Inception:

Mr. Aminul Islam, owner of R&S Apparels, offered Agrani Insurance Limited to take a policy
regarding the safety of his finished textile goods stored in a buying house because of the cancellation
of a large shipment. He wants to make insurance against the loss to be incurred by unexpected fire.

Survey:
After getting the offer, Agrani Insurance Company did the following steps-

Checking the financial condition: At first the financial condition of Mr. Aminul Islam was
checked and it was found that his financial condition was good enough to accept the offer.
Checking financial performance of the insured organization: The financial position of
R&S Apparels was also checked by the insurance company.
Verifying the goods: The insurer verified whether the insured goods are defective or not. It
was found that the textile goods did not contain any flaw.
Safety of the buying house: The insurer checked the geographical location of the buying
house whether it is safe or not.
Past record of the insured: The insurer checked that whether the insured faced any loss
occurred by accident in the past or not.
Moral Characteristics of the insured: The insurer also tried to find out whether the insured
had any intention to destroy the property intentionally to make profit or not.

At first the offer is scrutinized by the Agrani Insurance Company limited and verified all the aspects.
Then they were satisfied and decided to accept the offer.

Terms & Conditions Imposed by Agrani Insurance Co. Ltd :

But Agrani Insurance Co Ltd gave some terms and conditions to the insured. They are as follows-

The insured should take protective measures to prevent or reduce fire accident.
The insurer fixed a limit up to which insured cannot claim.
The period of insurance policy would be two years.
The insured had to follow all the principles of insurance i,e
Principles of:
Utmost Good Faith Insurable Interest, Indemnity, Subrogation, Contribution, Proximate
Cause.

The insured agreed all these terms and conditions and contract between insurer and insured took
place.

Contract:
These were the terms and conditions written in the contract regarding the claim payment-

Causes for which claim would be paid:

Fire caused by Short cuircit, smoke, scorching.

Fire blowing up in the building

Spread of fire.

Riot, Strike.

Terrorism.

Storm

Causes for which claim would not be paid:

Explosion except boiler used for domestic purpose.

Spontaneous combustion.

Earthquake fire.

Own fermentation or heating.

Flood & Cyclone.

Civil Commotion, War, Invasion, Act of Foreign Enemy, Civil War, Rebellion, Revolution,
Insurrection etc.

Period:
The contract period started from 1st August, 2010 for up to two years i,e the contract would
last up to 31st July,2012. The claim payment would be given up to this period if any loss
occurred. If the loss occurred after this period, the insurer would not be liable to give any
indemnity.
Amount of Sum Insured:
The amount of sum insured in this case was Tk.5 crores and the value of the goods was also
Tk.5 crores which indicate that the insurance was taken for full coverage. And it was not an
under-insurance.
Premium:
The amount of premium would be given by the insured fully at the beginning of the contract.
Here the amount of premium was 2.25 cores.
Minimum Limit:
The company would make claim payment if the minimum loss of amount Tk.1 lakh. The
company would not make any payment for any amount below Tk.1 lakh.
Policy Types:
It was a specific policy. In case of specific policy, the property is insured for a definite sum. If
there is loss, the stated amount will have to be paid to the policyholder. But the actual value
of the subject matter is not considered in this respect.
Methods of Payment of Claim:
 The insurer would provide cash payment to the insured if there is any loss to subject matter of
the insurance.
Reinsurance:
There is a provision in Bangladesh that 50% of the risk has to be transferred to Shadharon
Bima Corporation by the 47 listed insurance companies. This implied that the Agrani
Insurance Company also reinsured 50% of the sum insured to the Shadharon Bima
Corporation and it retained 50% itself.

Occurrence of Uncertain Event:

After eight months of taking the insurance policy, fire broke out in the buying house due to short
circuit. As a result, it was seen that almost 3 crore of the value of the property was destroyed.

After this, the insured went to the original insurer i,e Agrani Insurance Company limited. Agrani
Insurance Company limited then sent its investigator to buying house to investigate the reasons of
the fire accident.

After the investigation they had found that the fire was originated from the short circuit. They found
no hints of malicious fire accident. So, the company then documents related to this policy to
Shadharon Bima Corporation i,e the reinsurer for the settlement of the claim.

Shadharon Bima Corporation also investigated and found that the accident was not made
intentionally and fire broke out simply due to accident.

Then the reinsurer paid the original insurer the insured amount and thus the original insurer settled
the payment of the claim to the insured. Though this procedure took a long period of time, the
insured recovered the amount of loss which was faced by him in the event of the fire accident.

The amount of claim payment by Shadharon Bima Corporation and Agrani Insurance Company
Limited is given below:

Shadharon Bima Corporation paid

= (Sum insured under each policy/ Total sum insured under all policy) Loss

= (250,00,000 / 500,00,000) 300,00,000

= 150,00,000

Agrani Insurance Company limited paid

= (Sum insured under each policy/ Total sum insured under all policy) Loss

= (250,00,000 / 500,00,000) 300,00,000

= 150,00,000
Case Study at a Glance:
Original Insurer: Agrani Insurance Company Limited

Primary Insured: R&S Apperels

Reinsurer: Shadharon Bima Corporation paid

Subject Matter of Insurance: Textile Goods

Sum insured Amount: 500,00,000

Policy Period: 2 Years (1st August, 2010- 31 July, 2012)

Minimum Limit: 1,00,000

Policy Type: Specific Policy

Premium Amount: 225,00,000

Original Insurers Contribution: 150,00,000

Reinsurers Contribution: 150,00,000