FIRE CLAIMS :

PROFESSIONAL APPROACH

Vimal Goyal
Director, SMC Insurance Brokers P. Ltd.
FIII, ACII (London),
Chartered Insurance Broker
vg@smcindiaonline.com
vkgnia@hotmail.com
Cell +919899699304
What is meaning of
term used in Fire
policy preamble:

“Company shall
pay to the Insured
the value of the
Property at the time
of the happening of
its destruction”
Whether profit of
any kind is
included in the
insurance cover?
What is time limit
as per policy for
submission of
claim bill?
 Introduction
Claim
Process :
Case
Major stages
Studies

Areas of
Dispute

Claim
Tips Process :
To avoid Documentation
Disputes
How to
Speed up
Process
Role of Insurance intermediary
in handling claims
◼ Delivery of promise
◼ Displays attitude :
➢ You are with insured or take it as a burden
➢ You help at each step or do just postman’s job & leave to
mercy of surveyor and insurance co.
◼ Test of adequacy of underwriting precautions & add-
on covers taken
◼ Shows competence to service the insurance portfolio
◼ Trust of client in insurer and the intermediary
◼ Can strengthen or demolish long term relationship
with the insurer and intermediary
◼ Publicity through word of mouth
◼ Learnings about future U/W precautions and
guidance to insureds
CLAIM PROCESS :
Major stages in life cycle of a claim
◼ Intimation of claim
◼ Deputation of surveyor by insurance co.
◼ First visit of surveyor and on-site verifications
◼ Getting go ahead for repairs/ demolition / removal
◼ Letter of requirements (LOR) from surveyor
◼ Request & compliance for processing on account payment
◼ Submission of documents, discussions, response to
queries of surveyor
◼ Reinstatement / repairs, its verification by surveyor
◼ Sharing of assessment by surveyor, response and consent
◼ Submission of survey report by surveyor to insurance co.
◼ Processing by insurance co., addressing their queries
◼ Approval, discharge, NOC, Subrogation, Payment
CLAIM PROCESS :
Documentation for Fire claim
General (List is not exhaustive)
◼ A copy of the written intimation letter to insurer

◼ A copy of the insurance policies involved

◼ Profile of the Company, nature of business, turnover,

products, locations
◼ A brief write up about the affected premises : date of
start of operation, turnover, nature of activities, no.
of workers, working hours, capacities, turnover,
bankers, statutory returns filed, past claims.
◼ Balance sheet of the company : with unit-wise details
of Fixed Assets Schedule
◼ Occurrence report & Statement of eye witnesses
◼ Details of damaged and undamaged items

◼ Itemwise claim within 15 days from DOL (6 i) a)

CLAIM PROCESS :
Documentation for Fire claim
General
◼ Manufacturing process, flow chart, raw materials
◼ Copy of the intimation of the loss to Police, Fire
Brigade, factories inspector and any other authority
◼ Fire Brigade report / Meteorological deptt. report (in
case of flood, cyclone etc.)
◼ Daily Diary report / FIR issued by the Police
◼ News paper clips

