A Study of Fire Insurance With Refernce To Bajaj Allianz General Insurance

Bajaj Allianz General Insurance Co. Ltd.
CHAPTER NO. 01
INTRODUCTION OF INSURANCE
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INTRODUCTION TO INSURANCE
1.1 Meaning of Insurance

As stated in the very beginning, insurance companies bear risk in
return for a fee called premium. Thus, insurance companies are risk
bearers. They accept or underwrite the risk in return for an insurance
premium. Accordingly, the term insurance may be defined as a co-
operative mechanism to spread the loss caused by a particular risk over a
number of persons who are exposed to it and who agree to ensure
themselves against that risk. Risk is, in fact, an uncertainty of a financial
loss. Risk must not be confused with loss itself that is the unintentional
decline in or disappearance of value arising from a contingency. The
function of insurance include providing certainty, protection, risk sharing,
prevention of loss and capital formation. Wherever there is uncertainty
with respect to a probable loss there is risk. The insurance is also defined
as a social apparatus to accumulate funds to meet the uncertain losses
arising through a certain hazard to a person insured for such hazard.
Insurance has been defined to be that in which a sum of money as a
premium is paid by the insured in consideration of the insurers bearing
the risk of paying a large sum upon a given contingency. The insurance,
thus, is a contract whereby: -
 Certain sum, termed as premium, is charged in consideration

 Against the said consideration, a large amount is guaranteed to
be paid by the insurer who received the premium.
 The compensation will be made in a certain definite sum, i.e., the
loss or the policy amount whichever may be, and the payment is
made only a contingency.
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1.2 Introduction To Insurance
Insurance is a tool by which fatalities of a small number are

compensated out of funds (premium payment) collected from plenteous.
Insurance companies pay back for financial losses arising out of
occurrence of insured events, e.g. in personal accident policy death due to
accident, in fire policy the insured events are fire and other allied perils
like riot and strike, explosion, etc. Hence, insurance is safeguard against
uncertainties. It provides financial recompense for losses suffered due to
incident of unanticipated events, insured within policy of insurance.
Moreover, through a number of Acts of parliaments, specific types of
insurance are legally enforced in our country, e.g. third party insurance
under Motor vehicles Act, public liability insurance for handlers of
hazardous substances under Environment Protection Act, etc.
Insurance, essentially, is an arrangement where the losses
experienced by a few are extended over several who are exposed to
similar risks. Insurance is a protection against financial loss arising on the
happening of an unexpected event. Insurance companies collect premium
to provide security for the purpose. As loss is paid out of the premium
collected from the insuring public and the insurance companies act as
trustees to the amount so collected. Insurance companies have standard
proposal forms, which are to be filed up giving the details of insurance
company. Depending upon the answers given in proposal form insurance
companies assess the risk and quote the premium. On payment of
premium and acceptance thereof by insurance company the insurance is
affected. Nonetheless, there is no insurance cover if premium is not paid.
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CHAPTER NO. 02
INTRODUCTION OF FIRE
INSURANCE
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INTRODUCTION TO FIRE INSURANCE
2.1 Meaning
Fire insurance is a contract
to indemnity, to the insured for
destruction of or damage to property
caused by fire. The insurer undertakes
to indemnify the insured against loss
due to fire caused to the property
insured against, not in excess of the maximum amount stated in policy. A
contract of indemnity, and not against accident, but against loss caused by
fire.
For example, if a person has insured his house of Rs. 1.00 lakh
against loss by fire, the insurer is not liable to pay the sum, unless the
house is destroyed by fire, but actual loss subject to the maximum limit of
Rs. 1.00 lakh.
2.2 Definition
Section 2(6) of the Fire Insurance Act, defines, “Fire insurance
business means the business of affecting, otherwise than in evidently, to
some other class of business, contacts of insurance against loss by or
incidental to fire or other assurance customarily included among the risks
insured against in fire insurance policies.”
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2.3 Characteristics or Nature of Fire Insurance

 It is a means of security against risk of fire on any material or property.
 It is an indemnity contract.
 The insurer undertakes to indemnity the insured against actual loss

subject to the maximum limit of sum insured.
 It is contract of utmost good faith; the insurer and the insured must
disclose all material facts relating to the subject matter of insurance.
 A fire insurance policy is usually issued for one year only with option to
the parties to renew it for a further period on payment of stipulated
premium.
 If the property is insured with more than one insurer, and on loss by fire,
all the insurers are called upon to contribute towards the claim.
 The insurer is not liable for payment of any claim if the fire is caused
deliberately.
 In British Law, the fire insurance policies can be assigned only with prior
permission of the insurer, but under Indian Law the consent of the insurer
is not necessary to make valid assignment of policy, only a notice of
information is sufficient.
 On occurrence of fire, a notice of fire should be given to the insurer so

that the insurer may take prompt steps forthwith to safeguard his interests,
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in dealing with salvage and also judge the cause and nature of fire, and
the extent of the loss.
 It is the duty of the insured to act as a man of ordinary produce to take

necessary steps to save the property from loss of fire, as in the absence of
any insurance against the property.
2.4 Meaning of Fire

The word fire means “loss by fire” and in literal sense means a fire
has broken bounds. Therefore fire, which is used for ordinary domestic
purposes or even for manufacturing, is not fire. ‘Fire’ in fire insurance
must have the following two features:
 Production of ignition, light and heat.
 Fire by accident.
2.5 Definition of Fire

According to Justice Boyles (in Everett vs. London
Association Company 1885) “Fire means the production of light and heat
by combustion and unless there is actual ignition there is no fire within
the mean sing of term in ordinary policy.”
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2.6 The various loss caused by fire

The losses by the following instances or losses subsidiary to
fire are as follows:
Damage, which occurs as a result of smoke or of putting out the

fire, would be covered by the fire risks.
Any loss resulting from apparently necessary and bona fide efforts
to put out a fire, whether it be by spoiling goods by water, or
throwing articles of furniture out of the window, are covered by
the fire risks.
Even by damages to a neighboring house by explosion done for

the purpose of arresting fire, would be covered by the fire risks.
Every loss directly, or if not directly at least consequently

resulting from the fire is within the policy (In Stanley vs. Western
ins. Co., 1968).
Loss by theft during a fire is covered as a fire risk (In Levy vs.
Bailey, 1831).
Even loss by fire caused by the insured’s negligence is covered by

the policy (In Harris vs. Poland, 1941).
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CHAPTER NO. 03
NATURE AND USE OF FIRE
INSURANCE
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NATURE AND USE OF FIRE INSURANCE
3.1 Nature
Fire insurance is a device to compensate for the loss consequent upon
destruction by fire. Thus the fire insurer shifts the burden of fire losses from
their actual victims over to all the members of the society. It is a cooperative
device to share the loss. It relieves the insured from the horror of the fire losses
to which he is exposed.
3.2 Functions
It is a well-known fact that the fire causes huge losses every year. The
individual owner by taking fire insurance can prevent the fire waste to some
extent. The insurer acts as a middleman between all the members of the society
who are exposed to the fire risk on the one hand and the members who will be
the actual victims of the fire losses on the other. The insurer changes the
premium from all the insured members and makes good the losses when they
occur to any of them.
The system of fire insurance cannot save the society from the economic loss to
the community to the extent of the property lost by fire, but it compensates
someone and this saves him from a ruinous loss, at the cost of group of some
others.
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3.3 Causes of Fire

Fire waste is the result of two types of hazard viz., ‘physical’ and
‘moral’.
a. Physical Hazard
It refers to the inherent risk of fire in the property, which
may occur due to inflammable nature, construction, artificial
lighting and heating, lack of extinguishing apparatus use of the
property etc.
b. Moral Hazard
The moral hazard depends upon the man as physical hazard
depends on the property. The property may be set on fire by the
owner or by any person with his willingness, carelessness and lack
of sense of duty may also increase the fire waste. Sometimes, when
market price is going down the owner can willingly set fire on the
property and gain from the payment of insurance money. Thus,
where the property was destroyed with the willingness of the
property owner, moral hazard exists.
c. Prevention of Loss:
Insurance is meant for indemnification of loss and not for
prevention of loss although every reasonable step can be taken to
eliminate it or minimize it through the agencies engaged in
prevention of loss. Thus, insurance may help in two ways:
I. Indemnification and
II. Preventive Efforts.
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I. Indemnification or Curative Efforts: - According to doctrine of

indemnification, the financial loss suffered by the perils insured against will
compensated in full, not more than this and not less than this. The insurance
provides protection by indemnifying the financial loss suffered by insured
person, which occurred beyond the control of insured and insurer.
II. Preventive Efforts: - The loss cannot be prevented by insurance. But, the
insurers help those who are engaged in the preventive efforts by granting
financial and other assistances. This will benefit insurers as well because if the
loss of society is reduced, they can charge lesser premium, which will stimulate
the public of insurance. Fire insurers stimulate the installation of protective
devices and better types of construction through granting credit. They help in
installation of fire-fighting apparatus, water supply and engineering services.
Preventive efforts are divided into two parts:

