2.1.

Fire Insurance

2.1.1. Introduction to Fire Insurance

In India, insurance has a deep-rooted history. It finds mention in the writings

of Manu ( Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya
(Arthasastra). The writings talk in terms of pooling of resources that could be
re-distributed in times of calamities such as fire, floods, epidemics and
famine. This was probably a pre-cursor to modern day insurance.

The history of general insurance dates back to the Industrial Revolution in

the west and the consequent growth of sea-faring trade and commerce in the
17th century. It came to India as a legacy of British occupation. General
Insurance in India has its roots in the establishment of Triton Insurance
Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the
Indian Mercantile Insurance Ltd, was set up. This was the first company to
transact all classes of general insurance business.

1957 saw the formation of the General Insurance Council, a wing of the
Insurance Association of India. The General Insurance Council framed a
code of conduct for ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up
then.

In 1972 with the passing of the General Insurance Business (Nationalisation)

Act, general insurance business was nationalized with effect from 1 st January,
1973. 107 insurers were amalgamated and grouped into four companies,
namely National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd and the United India
Insurance Company Ltd. The General Insurance Corporation of India was
incorporated as a company in 1971 and it commence business on January
1sst 1973.

Thus this millennium has seen insurance come a full circle in a journey
which has extended nearly 200 years.
The history of Fire Insurance can be traced to the XVI century. The Great
Fire of London (1666) destroyed more than 13,000 houses and displaced
about 100,000 people but it took a couple of decades for its embers to
spark the first blaze of the fire insurance business. Nicholas Barbon was
probably the first to recognize the potential of a fire-threat protection
business, establishing the first fire insurance office near the Royal Exchange
in 1681. The imaginatively named ‘The Insurance Office for Houses on the
Backside of the Royal Exchange’ was a mutual scheme for house insurance,
guaranteed by a property investment fund. The trust deed allowed Barbon’s
firm to insure up to 10,000 houses. However, despite its charming name, it
went out of business in around 1710. ‘The Friendly Society for Securing
Houses from Loss by Fire’ faired somewhat better, entering the scene in 1683
and issuing 23,000 policies before its demise in 1730. It wasn’t until the
launch of the Hand-in-Hand in 1696 that a fire insurance business with
longevity took a firm foothold. This was followed by the Sun Fire Office in
1710, the Union in 1714, the Westminster in 1717, the London in 1720, and
the Royal Exchange in 1720. Business was booming.

2.1.2. What is Fire Insurance?

Fire insurance is a contract under which the insurer in return for a

consideration (premium) agrees to indemnify the insured/assured for the
financial loss which the Insured may suffer due to destruction of or damage
to property or goods, caused by fire, during a specified period.

Thus the basic ingredients of Fire Insurance are as follows:

 The financial loss should be on account of fire resulting in damage or

destruction of property or goods.

 The maximum amount which the Insured can claim as compensation

in the event of loss is agreed to between the parties at the time of

 entering into the contract.

It should be understood here that the event that results into financial loss
would be fire and not accident. Secondly the financial loss resulting from
damage to a property may be much more than the sum assured. In such case
the Insurer would be liable to make payment of the sum assured only.
For example, if a person has insured her house for Rs.10.00 lakh against loss
by fire, the insurer is not liable to pay the full sum, unless the house is
destroyed by fire, but only pay the actual loss subject to the maximum limit
of Rs. 10.00 lakh.

2.1.3. Who can take the policy?

Any person / firm / organization / institution who may suffer financial loss in
the event of operation of insurable perils may insure such property under the
fire policy. The pertinent point is that such
person/firm/organization/institution must have an “Insurable Interest” i.e. a
financial benefit, financial stake or advantage arising out of the property.

For the purpose of Insurance, including Fire Insurance, the following persons
have insurable interest in the subject matter:-

a) Owners of Building and contents therein such as house hold articles, furniture
etc.

b) Shop Keepers

c) Educational/ Research Institutions.

d) Hotels, Boarding and Lodgings, Hospitals, Clinics or such service providers

e) Industrial and Manufacturing Firms.

f) Godown Keepers.

g) Bailees, Lesser, Lessee, Banks, Financial Institutions, Mortgagors, Mortgagees.

h) Traders in stocks

i) Trustees, Charitable Institutions

j) Transporters and C & F Agents.

2.1.4. Can Fire Insurance Policy be assigned?

A fire insurance policy cannot be assigned (i.e. the legal rights or liability of
the contract cannot be transferred to any other third party/ individual apart
from the ones who had initially entered the contract) without the permission
of the insurer because the insured must have insurable interest in the property
at the time of contract as well as at the time of loss.
The insurable interest in goods may arise out on account of
 ownership,
 possession, or
 contract

A person with a limited interest in a property or goods may insure them to

cover not only his own interest but also the interest of others in them.