◼ Claim form and Claim bill

◼ Photographs, Video, CCTV footage

◼ Copy of the license for the operation / factory from

the relevant local authority.
◼ Copy of NOC from Fire Brigade Department from the
past three years
CLAIM PROCESS :
Documentation for Fire claim
General
◼ Drawing layout of the Fire hydrant points and fire fighting
equipment
◼ Fixed asset register (FAR) since inception
◼ Documents to establish adequacy of insurance : how sum
insured arrived at, valuation report, what is reinstatement
/ replacement value
◼ Identify the items insured damaged in the FAR
◼ Purchase ledger for building, P&M, Electricals, FFF, Office
Equipment Computers.
◼ Purchase invoices of all items above certain amt.
◼ Estimated quantities for salvage items separately for Iron,
Steel, motors, cables
◼ Insured’s offer to retain salvage
◼ Bills of repairs / replacement with payment proof
◼ Electricity bills and Diesel consumption data
CLAIM PROCESS :
Documentation for Fire claim
Building
◼ FAR identifying damaged part of the building
◼ Complete dimensioned layout of the factory premises
marking the area affected by fire
◼ Layout of the factory premises approved by the relevant
authority for the construction of the factory
◼ Structural engineers inspection report along with results
of the tests conducted giving the condition of affected
building and repair methodology
◼ Item wise estimate of the repairs of the damaged portion
of the affected building giving the item name, qty, rate &
amount for the material and labour (BOQ) separately for
existing and new design.
◼ Quotation giving the reinstatement cost of the damaged
building
◼ Rent agreement/agreement with Principals TP
CLAIM PROCESS :
Documentation for Fire claim
P&M, Electricals, FFF, Office Equipments, IT Assets etc.
◼ FAR identifying damaged items
◼ Layout of the factory premises marking the
installation of the various machinery
◼ 'Single Line Diagram (SLD)' showing the electrical
connections from the main to the end consumer P&M
◼ Service Engineer/OEM's Report with nature of
damage, cause of damage, method of restoration,
estimate of repairs
◼ Estimates/quotations of repairs and replacement
machine-wise with specifications duly supported with
copy of the original procurement invoice
◼ Quotation giving the restoration cost of line wise and
machine wise along with complete specifications
◼ Log Records of maintenance of machinery
CLAIM PROCESS :
Documentation for Fire claim
Stocks
◼ Testing report prior to loss, of the finished goods and stock in
process that are damaged
◼ Testing report after the loss with explanation on standard
parameters and deviations in test result
◼ Detailed statement giving the procurement date and
consumption of stock damaged in fire along with supporting
documents
◼ 'Material Hazard Sheet' for all the types of stocks present in the
factory premises at the time of fire
◼ Write up on stock process, stock movement & accounting
system adopted : Purchase, process, PO, despatch,
methodology of tracking stock level
◼ Estimate of loss in respect of the damaged stock, along with
cost supporting documents giving costing of each article stage
wise duly certified by cost accountant, correlate the same with
the relevant purchase orders and cost supporting document
CLAIM PROCESS :
Documentation for Fire claim
Stocks
◼ Copies of purchase orders in hand from buyers on date of loss
◼ Trading account from last audited balance sheet till date of loss
◼ Copy of GST returns along-with acknowledgements
◼ Monthly Stock statement submitted to your Bank
◼ Itemized monthly purchase & sales ledgers for specified period
◼ Purchase invoices, import documents, stock registers etc. to
substantiate the claimed quantities and value. Purchase cost,
processing cost and carrying cost. (Excluding profit element)
◼ Volumetric analysis of stocks for each type of material : Floor
plan, item name and quantity stored in each area
◼ Details of damaged and undamaged items (Quantities and
value) : items identified as affected / damaged from remains,
items saved
◼ Ageing of stocks : to check obsoletion, if any.
CLAIM PROCESS :
How to speed up the process
◼ Maintain and provide standard formats to the insured
◼ Take the major claim as a project and make someone from
client side as Project in-charge
◼ Joint meeting of all concerned on insured side, earmark and
assign documentations in three categories:
➢ Readily available internally
➢ Can be prepared internally
➢ To be sourced from outside agencies
◼ Assigning of duties to concerned persons : Name, time-line
◼ Mark and Prioritize documents for “Go ahead” for repairs and
for “On account payment”
◼ Review to take updates every week : speak to concerned
persons / assignee directly to clarify his concerns / issues
◼ Discuss and brain-storm difficult areas and decide / ask client to
decide to make the choice out of different options
◼ Scrutinize documents from surveyors and insurer’s perspective
◼ Review claim working : Market value Vs. RIV, Speed Vs. Amt.
◼ Pro-active approach: psychological conviction, practical aspects
CLAIM PROCESS :
How to speed up the process
◼ Don’t hesitate to provide documents to surveyor in piecemeal :
give surveyor opportunity to review documents received
◼ Persistent follow-up with client, surveyor, insurer at least on
weekly basis : Follow-up telephonic discussions by email