 Private activities and
 Public activities
 Private Activities:
Private Activities are those which include those activities which the
property owner may engage in for the purpose of preventing fire loss.
Insurers give sincere advice of financial help to property owner on the
following factors.
 Construction
In construction of building, fire resistive materials, fireproof
construction, greatest care in exercising selection of the type and
planning of the construction, availability of fire extinguisher, water
supply, etc.
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 Fire Services
The important thing is to extinguish fire before it reaches
large proportions. The owner should consider equipping his building
with an automatic sprinkler system. Similar fire fighting equipment
may be established. Insurers with the help of fighting associations can
provide such services.
 Occupation
There are considerable hazard in certain occupation e.g. in
oil or coke or chemical industry. Insurance in these concerns is
available at higher rate. Insurance help by stimulation and charging
lesser premium in fire fencing occupation.
 Management
Good management of property may reduce the chances of
fire. Carelessness and indifference cannot be over emphasized because
these increase the chance of fire.
 Exposure
Fire insurance rates are determined on the basis of
possibility of exposure. Fireproof services may reduce the chances of
exposure to a greater extent.
 Public Fire Prevention Activities:

Fire insurers have performed numerous important services to
reduce the fire waste with the help of public institutions, which are
engaged in fire fighting activities.
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 Community Surveys
Engineering survey of the cities and localities is made. As a
result of its investigation many have improved their fire departments,
water supplies and other facilities involved in the protection against
fire.
 Standard Schedule For Grading Cities

Under this schedule a number of cities, town, or Mohall as
are divided, according to fire preventive devices. The deficiencies in
each party sorted out and attempts are made to remove them.
 Underwriter’s Laboratories
The laboratories are to find out the possible causes of fire
losses. Every time research or investigation is made to find out the
possible attempts to prevent fire losses.
 Equipment
Fire can be properly checked only through the possession
and maintenance of adequate equipment, personnel fire alarm system
and water supply. The Fire Protection Association can determine fire
fighting apparatus and equipment for any city or town.
 Salvage Corps and Salvage Works By Fire Departments
The chief aim of the corps is to protect property from
unnecessary smoke and water damage. The protective benefits are
extended to all those who suffer fire damages regardless of whether
they are insured or not. Training school and colleges are, sometimes,
engaged in giving general education to all and particular education to
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few students to train them in fire fighting methods and fire preventive
methods.
 Legislation and Regulation

National Board of fire underwriter’s fire brigade and other
such associations are engaged in fire preventive and protective efforts
under a certain law. The property owner and the fire protection
engineer must keep in mind the numerous legal requirements relating
to the various phases of fire prevention.
 General Devices
Apart from the above contribution to prevention protection, the
following devices are utilized for preventing the losses.
i. The insurer compensates loss at a reasonable cost.
ii. Serious hazards are to be cooperatively reinsured.
iii. Loans are provided for better construction and building.
iv. Fire insurers stimulate the installation of protective devices to
reduce losses.
v. Fire fighting methods are organized with public utility concerns.
vi. Insurers investigate the causes of loss and attempts ate made to
reduce the causes.
Insurers study various devices for fire proof, protection and
problems of special processes. Periodical examination of insured
property is made and instructions are issued for the purpose of
investigation.
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CHAPTER NO. 04
SCOPE FOR FIRE INSURANCE
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SCOPE FOR FIRE INSURANCE
A contract of fire insurance is a

contract whereby the insurer agrees, in
consideration of a sum of money called
premium, to compensate another person
known as the insured for any loss or damage
to the insured property. The contract
specifies the period during which the indemnity is to last and also the
maximum amount to which the insurer can be held liable.
The need for fire insurance arises out of the following facts: There
exists material property susceptible to damage or destruction by fire or
other peril.
1) That such material property has intrinsic value measurable in terms
of money.
2) The occurrence of fire will result in not only loss or damage to
material property, but also other consequential loss such as loss of
production, etc. in order to make the insurer liable for the loss under
the fire policy the following two conditions must be satisfied:
I. There must be fire in actual sense or ignition, and
II. The fire must be accidental.
Ignition
There must be actual ignition. This means that loss or damage must
be by fire. The cause of fire is not important but it should be proved that
loss was caused by fire. Ignition means burning and therefore the
presence of flame is a precedent condition.
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Fire Must Be Accidental

Any loss caused by willful consent does not come
under the term ‘fire’. There must be an accidental fire and not intentional.
This applies only to the insured.
Section 2 of the Indian insurance act, 1938, states the scope of fire
insurance to include:
1. Fire insurance business is different from other insurance
business in operation and covers the risk caused by fire.
2. In addition to the risk caused by fire, it also includes other risk
and occurrences, which can be customarily, be included among
risks insured under fire insurance contracts.
3. Thus we can divide the total scope of fire insurance into two
parts, or the scope of fire insurance may be studied from two
angles, viz.,
 Ordinary scope of fire insurance

 Comprehensive scope of fire insurance
1. Ordinary Scope Of Fire Insurance

Ordinary fire insurance products includes those risks, which
define the narrower scope of fire insurance viz., the losses caused
by fire only. As such, under the fire insurance contracts the claims
for losses by fire must fulfill two basic conditions.
a. There must be actual fire or ignition
b. The fire must be incidental, not intentional
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c. Risks covered under fire insurance

The risks causing losses must be mentioned under fire
insurance policy and only those risks are indemnified by the
insurer in case of loss. Usually, the following risks caused by fire
are covered under fire insurance.
i. Fire or ignition.
ii. Blasting of boiler used for household purposes.
iii. Blast of gas cylinder used for household cooking.
iv. Blast of gas etc. used for the purposes of lightening and
heating in any building.
d. Risks not covered under fire insurance policies
These are the risks for which insurance company do not
indemnify the insured in the case of loss.
i. Some goods and properties are not eligible for insurance
under fire insurance policies such as: precious stones and
metals, articles, maps, stamps, cheques, goods or properties
kept under trust, account books and records, archives, and
rare documents and writings, etc.
ii. Losses caused by certain uncertain events such as riots, civil
disturbances, revolutions, wars, aggression, internal
emergencies, marital law etc., natural calamities like
earthquakes, storms, cyclones, floods, drought, excessive
heat or cold eave.
iii. Spontaneous fire in jungles or bushes.
iv. Spontaneous combustion caused by chemicals.
v. Theft during fire or after the breakout of fire.
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2. Comprehensive Scope of Fire Insurance:

Various types of policies are available in the form of fire
insurance policies, which cover various types of risks allied to the risk of
fire. Coverage of such risks under the purview of fire insurance has
widened the scope of fire insurance. Some special policies have helped in
a great way in broadening the scope of fire insurance in the following
manner:
(i) By including the excluded perils and risks.
(ii) By including consequential losses and other indirect fire risks.
In the first category, such excluded risks, which cannot be
insured under general insurance schemes or policies, have been included
under the cover of fire insurance. Such policies are called special perils
insurance relating to spontaneous combustion, earthquakes, blasts etc.
In the second category, such indirect risks and losses are covered.
These are called consequential losses or risks.
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CHAPTER NO. 05
SIGNIFICANCE OF FIRE
INSURANCE
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SIGNIFICANCE OF FIRE INSURANCE
The industry, trade and commercial articles have been developing and
diversifying at faster rate in India. Along with the growth of industrial and
commercial articles the infrastructure fields like transport, communication,
finance, advertising, stock marketing, etc., have also been developing
continuously so as to cope with the pace of economic development. The
importance of foreign trade also has been very much for a developing country
like India. All these developments in various fields brought in much risks and
uncertainties in business activities. Insurance is the only field that provides
security, against business risks. The role of fire insurance has been increasing
day-by-day as a means against destruction or damage of business property
caused by fire.
The significance of fire insurance can be discussed under the following
points:
 As A Source For Minimizing Losses:

Fire can destroy property in goods and fixed assets of crore of rupees or
can create damages to the business property. Fire insurance indemnifies losses
or damages done to fire and resources the mental worries of businessmen.
 Decreases In Probabilities of Fire Losses:
The increasing uses of energy petrol like electricity, gas and other such
items have increased the probability of losses or damages to goods and
property. In order to minimize this calamity, various types of fire extinguishing
devices have been destroyed throughout the world. Moreover, the fire insurance
is another device to indemnity the losses thus removes mental worries by
extending financial support.
 Increase In Production of Fireproof Materials:
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Fire insurance cannot prevent occurrence of fire, but can reduce the
losses. Today various devices are produced in the country like fire extinguisher.
Fire brigades are set up at every cities and towns to extinguish fire by the
government and local bodies.
 Decrease In Social Loss of Fire:

Social awareness has been created in the country to put out fire and to
reduce the effect of fire. The social organizations provide training to the people
in the use of such items given below.
i. Assets Valuation:
Assets are valued for obtaining a fire insurance policy. It requires the
insured to be more cautious in protecting his property or goods.
ii. Loss Preventing Efforts and Advice By The Insurer:

An insurer not only indemnity against fire losses, but also advices the
insured to reduce the incidence of fire. Fire insurance companies establishes,
‘salvage corps,’ to extinguish fire so that the extent of loss can be minimized.
iii. In Business Progress:
Due to the facilities provide by the insurance companies, the business
enterprises undertake large-scale production, and invest in business and
marketing activities without any botheration. This lead to continuous progress
in industrial and commercial activities, leading to extinguish fire so that the
extent of loss can be minimized.
iv. Beneficial For New Industries:

