of the Scheme.
10. Liquidity.

                                                                   ANNUITIES

An annuity is a periodical level payment made in exchange at the purchase money for the remainder of the life time of a person or for a specified period. The recipient is usually as an annuitant. In annuity contract, the insurer undertakes to pay certain level sums periodically up to death or expiry of the term.

Difference between Annuity Contracts and Life Insurance Policies:

Annuity contract is just opposite of the insurance contract.

1. The annuity contract liquidates gradually the accumulated funds whereas the life insurance contract provider’s gradual accumulation of funds.
2. The annuity contract is taken for one’s own benefit but the life assurance is generally for benefits of the dependents.
3. In annuity contract generally the payment stops at death whereas in life insurance the payment of the dependents.
4. The premium in annuity contract is calculated on the basis of longevity of the annuitant but the premium in life insurance is based on the mortality of the policy-holder.
5. Annuity is protection against living too long whereas the life insurance contract is protection against living too short.

Classification of Amnesties: The annuities can be defined according to (1) commencement of income, (2) number of liver covered, (3) mode of payment of premium, (4) disposition of proceeds, and (5) special combination of annuities.

Annuities according to commencement of income:

1. Immediate annuity.
2. Annuity due.
3. Deferred annuity.

Classification of annuity according to the number of lives:

1. Single life annuity.
2. Multiple life annuities.

Classification of annuities according to mode of premium:

1. Level premium annuities.
2. Single premium annuities.

Classification according to the disposition of proceeds:

1. Life annuity.
2. Guaranteed minimum annuity.
3. Temporary life annuity.
4. Retirement annuity policy.

SELECTION OF RISK

The selection of a risk is a process whereby inferior lives are “weeded out”. The function of the selection process is to determine whether the degree of risk presented by applicant for insurance is commensurate with the premium established for persons in his category or some additional premium should be charged or the applicant should be rejected the insurance.

Purpose of Selection:

1. The first and the foremost purpose of the selection of risk is to determine whether the proposal should accepted or not.
2. The second objective of the selection is to determine the rate of premium to be charged from the assured.
3. Since there are various degrees of risk to a person and so theoretically at least, all the persons should be charged different premiums, but it is not practicable to charge so many premiums as many applicants are.
4. The fourth aim of selection is to avoid any discrimination on the part of the lives assured.
5. The selection of risk is also essential to avoid adverse-selection.

Factors affecting risk:

1. Age.
2. Build.
3. Physical condition.
4. Personal history.
5. Family history.
6. Occupation.
7. Residence.
8. Present habits.
9. Morals.
10. Race and nationality.
11. Sex.
12. Economic status.
13. Defense services.
14. Plan of insurance.

Sources of risk information:

1. The proposal form.
2. Medical examiner’s report.
3. Agent’s report.
4. The inspection report.
5. Private friends’ reports.
6. Attending physicians.
7. Medical information bureau.
8. Neighbors and business associates.
9. Commercial credit investigation bureau.

Jeevan bharati (Table no.160):

1. Female critical illness (fci) cover.
2. Congenital disabilities benefit (cdb) cover.
3. Other details.

Classes of risk:

1. Uninsurable Risks.
2. Insurable Risks.
3. Standard Risk.
4. Sub-Standard Risk

Methods of risk classification:

1. The judgment method.
2. Numerical rating system.

MAEASUREMENT OF RIDK AND MORTALITY TABLE

The risks are measured or evaluated for fixation of premium is charged by the insurer. There are two methods of calculation of premium (1) Value of Service, (2) Cost of Service.

Cost of Claims:  The claims may arise at the death of the life assured or at the of the policy. In annuity contract the payment shall continue to death therefore, the expectation of survival will be the basis of the cost. In life insurance, in most cases, payment of claims depends upon the death.

Theory of Probability:

1. Certainty.
2. Simple Probability.
3. Compound Probability.
4. Estimation of probability.

Mortality table: Mortality table is such data which records the past mortality and is put in such form as can be used in estimating the course of future data.

