Table of Contents
PARA 13.2|IC 57, Fire Insurance|ONE LINER|CHAPTER 5
Insurance exams offered by the Insurance Institute of India (III), consist of various papers either in Life or Non Life or Combined. Here we are providing ONE LINER IC 57, Fire Insurance Chapter 5 “Documents” for para 13.2 and III exam . These questions will be very helpful for upcoming promotional exam in 2020.
IC 57 / Fire Insurance is a very important topic in insurance promotional exam. This IC 57 / Fire Insurance paper comes in all GIPSA exams which makes it very important.
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♦Chapter 5 “Documents”
- The proposer is first required to submit a duly completed proposal form with the insurance company. The proposal form for Standard Fire and Special Perils Policy in current use follows a uniform format as provided in tariff. The proposal form and objectives of the risk inspection report.
- Proposal Form
- Risk Inspection Report
- Cover Note
- Policy Drafting
- Proposal form-The proposal form for Standard Fire and Special Perils Policy in current use, generally speaking, follows a uniform format as provided in tariff.
- Details about proposer
- Name and address including phone, fax no. and e-mail address.
- Business of proposer.
- Paid-up capital of the firm.
- Name of parties who have insurable interest including the financial institutions in whose favour the policy is to be issued.
- Location of risk to be covered.
- Coverage
- Whether Flood, Cyclone group of perils and/ or Riot, Strike, Malicious damage, Terrorism are to be deleted from the basic cover.
- Whether Plinth and foundation to be covered along with the building.
- Whether Add-on covers required (List of these covers is included).
- Details of Property
- Type of property e.g. residence
- If shop whether hazardous goods (as per list) are stored; if so, whether the stock value exceeds 5% of the total stock value.
- If warehouse /godown (not located in a manufacturing unit), list of goods stored.
- Declaration Clause-I / We hereby declare that the statements made by me / us in this Proposal Form are true to the best of my / our knowledge and belief and I / We hereby agree that this declaration shall form the basis of the contract between me / us and the “THE ……………………COMPANY LIMITED.
- Risk inspection report-For manufacturing risks like large factories, huge plants or industrial complexes with a large number of different blocks, a risk inspection report is submitted by the insurer’s engineers.
8.Objective of inspection report- The main object of this report is to provide the underwriter with a
complete picture of the risk so that he is enabled to determine the rates of premium and the terms of insurance and to facilitate easy identification of the various blocks and drafting of the policy and the preparation of the schedule and the specification
9.The inspection also presents the opportunity of securing valuable information as to the past insurance and claims history of the insured and his normal standing.
- Scope of a Risk Inspection Report
(a) General information
- The name of the proposer and the situation of the premises.
- A brief history of the insured’s factory and other points like worker strength, industrial relations, general standing and reputation of the industrial group as a whole etc.
- A detailed description of each building with particular reference to constructional features, its occupation, age, state of repair, maintenance, etc.
(b) Lighting, Heating and Power-Detailed information is provided in respect of electrical installation which has to be in conformity with the regulations of the Government, and methods of heating, if any, used in the process of manufacture and the sources of power used.
(c) Moral Hazard- Assessment of moral hazard is not an easy task. Moral hazard may exist in different forms. However, general observations are made in respect of the efficiency, respectability and commercial standing of the proposer, the duration of trading, past failures in business, quality of labour etc.
(d) Adequacy of Sum Insured- Although the inspecting engineer going for inspection is not a professional valuer, he is required to express an opinion as to whether the amount proposed for insurance approximates the value of the property on the date of inspection, particularly buildings and machinery.
(e) Insurance and Loss Experience-Information will relate to whether the insurance was declined or cancelled or not renewed by other insurers. Particulars of previous losses, if any, by fire or other allied perils, their causes, the extent of loss, whether paid or repudiated and measures taken to prevent a recurrence of such losses are also mentioned.
11.The inspection report is wound up with a final paragraph in which the engineer gives his general impression of the risk with an indication of the “probable maximum loss”.
- Cover note- Once the proposal form (and / or the risk inspection report if any) is received the rates, terms and conditions are quoted to the proposer. Sec. 64 VB of the Insurance Act 1938 is also brought to the notice of proposer that no risk can be assumed unless and until the full premium is received in advance. After receipt of full premium the policy is issued.