The new industrial units usually face complex problems of production,
finance, competition and sales etc. In such a situation, they cannot afford the
losses/damages due to fire. The fire insurance relives such entrepreneurs from
worries, by indemnifying the loss/damages, if any, from the occurrence fire.
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v. Credit Facility:
Where the assets are secured by fire insurance, it becomes easier for
such enterprises to get credit from banks and other financial institutions. This
will increase the credit worthiness of the enterprise.
vi. Distribution of Risks:

Fire insurance is effective device to distribute the risks in a group,
enabling the individual or the institution to maintain its efficiency.
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CHAPTER NO. 06
PROFILE & PROCEDURE OF BAJAJ
ALLIANZ FIRE INSURANCE
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Bajaj Allianz General Insurance Company:
Allianz AG:
Allianz group was founded in 1890 and is one of the world's leading insurance
companies with over 100 year's experience in insurance and related services. It
is also the largest insurer in Europe. Allianz group has multi-local structure and
presence in over 70 countries. The key business areas of Allianz group include
General Insurance (property, engineering, marine, motor, casualty and
miscellaneous), Reinsurance, Risk Management, Life & health insurance, Asset
Management and Pension Funds Management.
Bajaj Auto Ltd.

Bajaj Auto Ltd the flagship company of Bajaj Group was incorporated in 1945
as Bachraj Trading Corporation. Initially it started by assembling two and three
wheelers in collaboration with Piaggio of Italy. After the expiry of the
Agreement in 1971 the two and three wheelers acquired the brand name of
Bajaj. The strength of the company lies in its strong brand image and ability to
offer value for money products leveraging on its large-scale operations.
The Joint Venture

Bajaj Allianz General Insurance a joint venture non-life company promoted
jointly by Bajaj Auto and German insurer- Allianz. Indian auto major holds
74% while Allianz holds 26% in the Joint Venture, and has an authorized and
paid up capital of Rs. ll0 crores. Mr. Graham Norris is the CEO of the company.
Bajaj Allianz General Insurance will leverage the customer base and expertise
of Bajaj Auto Ltd and Allianz.
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Bajaj Allianz General Insurance Products
o Personal Accident
o Hospital Cash Daily Allowance Policy
o Health Guard
o Critical Illness
o Burglary Insurance
o Householders Insurance
o Travel Companion
o Fidelity Guarantee Policy
o Office package
o Money Insurance
o Public Liability
o Plate Glass Insurance
o Consequential Loss (Fire) Insurance Policy
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Performance of the company over the last few years
Despite conditions which were not conducive for growth of gross premium, the
company managed to maintain a growth rate which was more than twice that of
the market. The company’s gross written premium (excluding share of premium
from the IMTPIP), grew by 33.3% during 2007-08 and, despite intense price
competition, company maintained its second position among the private sector
companies in terms of gross written premium. The market share of company
(excluding premium of specialized insurers) increased from 7.2% in 2006-07 to
8.5% in 2007-08. Including the share of inward reinsurance business from the
IMTPIP, the growth rate would have been 43.0%. During 2007-08, company
clocked gross written premium of Rs. 24,045 Mn excluding share of business
from the IMTPIP as compared to Rs 18,033 Mn in 2006-07. Including share of
inward business from the IMTPIP, the gross written premium amounted to Rs.
25,780 Mn. On account of company’s policy of steadily increasing it’s
retention in line with it’s capital base, the net earned premium for the year
(excluding net premium from inward business of the IMTPIP), rose to Rs.
13,266 Mn, an increase of 58.6% over the previous year of Rs. 8,366 Mn.
Including the net premium arising out of the share of business from the IMTPIP,
the net premium for the year 2007-08 was Rs. 14,134 Mn. Although de-
tariffication had an adverse effect on the price per policy, the number of policies
sold continued to grow. In the year under review, company sold 6.61 Mn.
policies as against 4.90 Mn. policies sold in the previous year. This growth
indicates that despite severe price competition, more customers preferred
company’s service offerings, drawn by it’s strong brand image, convenience of
buying and satisfaction with its service levels. The total incurred claims for the
current year including actuarial provisions but excluding share of claims of the
IMTPIP, were Rs. 8,375 Mn. as against Rs. 5555 Mn. in the previous year. The
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number of claims reported during the year was 413,281 as compared to 309,160
in the previous year.
As on 31st March 2008, Bajaj Allianz General Insurance maintained its premier
position in the industry by garnering a premium income of Rs. 2578 crore,
achieving a growth of 43 % over the last year.Bajaj Allianz has made a profit
before taxes of Rs. 167 crore and is the first company to cross the Rs.100 crores
mark in profit after tax by generating Rs. 105 crores.
In the first quarter of 2008-09, the company garnered a gross premium of

Rs.733.53 crores against Rs.573.73 core last year for the same period
registering a growth of 28%.
Bajaj Allianz today has a countrywide network connected through the latest
technology for quick communication and response in over 200 towns spread
across the length and breadth of the country. From Surat to Siliguri and Jammu
to Thiruvananthapuram, all the offices are interconnected with the Head Office
at Pune.
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PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE
The steps to be followed in connection with affecting fire

insurance are as under:
I. Selection of Insurer: The selection of the insurance company is the first

step. The insured is required to select a suitable company for this purpose
amongst a large number of companies engaged in this business.
The proposer can select any of these companies according to his
convenience, rationality, goodwill of the company, its financial soundness,
premium rates, policies and service provided etc.
PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE
II. Presentation of Proposal In The Prescribed Form: After the selection

of the insurance company a proposal form is obtained and furnished with
the insurer or his agent. The particulars about the name, address,
occupation of the proposer, value and nature of the subject matter of
insurance, type of policy required, amount of sum insured, etc. are to be
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furnished with care and utmost good faith. All the facts about the subject
matter should be clearly disclosed.
III. Evidence of Goodwill: The proposer is required to furnish a certificate as

evidence of his goodwill along with the proposal. The formal of this
certificate is given with the proposal form itself. Usually, the insurance
agent certifies that he knows the proposer for a period time and his
reputation is good in the society. In case the proposer will be asked to
furnish such evidence from any reputed person in the society.
IV. Recommendations By Agent: The agent also gives his recommendations

in the proposal form at the place provided for this purpose. The insurer
takes the decision to accept a proposal keeping in view of the
recommendations given by the agent.
V. Survey of The Subject Matter: When a proposal for fire insurance is

received in the office of the company, it makes a thorough study of the
proposal and if necessary, a survey of the subject matter of insurance is
conducted. Such a survey is conducted by expert surveyors, who will go
into enquire about the conditions of the subject matter, surrounding
situations of the subject matter, risks involved etc. The surveyors also
verify the accuracy of the details furnished in the proposal.
VI. Report by Surveyors: After the survey, the surveyors present a report to
the insurance company. This report will state the physical and moral
hazards involved in the proposal. This report serves as an important base
for determining premium.
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VII. Acceptance of Proposal: After determination of premium on the basis of

risk involved, the proposal is accepted and intimation is sent to the
proposer asking him to pay the premium within a specified period of
time. If the surveyors present an adverse report, the proposal is rejected
and a regret letter is sent to proposer.
VIII. Depositing of Premium Money: A lawful contract between the insured

and the insurer is entered into, when the premium money is deposited by
the insured. The risk commences as soon as the premium is remitted.
IX. Issue of Cover Note: As soon as the premium money is deposited, the
insurer issues a cover note (a provisional policy) indicating there is that
the insured has deposited the premium and the insurer has accepted the
proposal. On issue of absolute policy the legality of the cover note ends.
A cover note can also be insured pending the process of survey of the
subject matter and the premium has not been determined.
X. Issue of Insurance Policy: When all the requirements under the risks
have been complied with, the insurer issues the policy duly stamped and
containing all terms and conditions. These terms and conditions define
the mutual rights and liabilities between the insurer and the insured's.
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CHAPTER NO. 07
BAJAJ ALLIANZ FIRE INSURANCE
– RATE FIXATION
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BAJAJ ALLIANZ FIRE INSURANCE – RATE

FIXATION
Rate fixation on scientific basis in fire

insurance is still not fully developed as in the
case of life insurance. Under fire
insurance, after the inspection of risk,
physical hazards can be assessed but moral
hazards cannot be assessed properly.
Therefore, rate fixation is different. The past
experience can only be used as a guideline for
the estimation of risk. While fixing the rates of premium for different risks in fir
insurance, the insurer must ensure that the calculation work is carried out as
accurately as possible.
Thus, the rate so determined should cover the probable claims and the
premiums must be equitable, stable and consistent.
System of Rate Fixation