◼ Regularly discuss and maintain cordial relations with surveyor
and insurers : Do not create any ego issues on either side.
◼ Correspondence and discussions : polite, does not help to be
offensive. Present differing point of view as academic discussion
◼ Keep legal aspects in mind but never use legal words
◼ Don’t manipulate documents : Surveyors have means to know
through scrutiny.
◼ Presentation should be easy to co-relate (Sr. No. / Annexures).
Qualitative presentation makes a lot of difference.
◼ Grey Areas : After informal discussions, present the view point
in a logical and forceful manner.
◼ Impress upon surveyor time limit to finalize survey report as
per IRDAI Regulations: Surveyors, Protection of Policyholders
◼ Prepare chronology of events/progress/discussions
Meaning of “value”
◼ Fire Policy Preamble: Value of the Property at the time of the
happening means “Intrinsic value” at the time & place of loss
◼ Intrinsic value for Fixed Assets means Market value or Depreciate
value (RIV Less Depreciation), Duty waiver scheme? Residual value for
working out depreciation? Include GST>labour excess/excise
◼ RIV clause: Actual Replacement by new (DSR Vs. Actual RIV) OR
Historical cost+ RBI indices source http://eaindustry.nic.in /
Imported>Marshall & Swift Indices, Exchange rate adjustment,
Concept of whichever is less, Specifications, Improvement, Imported
item: Repair outside India/visit of Foreign technician, Purchase second
hand, replacement by new? Building valuation.
◼ Capitalized, CPIW, Debited to Revenue item, Under/over billing
◼ Stocks: Practice to allow Purchase cost not Selling price. Declaration
clause: Basis of valuation is “market price” i.e. for purchase (not the
sale price which will include profit). Include GST input credit reversal
◼ Valuation in books of accounts Vs. value for indemnification
◼ Profit not included (Policy condition 6 i)a). Profit accrued till date/place
of loss for trading items/agro product, Purchase from Group Co.
◼ Direct costs Vs. Indirect costs: Deduction for GP or NP Ratio?
◼ Cost of promotional/gift items/samples from batch/spares/fuel: already
recovered through inclusion in selling price of FG?
Designation of property clause
◼ Purpose was to avoid need for details list of items insured:
whatever is capitalized under a particular heading, all items are
deemed covered by this clause
◼ The clause is double-edged
◼ Need to ensure heading of capital asset items in the books
synchronize with the headings submitted to insurer, Check
Fixed Assets schedule and mention all headings specifically in
placement slip / proposal form, then incorporated in the policy
◼ Suppose DG Set is a separate asset item in books but for
insurance you presume it is included in P&M
◼ Similarly computer/IT assets are a separate asset item in books
but for insurance you presume it is included in Office Equip.
◼ Meaning of stocks? Cover for Spares, stores, packing material?
◼ Tip: Description of property covered should be in generic terms:
All types of stocks, packing material, stores and spares of
whatever description including ……..
◼ Tip: Special clause> All asset items are insured, if included in
sum insured, notwithstanding whether capitalized or not.
CLAIM PROCESS :
Areas of dispute
◼ Claim not payable / liability is denied
➢ Policy coverage: Location misdescription/change, Property description /
Items not covered, peril not covered, falls in exclusion, Insurable interest/
property held in trust, basement storage, storage in open
➢ Breach of condition : Delay in intimation, fraudulent means, non-
submission of documents, Expedient found on forensic analysis
➢ Extraneous issues : Legally questionable but taken as ground by surveyor /
insurance co. e.g. Fire safety approval, negligence of insured, Adverse
remarks in Fire Brigade Report or Police report, Usage of premises for other
than approved purpose (if not taken as “Agreement against public policy”),
construction beyond approval, design defect under IAR (additional
construction not as per laid down standards).
◼ Deduction from claim amount :
➢ A Part of claim is denied : Property held in trust, Purchase not capitalized in
insured’s books or unpaid on DOL, Promotion material/samples, spares
➢ Deduction from actual loss : Underinsurance, Improvement, CTL Vs.
Repair, profit element: GP ratio Vs. NP ratio (reimbursement for indirect
costs?), Obsoletion/slow moving stocks, Salvage, Testing costs, basis of
valuation in books of accounts vs. actual cost, market value vs. actual cost
whichever is lower, DSR Rates or actual cost whichever is lower (itemwise),
stock items not included in the provisional Trading and P&L A/c as on date
of loss, volumetric analysis for quantity justification, heading of asset item
in books not included in coverage (designation of property), Origin of fire.
CLAIM PROCESS :
Areas of dispute
◼ Claim file closed as NO CLAIM: Non-compliance of
requirements
➢ Balance requirement not complied in the time limit given by surveyor /
insurance co. and Final Notice is issued
➢ Generally ground taken is that insured is not interested in pursuing the
claim
➢ Check whether requirements can be complied with
➢ After closure of the claim, it can be reopened provided all balance
requirement are complied with in one go.
➢ Correspondence to express interest and reserve right to re-open