Features:

1. Observation of Generation.
2. Start from a point.
3. Yearly Estimation.
4. Mortality and Survival Rates.

Sources of mortality information: For construction of mortality table, number of living of the beginning of each age and the number of deaths during the age are required. The sources of mortality construction can be obtained either from (1) population statistics, (2) records of life insurers.

Population Statistics: The insurer gets number of living at each age from the census records and the number of deaths from municipal and other death records.

Criticism: The population statistics is not very much useful to insurers. It was applied only when there was no insurance experience in this field.

1. The accuracy of population statistics is doubtful in absence of age-proof.
2. It has been also noticed that some deaths are unrecorded. It is difficult to know exactly how many deaths are unrecorded and similarly.
3. Census figures are available only after 10 years and therefore, it would not be very recent figure.
4. Interpolation and extrapolation are involved and correct figures are generally not known.
5. The population statistics will give statistics of all types’ persons without any separation while the insurer requires mortality of only insurable lives.

CALCULATION OF PREMIUM

The premium is of two types: (1) Net premium and (2) Gross Premium. The two premiums are further sub-divided into two parts: (1) single premium, and (2) level premium. The net premium is based on the mortality and interest rates whereas the gross premium depends upon the mortality rate the assumed interest rate, the expenses and the bonus loading.

Net single Premium: Net single premium is that premium which is received by the insurer in a lump sum and is exactly adequate, along with the return earned thereon, to pay the amount of claim wherever it arises whether at death or at maturity or even at surrender.

Steps for calculation:

1.      Determine what constitutes a claim (a) death, (b) survival or (c) both.

2.      Determine when claims are paid (a) at the beginning. (b) At the end, or (c) during the year.

3.      Determine the number of insured.

4.      Determine the duration of the policy.

5.      Determine the probable number of claims per year.

6.      Determine the value of claims per ear.

7.      Determine the number of year of interest involved and find the present value of a rupee.

8.      Determine the resent value of the claim for each year.

9.      Determine the present value of al future claims.

10.  Determine the net single premium divided by number assumed for buying policy.

Assumptions underlying Rate Computations:

1. As many policies of the given type are being issued as are the numbers of persons.
2. Premiums are collected in advance or in the beginning of the period.
3. All collections are immediately invested and will remain invested until money is needed for the payment of claims.
4. The insurer will receive an assumed a rate of interest.
5. The interest or dividend or any return of the invested funds is immediately invested for rearming.
6. Mortality rate will be the same as given in the mortality table and will be uniformly distributed throughout the year.
7. All policies are of the same amount, say, Rs. 1,000.
8. Claims will be paid only at the end of the period.

Calculation of gross premium: The gross premium is that premium which is charged by the insured to meet the amount of claims and expenses. Thus, the gross premium includes the net premium and loading.

Allocation of Expenses:

1. Allocation of expenses over various policies.
2. Allocation of expenses over duration of the policy.
3. Allocation of expenses over various policies.

Classification of expenses on the basis of variation:

1. Those expanses that vary with the size of the premium.
2. Those expenses that are independent of both, being either the same per policy or the expenses are incurred for the business as a whole.
3. Those expenses that vary with the amount of policy.

Methods of Loading:

1. Constant Addition Loading.
2. Percentage Addition Loading.
3. Modified Percentage Method.
4. Constant and Percentage Addition Method.

NATURE OF MARINE INSURACNE CONTRACT

Marine insurance has been defined as a contract between insurers and insured whereby the insurer undertakes to indemnity the insured in a manner and to the interest thereby agreed, against marine losses incident to marine adventure.

The above definition clearly lays down the following classification of the marine insurance:

1. Hull Insurance.
2. Cargo Insurance.
3. Freight Insurance.
4. Liability Insurance.

Elements of marine insurance contract: The marine insurance has the following essential features which are also called fundamental principles of marine insurance, (1) Features of General Contract, (2) Insurable Interest, (3) Utmost Good Faith, (4) Doctrine of Indemnity, (5) Subrogation, (6) Warranties, (7) Proximate cause, (8) Assignment and nomination of the policy, (9) Return of premium.