Actual process of rating consists of two steps:
Classification,
Discrimination, and
Scheduled rating.
 Classification:
The classification rating method is based upon the
experience of several years and of several persons and therefore
can be considered as superior over the personal judgment method.
Under this method, risks are classified according to their loss
experience. Properties have been classified into three categories.
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i. Ordinary
ii. Hazardous, and
iii. Extra hazardous
Therefore different premium rates are to be fixed for

each class. While fixing the rate the following points are to be taken into
consideration:
 Construction:
The construction of the building has a great
impact in the fixation of the rate. Buildings made of
bricks are sound than wooden buildings. A fireproof
building is considered better than a without fireproof
building.
 Occupancy:
Occupancy means the use of the building. The
building may be used for various purposes, as for
example, general shop, hardware store, and go down
and for residential purposes.
 Flooring:
The wooden floor in the building its an
accidental hazard and is worst than stone flooring. In
case of fire, wooden floor prove a bad risk.
 Height:
The height is an extra physical hazard for
rating. The sky scrapper buildings have proved a very
bad risk in case of fire.
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 Lighting, heating and power:

Short circuits may lead to fire and faulty
installation may result in combustion.
 Situation:
The location, the adjoining premises, the
distance from the fire brigade station or water supply
point and congestion are all-important sources for
considering the fire risk rating.
 Discrimination:
Discrimination rate system is very old system of rate fixation
in fire insurance. Under this method, premium rates are dependent
upon the judgment of a person skilled in the fire field. All the bad
factors and good factors are put together and the rate is to be
calculated. The method has many shortcomings because personal
judgment may differ and different rates may be determined to the
same risk by the different companies.
Under this method the most important factor, which
influences the rate fixation in fire insurance, is the discrimination,
i.e. differentiation. Every risk is considered individually.
 Schedule Rating:
Under this system of rating a normal property is considered
as ‘standard’ and for each standard risk a standard premium is
charged. For any defect, addition is made in standard premium and
for good feature deduction is made. The main advantage of the
schedule rating is that it provides equitable treatment for all risks.
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A scheduled rate means a standard rate of premium or an

average premium. The average premium rate for a particular class
of risk is determined taking into the account the total loss and the
sum insured during a period of years. For finding out the average
rate percent, the following formula is applied: the average rate
percent (R) = L/V x 100 where, R = average rate percent, L
represents ‘Loss’, V represents the total sum insured of the subject
matter. The gross or office premium is called the ‘Normal rate’ or
‘average rate’ of premium. As discussed above, each class of risk
may differ from one another and therefore the principle of
discrimination may also be applied.
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CHAPTER NO. 08
BAJAJ ALLIANZ FIRE INSURANCE
CONTRACT
40 | P a g e
BAJAJ ALLIANZ 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 of certain defined subject-matter being damaged or destroyed by fire or
other defined perils up to an agreed amount.” The party responsible to
indemnify the loss is called the insurer, the party who is to be indemnified is
called the insured, the consideration for the contract is termed ‘the
premium’, the defined subject matter is termed ‘the property insured’ the
sum set forth in the contract is called the assured sum, and the document
containing the terms and conditions of the contract is known as ‘the policy’.
8.1ELEMENTS OF FIRE INSURANCE CONTRACT
1.Features of General Contract:

All the features of general contract are also applicable to the fire
insurance contract.
A. Proposal:
The proposal for fire insurance can be made either verbally or in
writing. The proposer gives the necessary description of the property to be
insured. In practice the printed proposal form is used for the purpose.
Introduction, type of properties, value of properties, construction, occupation,
etc., are the various information, which are required by the insurer. The answers
to these questions must be completely correct. The assured must disclose all the
material facts and should observe utmost good faith. The description of the
subject matter of insurance is the basis of the contract for assessing the risk and
fixing the premium.
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B. Acceptance:
On receipt of the proposal form, the insurer will assess the risk.
Sometimes, when the contents and subject matters are not of very high amount,
the insurer may accept on the basis of proposal forms only. When the subject-
matters is of larger magnitude and where the hazard involved is of a variable or
unknown nature, the insurer may send his surveyor to survey the property. The
surveyors being expert in the field of insurance evaluation will consider the
proposal in the light of this report. The unknown proposes are required to
submit an evidence of respectability. The insured is required to submit a
certificate from some known and respectable person about honesty and
integrity. As soon as the proposal is accepted, the assured is informed about the
decision.
C. Commencement of Risk:
The risk commences as soon as the contract is completed provided there
is no specific time for the purposes. As soon as the proposal is accepted, risk
will commence irrespective of the fact that no policy was issued and no
premium was paid. Where risks are unknown and tremendous, the payment of
premium will be the basis of the completion of the contract. The risk will be
commence only when the premium has been paid and not before that; when the
policy has been issued, payment of premium will not be the basis of
commencement of risk.
a. Cover Note:
The insurer issues a ‘Cover Note’ or ‘Interim
Protection Note’ when the risk was accepted provisionally or
subject to the condition of payment of premium. This note will
cover the property so far the final policy has not been issued. If
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loss occurs before issue of policy cover note will be sufficient to

prove insurance. The cover note, however, is not taken at par to the
policy.
b. Policy:
The insurer issues a duly stamped policy which will
bear all the terms and condition of the contract. Any contract of fire
insurance comes within the meaning of the word ‘policy’. It is a
different statutory and formal document of insurance contract.
There are a standard form is also used. The policy contains the
name and address of the insured, the subject matter of insurance,
the sum insured, the term and the premium. There are various
clauses governing the conditions of insurance contract. The terms
and conditions of the policy can be changed.
c. Period of Fire Insurance Policies:
Usually fire policies are issued for one year and are
called ‘Annual Insurance.’ Policies issued for a period shorter than
one year are known as ‘Short-Term Policies’ and those issued for a
period more than one year are called ‘Long-Term Policies.’ But in
practice only annual policies are common. ‘Short-term’ and ‘Long-
term’ policies are rarely used. Long-term policies are generally
issued in case of building. Alteration in the policy will be made
according to the change in building and terms of insurance. The
premium rate is determined according to the nature, location, and
construction of the property.
Moreover, the period of insurance is also taken into
account for computing premiums.
d. More Than One Fire During A Period:
When there is more than one fire in respect of the
same subject matter insured, the insurer is not bound to pay more
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than the sum assured. During the policy-life, payment of each loss,
automatically, reduces the amount of the policy by the amount so
paid. When, after payment of certain losses, the property insured is
totally destroyed, the insurer will pay loss not more than the
balance of insured amount remaining after compensation of the
previous losses.
However, if the insured is willing to get payment of
full loss, he can reinstate the assured sum to the original amount by
paying a fresh premium on a pro-rata basis to the date of expiry.
e. 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. Each insurer will pay his ratable proportion of loss to the
property insured against fire. If there is average clause, then the
insurers will pay accordingly.
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CHAPTER NO. 09
PRINCIPLE OF FIRE INSURANCE
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PRICIPLE OF FIRE INSURANCE
A. 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.
Insurable interest will be there where the subject matter should be in such a
position that the insured may suffer loss at the time of damage and may
gain by its protection. The insurable interest in fire insurance must be
present at the time of contract and at the time of loss. Insurance contract
will be invalid if the property is sold to another party. Similarly if there is
no insurable interest at the time of insurance, the contract will be invalid.
The following conditions must be fulfilled to
constitute an insurable interest.
 There should be a physical object capable of being damaged or
destroyed by fire.
 The object must be the subject matter of insurance.
 The insured must stand in such relationship as recognized by law
where the insured is benefited by the safety of the subject matter or
be prejudiced by its loss.
The insurable interest is the ‘pecuniary interest’. The
fire insurance is a personal contract between the insured and the insurer.
So, the transfer of interest would invalidate the contract.
The following persons have insurable interest in the
subject matter concerned.
The owner of the property or asset whether fixed or
current has as insurable interest whether he is the legal owner or the
equitable owner. The owner may be a single or joint holder. Partial owner
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can take policy for full value as trustee of all the property. A life tenant
entitled to the use of the property during his lifetime only has an insurable
interest.
 An agent has insurable interest in the property of his
principal.
 A creditor has an insurable interest in the firm’s
property.
 A creditor has an insurable interest in property on
which he has a lien for the debt.
 An insurer has it in respect of risks underwritten by
him for the purpose of reinsurance.
 Where the subject matter is mortgaged, the mortgagor
has an insurable interest in the full value thereof and
the mortgage has an insurable interest in respect of
any sum due to become due under the mortgage.
 A bailee can insure any article or property bailed. He
may be a gratuitous bailer or bailee for reward.
 A trustee has insurable interest in the property put on
trusteeship.
B. 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 parties
are of vital significant. The utmost good faith in fix insurance has two
aspects – first, disclosure of material facts and second, preservation of the
property insured.
The insurer and the insured must furnish detailed
information regarding the subject –matter to be insured. The insured,
since he has more information about the subject matter, must disclose all
the information asked truly and fully. The assured is also required to
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disclose all the material information which are known to him although it
was not asked by the insurer; material fact is one which influences the
decisions of the insurance. The decision may be pertaining to the
acceptance or declination or determination of the premium. In case of fire
insurance the examples of material facts are construction of buildings. If
the assured has not observed good faith, other party can avoid the
contract. It was immaterial to plead that the insured was unaware of the
fact and could not disclose. In a given circumstance, it is expected from
the insured to know all the material facts. The insurer has also to disclose
such material facts as are within his knowledge.
The second phase of good faith is preservation of
property. Thus, the observance of good faith is necessary not only during
the negotiations of the contract but throughout the term of the policy and
in making claims. Any change after commencement of risk must be
communicated to the insurer. The insured or his agents as well as the
insurer must take all such steps as may be reasonable for averting or
minimizing loss. Since the insured is near to the property, he must act to
prevent the fire and if fire occurred, he must do his utmost to extinguish
it. In such cases he must act as if he was not insured.
C. Exceptions:
In the following circumstances, the insured is not
required to disclose information.
 All those circumstances which diminish the risk.
 All those facts, which are known or reasonably presumed to be
known to the insurer.
 Information, which are of common knowledge.
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 Those facts, which the insurer in the ordinary course of his