◼ Non-standard settlement of claim

➢ Breach of warranty : (FEA not maintained)
➢ Underwriting related breach (occupancy, premium rating)

◼ Inordinate Delay in settlement of claim

➢ By surveyor : Busy in other assignments, piecemeal, response time
➢ By insurance co. : Appointment of investigator/second surveyor, Queries in
piecemeal by surveyor, Concerned officials on leave/tour/busy, queries at
each level of PSU hierarchy of Branch/DO/RO and HO
Examples of disputes :
◼ Capitalization at the time of original purchase
◼ Area and type of work for Bldg. as per original purchase / construction
◼ Specifications of Original construction / P&M
◼ How much steel / metal claimed and how much retrieved
◼ Difference between escalation from original purchase value Vs. actual
replacement cost : What is reasonable cost as per market prices
◼ Difference between DSR rates for Bldg. and actual replacement rates
◼ Imported Vs. Indigenous Vs. Second hand Vs. “Made to order”
◼ Excise, import duty, CST, MODVAT, GST, Input Credit, GST Reversal :
As on date of loss and as on date of replacement
◼ Partial reinstatement /replacement, partial market value
◼ Stock records at each point of storage and at each process
◼ Indirect costs for stock-in-process and Finished Goods
◼ Salvage disposal process : Estimated weight for each type of material
(separate for Building, P&M), rate, insured’s offer
◼ Improvement factor, enhancement of capacity, use of better material,
use of inferior material
◼ Depreciation: Useful life, Actually used for Days Vs. Years: part of year
◼ Test / Service Engr. reports for building, P&M, stocks
Examples of disputes and :
Tips to avoid disputes
◼ Generic description of property covered (e.g. packing material)
◼ Designation of property : Alignment with Fixed Assets headings
◼ Occupation : Actual vs. Tariff item
◼ Location : Cross check with documents, Endorsement if change
◼ Capital work in progress (CWIP) Before/after risk commences
◼ Working of Reinstatement value : Building, P&M-Imp, Domestic
◼ Ownership /Insurable Interest : Who owns building?
◼ Property held in trust or on commission
◼ Perils : Add on covers e.g. Debris removal and consider IAR
◼ Policy audit : RIV Clause, Stocks declaration clause
◼ Proper Presentation to the surveyor : Each word matters
◼ Scrutiny of documents from surveyors and insurer’s angle
◼ Database of survey reports : FAR, invoices, adequacy, CPIW,
volumetric analysis, Service Engr. Report, stocks ledger
◼ Provide purchase order to surveyor in advance
◼ Policy preamble: meaning of value, market value
◼ Practical experience of underwriting and claims, Check-list
CLAIM PROCESS :
Case studies
◼ Denial of claim : Fraudulent means
◼ Description of stock items covered : declared by bank (other
likewise goods)
◼ Electrical Exclusion / dynamo clause
◼ Smoke : No fire
◼ Sales cost Less Net profit or Gross Profit
◼ Purchase bills not available : considered 75% depreciation
◼ Fixed Assets register not available (becomes major issue)
◼ Machinery under installation / ACs not installed : in store
◼ Part Market value part RIV : Allowed by RIV??
◼ Change of location within same complex
◼ Length of overhead conveyors as per salvage, stock in Silos
◼ Salvage treatment : Sorting, segregation, drying expenses : No
cover for loss control / minimization expenses
◼ Documents for issuance of stocks-in process