Features of general contract:

1. Proposal.
2. Acceptance.
3. Consideration.
4. Issue of policy.

Insurable interest:

1. Lost or not lost.
2. P.P. I. Policies.

Utmost good faith: The doctrine of caveat emptor (let the buyer beware) apices to commercial contracts, but insurance contracts are based upon the legal principle of begrime fides (utmost good faith).

Doctrine of indemnity: The contract of marine insurance is of indemnity. Under no circumstances an insured is allowed to make a profit out of a claim.

Doctrine of subrogation: The aim of doctrine of subrogation is that the insured should not get more than the actual loss or damage.

Warranties: A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.

MARINE INSURANCE POLICIES

The marine insurance policy is issued only when the contract has been finalized and it would be legal documents of evidence of the contract. The from of marine insurance policies has been taken from prêt old times. The standard policy generally contains the following information:

1. Name of insured or his agent.
2. Subject mater insured. It may be ship (hull) cargo and freight.
3. Risks insured against.
4. Name of vessel and officers.
5. Description of voyage or period of insurance.
6. Amount and term of insurance.
7. Premium.

Classes of policies:

1. Voyage policies.
2. Time policies.
3. Voyage and time policy or mixed policies.
4. Valued policies.
5. Unvalued policies.
6. Floating policies.
7. Blanket policies.
8. Named policies.
9. Single vessel and fleet policies.
10. Block policies.
11. Currency policies.
12. P.P.I.policies.

POLICY CONDITIONS

The old form of policy is even used today. In order to make the standard policy suitable for the different types of contracts, suitable conditions are added to the policy. They may be pertaining to Hull, Cargo and Freight.

Hull Clauses: These clauses are mainly framed with the insurances on vessels and are incorporated in hull policies.

Cargo Clauses: These clauses are used in the insurance of gods and are incorporated in cargo policies.

Freight Clauses: The clauses are framed in connection with the loss of freight due to maritime perils which may be insured for a period or for a voyage.

Description of the clauses:

1. Assignment clause.
2. Lost or not lost.
3. At and from clause.
4. Warehouse to warehouse clause.
5. Deviation touches and stay clause.
6. Inchmaree clause.
7. Running down clause
8. Sue and labour clause.
9. Reinsurance clause.
10. Memorandum clause.
11. Continuation clause.

PREMIUM CALCULATION

Premium can be ascertained either by numerical rating system or by judgment method. The numerical rating system evaluates each and every item and marks are assigned to them according to their merits and degrees of influencing risk.

Rate-making in marine insurance:

Hull insurance

1. Management.
2. Natural forces and topography.
3. Construction, two and nationality of the vessel.
4. Policy conditions.

Cargo rates:

1. Ownership.
2. Character of the cargo.
3. Hazards and customs.
4. Quality and satiability of the vessel used as carrier.
5. Duration of voyage and policy conditions.
6. Miscellaneous factors.

MARINE LOSSES

Losses in marine insurance business are result of the various perils. Marine insurance policy does not necessarily cover all the risks. All insurer is liable to indemnify an insured in respect of only losses which result from perils insured against.

Marine perils:

1. Perils of sea.
2. Fire.
3. Man-of-war.
4. Enemies.
5. Pirates, Rovers, Thieves.
6. Jettison.
7. Barratry.
8. Restraints and Detainments.
9. The free of capture and seizure clause.
10. Explosion.
11. Strikes, Riots and Civil commotion clause.
12. All other perils.

Total loss: Losses are deemed to be total or complete when the subject mater is fully destroyed or lost or ce4ases to be a thing of its kind.

• Actual total loss: Actual total loss is material and physical loss of the subject-mater insured. Where the subject-matter insured is destroyed or so damaged as to cease to be a thing of the kind insured.
1. The subject-matter is destroyed.
2. The subject-matter is so damaged as to cease to be a thing of the kind insured.
3. The insured is irretrievably deprived of the ownership of goods even they are in physical existence as in the cas3e of capture by enemy, stealth by thief or fraudulent disposal by the captain or crew.
4. The subject-matter is lost

• Constructive total loss: Where the subject-matter is not actually lost in the above manner, but is reasonably abandoned when its actual total loss is unavoidable or when it cannot be preserved from total loss without involving expenditure.