business ought to know, or which the insurer ought reasonably to
have inferred from the details given.
 Those facts, which are superfluous to disclose by reason of a
condition or warranty.
D. 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 he occupied immediately before the occurrence. The insured
cannot claim anything in excess of the amount required to recoup the
actual loss sustained. The insurers undertake to make good the insured's
loss by monetary payment or by reinstatement or replacement so that the
insured shall be fully indemnified, but this is subject to the sum insured.
The law does not sanction any insurance, which would enable the insured
to profit by the destruction of the thing destroyed. It will check the
temptation to destroy the property insured thereby to secure the money.
The assured amount is not the measure of indemnity but
it sets an upper limit up to which the loss can be indemnified. The actual
amount of indemnity will be the market value of the subject matter
destroyed or damaged by fire at the time and place of the occurrence of
fire. It will never exceed the assured amount. When the actual loss is
more than the assured amount then only the insured sum will be paid and
nothing more is paid. But, this principle does not hold good when the
policy is valued policy. Here, the basis of indemnity will not be the actual
cash value of the property at the time of loss but the insured value, which
is named in the policy when it was taken. In a valued policy, no
consideration is given to the actual loss. Thus, the amount of claim may
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be greater or less than the actual loss at the time of fire in case of valued
policies.
E. Interpretation of Indemnity:
The insured is entitled to perfect indemnity subject to
the sum assured being sufficient. But, in practice such perfection may be
difficult to attain. Previously, the meaning of the word ‘indemnity’ was
understood in the sense of material indemnity only, i.e., tangible and
material property only. The intangible loss, i.e., loss of profit, rent, etc.,
was not compensated. It worked as a great hardship to the honest insured
persons. Now, the insurance is extended to cover not only the material
loss of property insured but also to cover the ‘consequential loss’. When a
business property is burnt not only the material loss on account of the
destruction of building, plant and stock are covered but the consequential
loss of profits on account of cessation of sales, salaries, taxes, rent, rates,
etc., are also indemnified. Now-a-days tangible and intangible losses are
insured and the consequential loss is also within the meaning of
indemnity.
F. Consequences of Indemnity:
The consequences of the doctrine of indemnity are as below:
 The insured may claim only the amount of the loss sustained.
 In case of partial damage, the insured may claim compensation only for
the amount of damage done.
 The insured must transfer to the insurer may rights which he may possess
against a third party in respect of the loss.
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 If the insured have affected more than one policy, he is precluded from
obtaining more than one complete indemnity.
Measure of indemnity varies with the type of properly.
For damaged buildings, the measure of indemnity is the cost of repairing
or reinstating the buildings to their pre-loss condition. Similarly, for
machinery, the measure of indemnity is the market value, which is
arrived at after taking into account wear and tear and depreciation. For
stock in trade, the measure is the net cost to the insured. For stock in
trade, the measure is the net cost to the insured. The indemnification may
be in the form of cash, repair, replacement and reinstatement.
G. Doctrine of Subrogation:
Subrogation means the right of one person to stand in
the place of another and to avail him of the latter’s rights and remedies.
The principle of subrogation is just a corollary to the principle of
indemnity. The insured can realize only the actual value of the loss or
damage to the property according to the principle of indemnity and it
follows that if the damaged property has any right against a third party
regarding that property. These must pass on to the insurer. If the assured
is allowed to retain them, he shall have realized more than the actual loss,
which is contrary to the indemnity principle. The assured can proceed
against the third party, if he so desires, and if he recovers damages the
insurer is relived of liability. If the insured has received the full amount of
loss any sums obtained from the third party belong to the insurer up to the
amount of their disbursement.
The right of subrogation is exercisable at common law
after the insurer has paid the claim made against him.
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H. Warranties:
The contents of proposal form are expressly
incorporated in the policy, which form warranty. 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. Warranties, which
mentioned in the policy, are called express warranties and those
warranties, which are not mentioned in the policy, are called implied
warranties.
Warranties must be complied with literally and the
effect of a breach of warranty is to render void the relevant item of the
policy, even if no increase in risk is involved. Every warranty to which
the property insured or any item thereof is, or may be, made subject, shall
from the time the whole currency of the policies, and non-compliance
with any such warranty, whether it increases the risk or not, shall be a bar
to any claim in respect of such property or item. The condition states that
every warranty is attached during the whole currency of the policy and if
during this period a warranty has not been complied with, the insured will
not entertain any claim in respect of the property or item affected.
However, if the policy is renewed and there was breach of a warranty
before the renewal is affected, in such a case the claim can be made. Non-
compliance with a warranty prior to the current renewal period of a policy
is not a bar to a claim. The non-compliance with a warranty avoids a
cover only during the period of insurance in which the breach occurred.
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I. Proximate Cause:
The rule is that the immediate and not the remote cause
is to be regarded – cause proximate non-remote spectators. Proximate
cause is very important in fire insurance. The principle of proximate
cause has already been discussed in detail. The insurer always takes the
proximate cause while paying the claim. If the property insured is burned
but the fire was preceded and brought into operation by an excepted peril,
the legal position depends upon whether the expected peril was the
proximate. The remote cause is when an incendiary bomb damaged the
property; the proximate cause is enemy action.
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CHAPTER NO. 10
TYPES OSF BAJAJ ALLIANZ FIRE
INSURANCE POLICIES
54 | P a g e
TYPES OF BAJAJ ALLIANZ FIRE INSURANCE

POLICIES
There are different types of fire insurance

policies keeping in view of the various needs of business enterprise. The
important types of policies are described below: -
 Average Policy: -
It is policy containing ‘Average Clause’ Average policy

refers that if a person insures his property for an amount lesser than its
value, the insurer is not bound to indemnify for the total loss of the
property, even if the claim is not more than the sum insured by the policy.
This way, the insurer shall be liable to pay in proportion to the actual loss,
in which proportion the policy amount and the real value of the subject
matter exists. The formula is an under:
Amount of indemnity = Policy money * actual amount of loss
Market value of the subject matter at the time of fire.
For example:
‘A’ has insured his property in a fire insurance policy containing

‘Average clause’ for Rs. 5.00 lakh. After some time, the property partially
burned by fire causing a loss of Rs. 6.00 lakh. The claim payable to him
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against the loss of Rs. 3.00 lakh, by the insurance company is calculated as
under:
Amount of indemnity = Policy money * Actual amount of loss
Market value of the property insured.
= 5,00,000* 3,00,000 = Rs. 2,50,000.
6,00,000
 Valued Policy: -
In an ordinary fire insurance policy, the insurer simply indemnifies

the insured. In the case of valued policy, the property is valued at the time
of affecting the policy and the insurer agrees to pay the insured sum on
occurrence of fire irrespective of the loss. Here in this case, the contract is
not an indemnity. Under the valued policy the insured can recover a fixed
amount, agreed at the issue of policy without the necessity for any further
proof of value at the time of fire. This is because that the valuation was
done at the time of affecting the policy. The valued policy also is known
as ‘insured policy’.
 Specific Policy: -
It is a policy under which the property is insured for a fixed or a

specified sum without taking into account the actual value of the
property. The sum assured shall be usually less than the actual value of
the insured property. The insurer’s liability under this policy arises only
when the losses reach to the extent of certain specified sum. However, the
insurer shall not be liable for indemnity more than the policy money.
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 Reinstatement or Replacement Policy: -
This a policy in which a clause is inserted in the policy under

which the insured can recover not the value of the buildings or the plant
as depreciated, but the cost of replacement of the property destroyed by
new property of the same kind or the insurer may reinstate the property
instead of paying in cash. In both the cases we have the example of “New
lamps for old”.
Reinstatement or replacement policy is issued for new plant and

machinery of buildings, of reputed companies.
 Floating Policy: -
This type of policy is useful for the goods kept at different places
and for floating goods. For example, some of the goods of other trader are
kept in one go down, and few kept in another go down, some are kept in
the railways go down or some at the sea port. This way, for the goods
kept at different places, such a trader to cover the risk of goods lying at
different places can obtain a floating fire insurance policy under one
policy.
The major advantage of this policy is that the insured need not
obtain different policies for the goods kept at different places. The
insured needs to declare all his goods for which the floating policy is
issued. The disadvantage for the insurer is that his risk increases.
Sometimes one can make under insurance, by which the loss will be
higher for the insurer.
The policy is suitable for those traders whose goods are lying at
different go downs, railway station or seaport for a long period, and the
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possibility of risk of fire is much. The touring companies like Circus