◼ Import duty : original purchase, replacement, EPGC
◼ Omission to insure Vs. Capital work in progress
If Dispute on quantum
Scope for Arbitration
◼ Surveyor asks for unconditional consent (sometimes on stamp)
◼ Surveyor asks to revise claim bill
◼ Insurer asks discharge voucher for “Full and Final” settlement
◼ IRDA’s regulations state insurers have to pay the amount
assessed, without coercion : Practically flouted sometimes
◼ Importance of “Without Prejudice” remarks
◼ Reference to IRDA’s circular dated 07/06/2016 and request to
release the approved amount in view of para ii) without
considering the discharge voucher which states “Insurers would
take steps to pay the amount assessed without waiting for the
voucher discharged by the insured/claimant”.
◼ Letter in advance saying “we have disagreement with the
amount offered as settlement” and/or “can we give discharge
as partial payment instead of “full & final settlement”
◼ Detailed letter immediately on date of payment of claim
◼ Interest for delay period
Consultation with expert(s)
◼ Grey areas: Many things which are not defined in detail
◼ Often, Insured has some weak points surveyor may exploit
◼ Nearly 100 check-points for deduction from claim by surveyor
◼ Identify issues related to policy coverage and description
◼ Insured focuses on documents preparation, each doc has
specific purpose, need to vet from surveyor’s perspective, often
loss as per documents take precedence over actual loss
◼ Need to brain-storm difficult areas, financial impact of non-
replacement, ask client to make choice out of different options,
Choice between expectations on quantum and speedy process
◼ Importance of achieving psychological conviction of surveyor
◼ Proper strategy about course of action in compliance of LOR,
preparation of claim bill and interactions with surveyor
◼ Theory Vs. Practice: Value of Practical experience of
underwriting and claims
◼ Forensic examination of debris and/or accounts by insurer
◼ Discuss with Consultants/experts having wide experience even
at a cost, seniority and image of consultant too help
Consultation scope & fee
◼ Scope includes vetting all documents, helping in compliance of
requirements, brain-storming on grey areas and problematic
issues, providing workable solutions to the extent possible, joint
meeting with the surveyors / insurers, providing formats to
collate data for easy in process by surveyor, finalizing claim bill,
strategy for future course of action etc.
◼ Fee on assignment of case plus a fixed amount per month for
12 months or till loss is settled, whichever is earlier. Weekly
meeting to review everything pertaining to the claim. Also will
attend meeting with surveyor/insurers as desirable.
◼ Success fee as percentile of amount received under whatever
heading (Interim payment, salvage, final payment etc.) subject
to adjustment of fixed amounts paid as above.
◼ Surveyors and insurers do take long time, we try to expedite
the process but timelines are not in consultant’s hands
◼ Cost of liaison not covered in the proposal
◼ For disputed amount, unreasonable deductions and interest for
delay period, right to arbitration is preserved. A higher
percentile of amount received through arbitration process.
Q&A Session
THANK YOU

Vimal Goyal
FIII, ACII (London),
Chartered Insurance Broker
vg@smcindiaonline.com
vkgnia@hotmail.com
Cell +919899699304