Partial loss: Partial loss is there wher3e only part of the property insured is lost or destroyed or damaged. Partial losses, in contradiction from total loses, include (a) Particular Average Losses, i.e. damage , or total loss of a part, (b) General Average Losses (General Average) i.e., the sacrifice expenditure, etc, done for common safety of subject-matter insured, (c) Particular or special charges, i.e., expenses incurred in special circumstances, and (d) salvage charges.

Types of general average loss:

1. General Average Sacrifices: The general average sacrifices are made for common safety.
2. General Average Expenditure: The general average act involves expenditure; in this case extra expenditures are involved for common safety.

PAYMENT OF CLAIMS

When the policy has been issued the risk for the peril insured against is covered. The contingency against which protection is given or not materialized when the loss insured against actually occurs; the insured has got to make a claim on the insurer for in-densification of loss.

Documents required for claim:

The following documents are required at the time of claim.

1. Policy or certificate of insurance.
2. Bill of lading. It determines the scope of the contract of carriage.
3. Invoice or bill sating terms and conditions of sale.
4. Copy of 0protest. In the event lot stranding of or accident of the vessel.
5. Certificate of survey.
6. Account sales or bill of sale.
7. Letter of subrogation.

Documents in different types of claims:

Total Loss

1. Insurance policy.
2. Bill of lading.
3. Copy of the invoice.
4. Protest.
5. Letter of subrogation.
6. Notice of abandonment.

Partial Loss:

1. The policy or the certificate.
2. The invoice for the whole shipment.
3. The bill of lading should be sent o the underwriters
4. The copy of the master’s protest or an extract from logbook of the ship is to be presented with the policy.
5. A surveyor’s report.
6. Bill of sale.
7. Letter of subrogation.
8. Cost protection.

Extent of liability:

1. Successive losses.
2. Other charges.
3. Effect of over-insurance and under-insurance.
4. Subrogation.
5. Salvage.
6. Claims and cause proximal.

]

NATURE AND USE OF FIRE INSURANCE

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.

Causes of fire:

Fire waste is the result of two types of hazard viz., ‘physical’ and ‘moral’

1. Physical Hazard.
2. Moral Hazard.

Prevention of Less:

1. Indemnification or curative efforts.
2. Preventive efforts.

Private Activities:

1. Construction.
2. Fire Services.
3. Occupation.
4. Management.
5. Exposure.

Public Fire Prevention Activities:

1. Community Surveys.
2. Standard schedule for grading cities.
3. Underwriters’ laboratories.
4. Equipment.
5. Salvage Corps. And salvage works by fire departments.
6. Legislation and Regulation.

FIRE INSURANCE CONTRACT

Fire  insurance contract may be defined as ‘an agreement whereby one party in return for a consideration undertakes to indemnify the other party against financial loss  which the latter may sustain by reason of certain defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount.

Elements of fire insurance contract:

1. Features of General Contract.
2. Proposal.
3. Acceptance.
4. Commencement of risk.
5. Cover note.

More than one policy: If the same subject-matter is insured with more than one insurer, he cannot realize more than the actual loss from all the insurers.

1. Insurable Interest: Insurable interest is the general principle of insurance without which insurance cannot lawfully be enforced for an insurance unsupported by an insurable interest would be a gambling transaction.
2. Principle of Good Faith: The contract of fire insurance is one in which the observance of the utmost good faith-uberrima fides-by both the parities are of vital significant.
3. Principle of indemnity: The doctrine of indemnity aims to compensate the insured for a loss sustained, and the compensation should be such as to place him as nearly as possible in the same pecuniary position after the loss as he occupied immediately before the occurrence.
4. Doctrine of subrogation: Subrogation means the right of one person to stand in the place of another and to avail himself of the latter’s rights and remedies.
5. Warranties: The contents of proposal form are expressly incorporated in the policy, which form warranty.
6. Proximate Cause: The rule is that the immediate and not the remote cause is to be regarded cause proxima non-remote spectator.