Company, Theatre Company, and Auctioneers etc. this floating policy is
beneficial.
 Declaration Policy: -
This policy is specifically aimed for wholesalers and distributions

of goods whose stocks usually fluctuate. However, this policy is not
issued for the goods lying in go downs or which are used in
manufacturing process.
At the time of effecting the policy, it is estimated that how much of

the goods are to be covered by risk during the tenure of policy. On the
basis of this estimate insurance is affected on maximum value of goods.
The insurer shall be liable up to this limit only.
At the beginning, the insurer charges three-fourth of the premium

fixed on the basis of maximum values of stocks. Thereafter, insured
declares after certain time interval (monthly or quarterly according to the
duration of premium become, due) the value of his actual stock. In the
case of loss by fire, indemnity is calculated on the basis of value of goods
declared by insured, in the above manner. On maturity of this policy, the
average value of stock is ascertained and on the basis of this average the
premium is more than the initial premium charged, the excess is claimed
from the insured. On the other hand, the initial premium charged is more
than the average premium determined at the maturity of the policy, excess
amount be returned to the insured. However, the insurance company
retains 50 per cent of the initially paid premium. This way, the insure is
effected on the maximum value of the stock and the payment of premium
is made on the average stock.
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The declaration policy is issued for not less than Rs. 20 lakh, in
India.
 Adjustable Policy: -
This policy is issued for existing stock. A condition a attached with

this policy that the premium rate shall adjusted according to increases or
decrease in the value of stock. At the beginning this policy is issued like
an ordinary policy and the premium is paid in full at the rate prescribed. It
is a contract limited to merchandise or stock-in-trade, other than farming
stock. When there is variation in the value of stock, this change is notified
to the insurer by the insured. On basis of this information, a suitable
endorsement is made on the policy and the premium is adjusted on a pro-
rata basis. On the basis of endorsement made on the policy, it is assured
that the policy is affected on such an amount. In the case of loss by fire,
the amount notified by the insured at the maturity of the policy is taken as
final and indemnified up to that limit.
In this kind of policy insured can reduce or increase the policy

amount according to his convenience and the premium is adjusted on the
basis of this increase or decrease.
This policy resembles like a declaration policy, but there are

certain differences between the two:
 In declaration policy, the stock value declared at the time of

affecting the policy remains as insured sum, whereas in
adjustable policy, the stock value declared at the last time is
accepted as sum insured.
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 In declaration policy, it is essential to declare the stock at

certain fixed interval, whereas in adjustable policy, this
declaration is depends on the convenience of the insured.
 In declaration policy, the money to be indemnified shall be the
same that declared at the beginning whereas in adjustable
policy, the value declared at the last time shall be the amount to
be indemnified.
 Although in both the policies, the premium is calculated at the
end of every year, the maximum limit of insured sum differs.
 Maximum Value With Discount Policy: -
Under this policy, the insurance is affected on the maximum value

of stock remains throughout the year, and accordingly premium is
charged. There requires neither any declaration of stock value nor any
adjustment. The insurance is affected on the maximum stock value
throughout the year and in the case of no indemnity, one-third of the
premium paid is returned to the insured at the end of the year. The
advantages of this policy is that there requires no declaration by the
insured nor requires calculation of premium at the closing of every year.
The one-third premium refunded by the insurer can be treated as a
discount in consideration of variations in value of goods. Otherwise there
is no justification for refund.
 Excess Loss Policy: -
This policy is obtained where the stock fluctuate indefinitely. The

trader has to obtain two policies at a time, one for the minimum stock of
the merchandise always remain in stock and the other for such value the
stock may increase. The first policy is known as “First Loss Policy.”
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Under the cover of first policy, the loss is indemnified up to the

sum insured. If the loss exceeds this limit, that can be met out from the
Excess Loss Policy.
This policy has the advantages that with a small amount of

premium, larger risk can be covered. The premium rate for the excess loss
policy is very low in comparison to the other polices.
In the case of excess loss policy, the insured is required to declare

the actual stock every month as was needed in declaration policy.
 Ordinary or Standard Policy: -
This policy provided security against some fundamental risks. The

premium is kept at lower rate because this policy is obtained by almost all
the insured. This policy has two types:-
 For household goods and

 For all other purposes such as for factories, shops, go down,
furniture’s etc.
Usually this type of policies overlooks the risk factors and the
insurer is not liable for the losses. The risks, which are overlooked,
include loss due to natural calamities, like earthquake, explosion of lava
from the earth, civil wars, strikes, explosion, etc.
 Special Peril Policy: -
In addition to ordinary risks, this policy provides for coverage of

risks involving explosion, violence, etc. strikes, civil war, earth-quake,
etc. and loss due to floods, explosion of water tanks, explosion in the air
by collision between two air. Crafts, loss to the insured properties by
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transport vehicles etc. Additional rate premium is charged for undertaking

special kinds of perils.
 Comprehensive Policy: -
This policy not only undertakes full protection against risk of fire,
but also combined with risk of burglary, riot, theft, pest, damage,
lightning etc. This policy is also known as “All in policies”. The major
advantage of this policy to the insurer is the higher rate premium, while
the assured is protected against losses from other kind of perils.
 Sprinkler Policy: -
This policy insures destruction of or damage due to accidently

leaking water from automatic sprinkler installation, used in the insured
premises to put out fire.
The policy contains various conditions relating to maintenance of

sprinkler, up keeping and operation.
 Rent Policy: -
This policy protects the building owners from the loss of rent. If a
tenant does not pay rent because of fire in the rented portion, the
insurance company will pay for such loss.
This may constitute a separate policy, or can be included within

other forms of cover and may be affected either by the owner, or by the
tenant or by an owner-occupier. If the tenant is not paying rent because of
fire, the owner can claim rent from the insurer. If a tenancy agreement
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requires for such insurance, the tenant should insure under this policy. In
the event of fire, the owner-occupies would be required to pay for
alternative accommodation during the period of repairs and reinstatement.
 Transit Policy: -
A transit policy covers goods in the course transit from one place
to another by rail, road, air or sea transport. The policy protects the loss
due to damage or loss in transit. But reaching the goods to the destination
place.
 Builder’s Risk Insurance: -
This policy is insured for loss by fire against buildings, including

machinery and equipment during the process of construction, as well as
such materials incidental to the construction work. This policy is also
known as contractors’ risk or contract works risks policy. At the
beginning this policy is issued for a minimum sum and accordingly to
progress of construction work, the sum insured is increased.
63 | P a g e
 Long-Term Policies: -
Policies for a period exceeding 12 months shall not be issued except

for “Dwellings.”
Macro Picture Of General Insurance
Overall Business Performance of GIC 2005-06
Fire Others
Net Premium 14,246 54,713
Incurred Claims 9,277 45,731
% Of Net Premium 65.1 83.6
Net Commission 4,780 14,023
% of Net Premium 33.6 25.6
Expenses of 149 438
Management
Underwriting (512) (9,821)
Profit/Loss (-)
% Of Net Premium -3.59 -17.95
Inv. Income app to 2,249 10,957
revenue
Balance Profit/Loss (-) 1,741 1,152
64 | P a g e
CHAPTER NO. 11
CLAIM PROCEDURE OF FIRE
INSURANCE
65 | P a g e
CLAIM PROCEDURE OF FIRE INSURANCE
A set procedure is followed for the settlement of claim under fire

insurance. The procedure is as follows:
 Notice of Fire: -
As per conditions of fire insurance policy, immediately after the
occurrence of fire, the notice of fire is given to the insurance company, in
writing. This is necessary for the insurance company to make preliminary
investigation that deem expedient. Delay in giving notice of fire may
severely prejudice the interest of the policyholder.
 Presentation of Claim: -
After giving necessary notice of information of fire, the insured

must present the claim to the insurer in the prescribed claim form. The
claim in the prescribed form should be submitted within 15days from the
date of fire. This period of 15days can be increased by the permission of
the insurer. All the facts should be correctly be furnished in the claim.
Usually, the following types of information are given in the claim: -
a. Complete details of the losses giving the date, time and

place where the incident took place.
b. Causes of loss.
c. Details of damaged property, value of the property at the
time of fire, value of salvage and the claim amount.
d. Subject matter of insurance and loss to every component.
e. Full details of the other policies insured against the same
subject matter.
 Presentation of Necessary Documents:-
66 | P a g e
The following documents and evidence are enclosed with the

claim: -
a. A declaration about the claim and about related facts and

figures.
b. The evidence of all details, books, records, statutory
books, plans, vouchers, document, certificate and other
information that give the proof of loss by fire and that
create the liability on the insurer.
c. Any other necessary document, witness, certificate etc.
that is required under the conditions of fire insurance
policy.
In case these documents could not be presented together with the

claim, they may be sent within 6months, failing which the insurer can
reject the claim.
 Action By The Insurance Company: -
On receipt of claim, the office of the insurance company. It may

issue the receipt of the claim. After that, the claim department undertakes
thorough scrutiny of the claim on the basis of documents and witnesses
presented by the insured with the claim. After that a ‘Claim Ticket’ is
prepared and entered it in the ‘Claim intimation Register’. This way the
claim file is prepared with claim number.
67 | P a g e
 Survey and Loss Assessment: -
On receipt of notice of information and claim from the insured, the

insurer arranges to undertake survey of the lost properly with help of
expert surveyors and loss assessors.
As per provision of insurance Act, 1938, no insurance company

accepts the claim exceeding Rs. 20,000/- or more unless it receive the
reports of the surveyors about the actual loss of the subject matter. Such a
survey is necessary to find out under what conditions and causes the fire
occurred, and what would be limit of company’s liability in this behalf.
This survey is calculated by visiting the spot where the fire took place.
Under the conditions of fire insurance, it is the duty of the insured to
extend all necessary assistance and cooperation to the surveyors and
assessors.
The surveyor’s reports usually contain the following information: -
a. Causes of loss occurred.

