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Session 4

Floater policy..the need


A garment manufacturer has stocks of finished goods and semifinished goods kept inside his two factories as well as in 10 warehouses spread across the country . The stocks keep moving every day from one location to another and the finished goods also gets delivered to customers .. He proposes to take a fire policy but is unable to ascertain the sum insured of the stocks location wise ( stocks are of fluctuating nature & there is lot of inter location movements )..But he is aware of his total stocks position at all locations put together . Insurance company says that fire is a location specific policy and they need to have the exposure of each location ..

A single policy can cover all his stocks in 12 locations under a SINGLE SUM INSURED , which should be the sum total of stocks in all his locations .. He need not provide location wise break up of sum insured This is called a FLOATER POLICY

Floater policyconditions
Complete address of all the locations have to be provided policy Cannot be provided for unspecified locations . This policy can be given mainly for stocks or movable properties .. Not for fixed property . The insured should have sound internal audit and accounting practices, so that the total value at risk for all locations as well as the locations can be established at any point of time . Any addition or deletion of locations should be communicated to insurers immediately
A client has taken a floater policy covering stocks in Mumbai ( Andheri), Delhi( Okhla) , Greater Noida, Gurgaon ( Sector 14) and Chennai ( Whites road ) ..for total sum insured of 100 crores . Policy period 1.4.2012 to 31.3.2013. On 5th of July he shifts his stocks from Gurgaon Sector 14 to Gurgaon Sector 29 he does not intimate to insurer as the location is still in Gurgaon On 10th September there is a fire loss in Gurgaon , Sector -29 !!!

Floater policy..Rating
A floater extra of 10% is charged over and above the base rate . In case the stocks are kept in locations which have different base rates .the highest rate among those would be the base rate . Earthquake rate would be for the highest zone among the locations covered . The highest STFI rate for any of the locations would get charged ..e.g. if stocks are floating among factory and warehouse , STFI rate for warehouse being the higher one, would get applied . No loading for Kutcha construction
W1 Factory

W2

Stocks floating among The three blocks within One compound wall

No floater extra to be charged

Declaration policy the need


Client has stocks in three locations he is able to arrive at value for each location . But the stocks are of fluctuating nature and due to constant inward and outward movements , he is unable to decide on the maximum value at risk at any point of time within a location

Policy is issued on DECLARATION BASIS can be given only for stocks

Based on a provisional sum insured, an initial premium is charged at a rate agreed by both parties . Monthly declarations are provided to the insurer by the insured At the end of the year the premium is adjusted

Declaration policy qualifying criteria


Minimum total sum insured for all locations covered should be 1 crore or more . Sum insured of at least one insured location should be 25 lacs or more . Declaration policy cannot be issued for the following : 1. Stocks undergoing process 2. Stocks kept in railway siding 3. Short period policies i.e. declaration facility can be given only for annual policies

Declaration policy the conditions


Basis of declaring the values monthly : Client can choose any of the following basis and the same needs to be mentioned on the clause attached to policy : 1. the average of the values at risk on each day of the month 2. the highest value at risk during the month

Reduction in sum insured is not allowed under a declaration policy. Increase in sum insured is allowed on pro-rata basis Stocks covered under Industrial all risk policy cannot be given the Declaration facility .

Declaration policy the conditions for computing refund


1. Monthly declarations should reach the insurers by end of the succeeding month i.e. declaration for September should reach the insurer by 31st October .in case of of more than one location covered individual declarations for each location to be provided Non receipt of declaration or late receipt of declaration would mean that for refund computation , the provisional sum insured will be considered the declaration for that month . In case of NO stocks in any month , NIL declaration needs to be provided in time . In case in any month, the declaration made exceeds the provisional sum insured , the provisional sum insured is considered for refund computation and not the higher declaration . Maximum refund allowed under this policy would be 50% of the total premium charged i.e. including any premium for increase in sum insured

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Declaration policy refund computation

Sum total of all declarations considered ( not made )


Determine average declaration == Sum total of all declarations considered / 12

Average declaration * Rate == Actual premium to be charged Provisional premium charged actual premium to be charged == refund (subject to max. 50% of total premium)

Such refund computation needs to be done for each of the locations covered

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Declaration policy Cancellation by Insured


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Without a loss Short period retention of premium on average of declarations received till date of cancellation (including month of cancellation) Subject to min. retention of 50% of provisional premium After a loss :Premium to be retained by the insurer will be SUM of Pro rata premium on average of of declarations received till date of cancellation (including month of cancellation)

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Pro rata premium on amount of loss paid from date of loss till expiry of policy
Subject to minimum of 50% of provisional premium

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Declaration policy Cancellation by insurer


The premium to be retained by the Insurer shall be appropriate pro-rata premium calculated on the average amount insured Up to the date of cancellation subject to the minimum retention of the premium

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Declaration policy special condition of average


Possibility of under insurance being applied twice The provisional sum insured (x) is compared with value at risk as on date of loss (y) Last available declaration immediately before the loss( w) is compared with value which ought to have been declared for that month( z)

Adjusted loss= Loss * x /y * w/z..in case x is less than y and w is less than z
Both the factors of underinsurance may or may not be applied depending on the value

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Declaration policy claims case study


Insured has his stocks in warehouse covered under a declaration policy for the period 1.1.2012 to 31.12.2012 . The provisional sum insured under the policy was 200 crores . A fire loss was reported on 20th May 2012 . Clients last two declaration for the month of February and March were : 150 crores and 175 crores . On checking insureds records the surveyor had following observations : 1. Actual stock value as on date of loss was 250 crores 2. The stocks position ( highest value of the month ) in February and March was 175 crores and 190 crores respectively 3. The loss was assessed at 25 crores Whether under insurance would be applied and if yes, how ?

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Floater Declaration policy

Combination of floater and declaration policy


All conditions of floater and declaration policy will apply Minimum sum insured required to qualify---Rs 2 crores floating among all locations Maximum refund that can be given after adjusting declarations--- 20% of provisional premium(80% of provisional premium will be retained )