KINDS OF POLICIES

The policies can be of various types which are discussed in the following paragraphs:

1. Valued Policy: The value of the property to be insured is determined at the inception of the policy.
2. Valusble Policy: Valuable policy is that policy where claim amount is to be determined at the market price of the damaged report.
3. Specific Policy: Where a specific sum is insured upon a specified property in case of a specified period.
4. Floating Policy: The floating policy is the policy taken to cover one or more kinds of goods at one time under one sum assured for one premium and in relation to the same owner.
5. Average Policy: Policy containing average clause is called an Average policy.
6. Excess policy: Sometimes, the stock of a businessman may fluctuate from time to time and he may be unable to take one policy or specific policy.
7. Declaration Policy: The excess policy contributes to only a rate able proportion of the loss because if the amount of excess stock exceeds the sum set in the excess policy the businessman will not have a full cover owing to average condition.
8. Adjustable Policy: The above disadvantage is removed by adjustable policy.
9. Maximum value with Discount Policy: Under this policy no declaration or adjustment of policy is required, but the policy is taken for a maximum amount and full premium is paid thereon.
10. Reinstatement Policy: This policy is issued to avoid the conflict of indemnity.
11. Comprehensive Policy: This policy undertakes full protection not only against the risk of fire but combining within the risk against burglary.
12. Consequential Loss Policy: The fire insurance is originally purchased to indemnify the material loss only.
13. Sprinkler Leakage Policies: This policy insures destruction of or damage to by water accidentally discharged or leaking from automatic sprinkler installation in the insured premises.

POLICIES CONDITIONS

The fire insurance may be defined as a contract by which the insurer agrees to make good any loss suffered by the insured through damage or destruction of properties by fire up to the sum assured in consideration of payment called premium.

Standard Form of Policy: The conditions in fire insurance may be of varied nature, but the standard form of policy includes several conditions which are common to most of the fire policies.

Preamble of the Policy: The preamble of the policy sets forth the agreement between the insurers and the insured subject to the conditions of the policy.

Perils Insured: The next important part of the policy is description of the perils insured.

1. Fire.
2. Lightning.
3. Explosion.

Policy conditions: The policy conditions may be precedent to the contract conditions subsequent to the contract and conditions precedent to liability.

Implied Conditions:

1. Existence of property.
2. Insured property.
3. Insurable interest.
4. Good Faith.
5. Identity.

Express Conditions:

1. Misdescription.
2. Alteration.
3. Exclusion.
4. Fraud.
5. Claim.
6. Reinstatement Clause.
7. Insurer’s Right’s After a Fire.
8. Subrogation.
9. Warranties.
10. Arbitration.
11. Purchaser’s Interest Clause.
12. Loss Procedure.
13. Contribution and Average.

RATE FIXATION IN FIRE INSURANCE

The rate fixation in fire insurance is not as scientific as in life insuranc3e. The physical hazard can be estimated satisfactorily but the moral hazard, being varied and unknown, cannot be ascertained so correctly.

System of rate fixation: The actual process of rating consists of three steps.

·        Classification: Properties to be insured are of various nature and risk.

1.      Construction or Structure: The construction of the building has always been of great impotence in rating.

2.      Occupancy: The risk considerably varies according to the nature fo occupancy.

3.      Nature of Flooring: The nature of flooring influences the risk to a greater extent.

4.      Height: The height adds difficulty in fighting a fire on the upper floors.

5.      Floor and wall opening: Openings in the floor for lifts and belts constitute higher physical hazard.

6.      Exposure: The chances of risk may direr from property to property according to the degree of exposure.

7.      Lighting, Heating and Power: The fire may occur due to short-circuit.

8.      Place or Situation: The location of the property, nature of adjoining premises, the distance from a fire brigade station or the source o water supply.

Principles of rate fixation:

1. Personal Judgment Rating.
2. Experience Rating.
3. Schedule Rating.

Tariff rates:

1. Delhi.
2. Calcutta.
3. Madras.
4. Bombay.
5. Occupancy.
6. Construction.
7. Situation.