b. Proximate cause of fire.
c. Assessment of loss.
d. Indirect loss or expenses to insured.
e. Details of expenses made towards assessment of loss.
Mention about the policies obtained by insured from other fire

insurance companies on the same subject matter and the amount of
contribution on the part of the insurer.
68 | P a g e
 Settlement of Claim: -
When the report is received from the surveyors and assessors of

loss, the insurance company takes further steps to settle the claim. The
company studies the reports and the claim received from the insured
thoroughly. In case the claim money charged by the insured and that
calculated by the assessors do not make any difference, the company
takes the decision immediately to make any difference; the company
takes the decision immediately to make the payment of claims. On the
other hand, if there is difference in the claim amounts, the insurance
company takes the decision to pay the claim money calculated by the
assessors.
In case there is any provision in the policy for reinstatement, the

company assesses the reinstatement value and reinstates the property
instead of payment of claim by cash.
In connection with the settlement of claim, an insurance company

should take into consideration the following matters.
a. Double Insurance: - Where the insured has obtained policies for the same
risk from different companies; the claim is not covered by one policy, but under
all the policies. Every insurer in such a situation, liable to contribute towards the
total loss in proportion to the sum assured when each.
b. Under Insurance: -Where the insured gets his property insured with under
the value of his property, a situation of under insurance arises. In such a
situation, the insured is deemed to be the insurer for the difference of value
between the value of the property and sum assured. For this amount, the insured
69 | P a g e
is liable proportionately to the loss and the insurance company is liable to pay
average proportionate loss. As such, the insurer should keep this fact in mind
where the insured takes under insurance policy.
c. Losses At Different Times During The Tenure of Policy: -The loss to the
insured property at various times is possible during the tenure of the policy. The
general rule in this case is that whenever the claim is paid, that paid claim
money is reduced from the total sum insured. This way the sum insured
gradually reduces. By paying additional premium, the sum assured can be
increased again.
d. Arbitration: - Where the insured is not satisfied with the claim paid by the
insurer, the dispute can be referred to arbitration as per conditions of insurance
policy. The decision given by arbitrator shall be binding on both the parties. But
the matter can be taken to court if any of the parties is not satisfied by the
decision of arbitration.
70 | P a g e
CHAPTER NO. 12
CASE STUDIES ON FIRE
INSURANCE
71 | P a g e
CASE STUDIES ON FIRE INSURANCE
Case Study No. 1
Client
Chemfab Alkalies Limited, manufacturers of Caustic Soda, liquid chlorine &

Hydrogen has their manufacturing plant at Pondicherry. Chennai Regional
Office services the client.
Cover
The cover was Industrial All Risk (IAR) with sum insured of Rs. 102.73 crore
for material damage and Rs. 25 crore for Business Interruption.
What happened?
There was an explosion in the Cell house of Electrolysis House due to which
there was a material damage and plant production has to be stopped. The key
material – membranes had to be imported.
Role of Bajaj Allianz
On receipt of the intimation of the accident on 16.10.02, immediately a surveyor

from M/s Mehta & Padamsey Surveyors Pvt. Ltd. was rushed to the site. The
basic documents to support the claim were given on 18.11.02and the Surveyors
submitted their preliminary report on 19.11.02. Bajaj Allianz team had analyzed
the incident and liability was established under the policy. An On-account claim
amount of Rs.50 lakh was paid on 23.11.02. Within 4 days of the report.
Meanwhile we smoothly had drawn up a proper flow chart and used alternate
resources such as using spare membranes to repair the damaged cell and also
advised some re-engineering at the plant and ensured that the shutdown of the
plant was limited to the minimum. As a result loss due to business
interruption was reduced to substutially. Our team also analyzed the cause of
the incident and suggested preventive measures and the Insured has
incorporated the same in their manufacturing process before the startup
following the above accident. Meanwhile the client sought a further on A/c
payment for facilitating the import and the 2nd installment of Rs. 50 lakh was
paid in the intervening period on 14.3.03 The final bills were given to the Bajaj
allianz on 25.3.03 and the balance
payment of more than 150 lakhs was paid on 28.3.03.
72 | P a g e
Lessons learnt
It was the joint effort of the client, the insurer & surveyor, which reduced the
period of Business Interruption following the major breakdown in a plant. The
grace and speed with which Bajaj Allianz handled the claim was well
appreciated by the client.
Case study No. 2
Client
M/S. Amitech Pipe Systems (India) Pvt. Ltd. is a joint venture between
Amiantit Holdings, Saudi Arabia, a leading manufacturers of Glass Reinforced
Polyester (GRP) tanks worldwide and Mr. Shivanand Salgaonkar, a leading
industrialist from Goa with shareholding in the ratio of 70%: 30%.
What Happened
The Tank Ribbing Machines had been imported from Flowtite, Norway. All
process parts, components, electrical and control systems were imported. After
the reportedly successful test of the dry ribbing, a full scale appliance of ribs
was also done in the morning of November 6, 2003. Suddenly there were two
explosions in quick succession at about 11:20 hours on November 6, 2003. A
Norwegian engineer, Mr. Arvid Sundboe, was doing commissioning of the
Ribbing Machine. The activities on the day of the incident are not precisely
known as the two persons who were present in the area and/or involved in the
commissioning activity, died as a consequence of injuries sustained in the
accident. A fire followed the explosions, which was on account of splashed out
resin and / or catalyst. The Fire Brigade was alerted and tenders came from
Bicholim, Mapusa and Valpoi. The fire was localised around the machine. The
fire brigade came reportedly within 30 minutes and doused the fire. The
estimated loss was Rs. 1 crore approx.
Immediately on receipt of telephonic intimation about the incident at 11.45, a

preliminary surveyor was appointed and by 12.30 our Manager
(Technical) along with the surveyor had reached the site to take stock of the
situation.. The officials of Amitech who were quite shocked with the accident
were relieved to find the insurance company responding so quickly. The very
same day, Mehta & Padmsey from Mumbai were appointed for the final survey
and Mr. Saumil Mehta flew in the very next day and carried out the survey. In
73 | P a g e
the evening, a joint meeting of the representatives of the insured, insurer and the
surveyor was convened and the entire claim process and documentary
requirements were explained to the client. After a series of discussions and
constant follow-up with the insured, all the documents were received on 19 th
December 2003 and the final report was released on 23rd. December 2003. The
claim was processed and was approved for payment for Rs. 81,89,055/- on 26th
December 2003.
Lessons Learnt
Deliver In Moments Of Truth
This was the moment of truth for us. Our entire team at Goa office realized that
they needed to deliver when it mattered most and they did exactly what was
expected of them. We at Bajaj Allianz have been working to fulfill the vision of
being the first choice insurer for customers and this is only a small step towards
that. We can perform still better. Initially when the project insurance was being
discussed with various public sector companies, Amitech also decided to invite
some private companies. The Techno Marketing team of Bajaj Allianz made a
presentation on Project Insurance. The Directors of the company was so
impressed with the professional approach of Bajaj Allianz that they decided to
place 100% business with BAGIC.
Client's reaction
When asked how he felt about handling the claim, Mr. Shivanand Salgaocar,
MD, who is a stakeholder in the company said, '' It is simply amazing.” The
manner in which the claim has been dealt with has only strengthened our trust in
them and the least we can do is tell other Corporate about our experience.''
74 | P a g e
Case Study No.3

Client
Cadila Pharmaceuticals Ltd., Ahmedabad
Cover
Standard Fire & Special Perils Insurance for Stock of Raw material which was
sent for processing and lying at Pharma Chem Industries Pvt. Ltd., who is
Cadila Pharma's outsourced manufacturing partner at Vapi, Gujarat.
What Happened
Fire broke out in the above factory at around 7.30 p.m. on July 10, 2004 and
engulfed the entire factory. The fire was extinguished by around 7 a.m. on July
11, 2004, but not before the entire factory and its contents were gutted. The fire
was believed to have been caused by ignition of stock of solvent by sparks
generated by electric short circuit. The factory building, plant and machinery
and the stocks contained therein were almost completely damaged. Loss
suffered by the insured: Stocks worth Rs.21,40,800/- lying in the custody of
Pharma Chem Industries Ltd. for processing. The assessed Loss was
Rs.18,33,816/-.]
Bajaj Allianz, Ahmedabad received a mail intimating the loss from their
insurance department on July 12, 2004 and immediately a surveyor - M/s Mehta
& Padamsey Pvt.Ltd was deputed to carry out the survey. They carried out the
survey on July 13, 2004 in the presence of a person from the insured's side. The
Surveyor also visited their Ankleshwar factory on the same day, for verifiying
all records pertaining to the stock sent to Pharma Chem at Vapi. An on-account
payment of Rs.5 lacs was released on July 17, 2004 after confirming all the
facts and verification of records based on the interim survey report on July 17,
2004. Meanwhile the process of finalizing the claim was initiated and meetings
were held to sort out the queries. On receipt of all relevant documents and
clarifications from the client vide their letter dated August 1, 2004, the claim
was immediately settled and the balance amount of Rs.13,28,916/- was released
on August 5, 2004 .
75 | P a g e
CHAPTER NO. 13
DATA ANALYSIS
76 | P a g e
DATA ANALYSIS
Q.1 Which technique of sales promotion you prefer?

Options Response in %
Display 40%
Door to Door Demo 14%
Exhibition 16%
Catalogue 20%
Price Off 10%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Display Door to Door Exhibition Catalogue Price Off
Demo
In
terpretation:
According to the study 40% insurance care consultants prefer display
technique,20% insurance care consultants prefer catalogues, 16% to the
exhibition, 14% to the door to door demo and 10% insurance care consultants
prefer price off technique.
77 | P a g e
Q.2 Which technique is giving good response from customers?

Display 18%
Exhibition 18%
Catalogue 16%
Price Off 12%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the study 36% insurance care consultants say door to door demo
techniques giving good response, 18% insurance care consultants say to the
display & exhibition, 16% to the catalogues & 12% say to the price off
technique.
78 | P a g e
Q.3 Which technique is economically beneficial?

Display 10%
Exhibition 10%
Catalogue 46%
Price Off 12%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the 46% insurance care consultants, catalogue technique is
economically beneficial. 22% to the door-to-door demo and 12% insurance care
consultants prefer price off technique.10% to the exhibition & display
technique.
79 | P a g e
Q.4 Which technique requires less time in sales promotion?

Display 22%
Exhibition 10%
Catalogue 16%
Price Off 14%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the study 38% insurance care consultants say display technique
requires less time in sales promotion. 22% to the display technique, 16%
insurance care consultants vote to the catalogues, 14% insurance care
consultants vote to the 10% to the exhibition.
80 | P a g e
Q5 Which technique is easily manageable?

Display 18%
Exhibition 10%
Catalogue 34%
Price Off 8%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the study 34% insurance care consultants say that the catalogues is
easily manageable, 30% to the door to door demo,18% insurance care
consultants prefer display technique 10% to the exhibition, and 8% insurance
care consultants say to the price off technique.
81 | P a g e
Q.6 Which technique requires less knowledge to execute?

Display 14%
Exhibition 12%
Catalogue 22%
Price Off 40%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the study 40% insurance care consultants vote to the price off
technique is require less knowledge to execute.22% insurance care consultants
prefer catalogues, 14% to the display and 12% to the exhibition & door to door.
Q.7 Which technique requires more knowledge to execute?

82 | P a g e
Display 20%
Exhibition 24%
Catalogue 10%
Price Off 4%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Demo
Interpretation:
According to the study 42% insurance care consultants vote to the door-to-door
technique that it requires more knowledge to execute than others. 24% to the
exhibition, 20% to the display technique, 10% insurance care consultants give
vote to the catalogues and 4% insurance care consultants prefer price off
technique.
83 | P a g e
Q.8 Price off are necessary for sales promotion?

Options Responses in %
Yes 46%
No 40%
Can’t say 14%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Yes No Can’t say
Interpretation:
According to the study 46% insurance care consultants say yes that the price off
are necessary for sales promotion. 40% say no and 14% say can’t say.
84 | P a g e
Q.9 Do you think that sales promotion program that is presently

undertaken by Bajaj Allianz. are satisfactory?
Yes 34%
No 46%
Can’t say 20%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Yes No Can’t say
Interpretation :
According to the study 46% insurance care consultants say No that the sales
promotion program that is presently undertaken by Bajaj Allianz are
satisfactorily 36% say Yes and 20% say can’t say.
85 | P a g e
Q.10 Should Bajaj Allianz take up new sales promotion program?

Yes 72%
No 22%
Can’t say 6%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes No Can’t say
Interpretation :
According to the study 72% insurance care consultants say yes installment
offers are 22% say no and 6% say can’t say.
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CHAPTER NO. 15
CONCLUSION
87 | P a g e
CONCLUSION
Indian Insurance Companies have come a long way since

independence & more after Liberalization, Privatization, and
Globalization (LPG) era, however they have to cover some distance so as
to be benchmarked with the for sure that the reforms process is on & the
insurance companies are in right directions
In the project study of “FIRE INSURANCE” we can see that the
scope & significance of it to such an extent that every insurance company
is handling it with due care, as the scope insurance business has widen
to from national boundaries to global or international boundaries.
From the topic of “FIRE INSURANCE” a more reformed & deep
study of the same is made. This project study not only covers various
aspects of the same & is a very good example through which we can
measure the growing need, scope & significance of the same.
This project report has not only given an opportunity to me to
prepare a project on the subject above topic but it has also given me a
chance to understand this topic more effectively but has also increased
my own knowledge of the topic.
88 | P a g e
CHAPTER NO. 16
BIBLIOGRAPHY &
WEBLIOGRAPHY
89 | P a g e
BIBLIOGRAPHY & WEBLIOGRAPHY
Bibliography
 Modern concept of Insurance -M.N.Mishra

 Taxmann’s Insurance law Manual
 Insurance principles & pratices-M.N.Sharma
 Insurance principles & practices-M.G.Methew.
 Icfai.insurance – Magazines
WEBLIOGRAPHY
 www.bajajallianz.com
 www.indiainfoline.com
 www.irdaindia.org
 www.thehindubusinessline.com
90 | P a g e

A Study of Fire Insurance With Refernce To Bajaj Allianz General Insurance

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Bajaj Allianz General Insurance Co. Ltd.

1.1 Meaning of Insurance

 Certain sum, termed as premium, is charged in consideration

1.2 Introduction To Insurance

Insurance is a tool by which fatalities of a small number are

INTRODUCTION TO FIRE INSURANCE

2.3 Characteristics or Nature of Fire Insurance

 The insurer undertakes to indemnity the insured against actual loss

 On occurrence of fire, a notice of fire should be given to the insurer so

 It is the duty of the insured to act as a man of ordinary produce to take

2.4 Meaning of Fire

2.5 Definition of Fire

2.6 The various loss caused by fire

Damage, which occurs as a result of smoke or of putting out the

Even by damages to a neighboring house by explosion done for

Every loss directly, or if not directly at least consequently

Even loss by fire caused by the insured’s negligence is covered by

NATURE AND USE OF FIRE INSURANCE

3.3 Causes of Fire

I. Indemnification or Curative Efforts: - According to doctrine of

Preventive efforts are divided into two parts:

 Public Fire Prevention Activities:

 Standard Schedule For Grading Cities

 Legislation and Regulation

SCOPE FOR FIRE INSURANCE

A contract of fire insurance is a

Fire Must Be Accidental

 Ordinary scope of fire insurance

1. Ordinary Scope Of Fire Insurance

b. The fire must be incidental, not intentional

c. Risks covered under fire insurance

2. Comprehensive Scope of Fire Insurance:

SIGNIFICANCE OF FIRE INSURANCE

 As A Source For Minimizing Losses:

 Decrease In Social Loss of Fire:

ii. Loss Preventing Efforts and Advice By The Insurer:

iv. Beneficial For New Industries:

vi. Distribution of Risks:

Bajaj Allianz General Insurance Company:

Bajaj Auto Ltd.

The Joint Venture

Bajaj Allianz General Insurance Products

Performance of the company over the last few years

In the first quarter of 2008-09, the company garnered a gross premium of

PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE

The steps to be followed in connection with affecting fire

I. Selection of Insurer: The selection of the insurance company is the first

PROCEDURE OF BAJAJ ALLIANZ FIRE INSURANCE

II. Presentation of Proposal In The Prescribed Form: After the selection

III. Evidence of Goodwill: The proposer is required to furnish a certificate as

IV. Recommendations By Agent: The agent also gives his recommendations

V. Survey of The Subject Matter: When a proposal for fire insurance is

VII. Acceptance of Proposal: After determination of premium on the basis of

VIII. Depositing of Premium Money: A lawful contract between the insured

BAJAJ ALLIANZ FIRE INSURANCE – RATE

Rate fixation on scientific basis in fire

System of Rate Fixation

Therefore different premium rates are to be fixed for

 Lighting, heating and power:

A scheduled rate means a standard rate of premium or an

BAJAJ ALLIANZ FIRE INSURANCE CONTRACT

Fire insurance contract may be defined as “an agreement whereby

8.1ELEMENTS OF FIRE INSURANCE CONTRACT