13.There may be a time lag between the receipt of a proposal and the issue of the policy. The insurers may require additional information for the issue of the policy or they may like to arrange inspection of the risk.
- Pending preparation of the policy, insurers provide evidence of insurance protection through the issue of an Acceptance cum Receipt and / or a Cover Note.
- The contents of an Acceptance cum Receipt may include the following:
- Policy No.
- Period of Insurance
- Agent / Development Officer Code
- Policy issuing office details
- Name of insured and address
- Property covered
- Perils covered
- Sum Insured
- Premium charged
- Service tax
- Total amount received
- Schedule
The Schedule contains the following items:
- Name and address of the proposer
- Brief description of the property insured
- Sum insured
- Period of Insurance
- Risks covered
- Rate of premium
- Premium
- Serial number of the cover note
- Date of Issue
- Premium collection No. and date
- Development Officer Code
- Agent Code
- Operative clause-The operative clause of the cover note reads as follows: “In consideration of the proposer named in the Schedule hereto having, proposed to effect an insurance against Fire and allied perils for the period therein, on the usual and conditions of this Company’s and having paid the premium stated in the Schedule the property as described in the Schedule is hereby insured to the extent of the sum insured mentioned therein.”
- “The cover Note is issued pending preparation and issue of a duly stamped Policy of Insurance and should the terms and conditions of this Company’s Policy be unknown to the proposer, it shall be incumbent upon him to make application to the Company for a copy of such terms and conditions. Failure to comply with Policy terms and conditions through the Insured being unacquainted with them shall not be excuse for his failure to act in accordance therewith and by the acceptance of this Cover Note; the proposer binds himself by the terms and conditions of this company’s Policy.”
- Policy Drafting-Fire cover is drafted based on information furnished in Proposal Form and Cover note, which is replaced by the Policy. The proposal form has been prescribed in the Tariff and provides following information.
- Drafting of the policies means completion of the schedule which forms part of the fire policy.
- The Policy Schedule-The Schedule provides for all individual details of the insurance contract.
- The Tariff rules provide that policies covering buildings and/ or contents shall show block wise separate amounts on
- Building
- Machinery and Accessories
- Stock and Stock-in-Process and
- Furniture and other contents
- “Policy(ies) should be read together with proposal form, schedule, specification endorsements, warranties and clauses as one contract for which suitable format(s) may be devised by insurers.
- Individual details of the policy which may be considered to fall under three categories of data:
- Identification details
- Risk Description
- Occupancy-wise Net Rate Data
- Identification data relates to:
- The name and address of insured and insurer.
- Policy number, Cover Note number, etc.
- Policy Period – From ………..hours on ……………. to Midnight on ……………..
- Shares of Co-insurers, if any.
- Risk Description relates to:
- Description of property – Risk address.
- Sum insured (block wise) – Net Rate – Premium.
- Applicable warranties and clauses with identification numbers – Name of the Bank, if interested.
- Total Sum Insured – Total Premium – Special Discount 5% (applicable in lieu of Commission, example, where Bank interest is involved) – Service Tax – Net Premium.
27.Occupancy wise data provides for:
- Risk Code / Rate Code / (as provided in Tariff).
- Rates for Building, Contents, etc.
- CED (Claims Experience Discount) and FEA (Fire Extinguishing Appliances)
- Net Rate – Building – Contents, etc.
- Warranties and Clauses-For preparation of the policy schedule it is necessary to examine the warranties and clauses attached to the policy. Warranties are inserted for a specific purpose. All fire policies incorporate warranties. Some warranties are of a general nature and common to a majority
of policies example, construction warranty.
29.Class of Construction-Warranted that the buildings are not of Kutchcha construction, consisting of walls and / or roofs of wooden planks / thatched leaves and / or grass / hay of any kind / bamboo / plastic cloth / asphalt cloth / canvas / tarpaulin and the like.
30.FEA Warranty-When F.E.A. discount is granted the FEA warranty is inserted. “Warranted that Fire Extinguishing Appliances in respect of which discount is given shall conform to the Tariff Advisory Committee regulations and shall be maintained in efficient working condition at all times and an annual maintenance contract with an external agency shall be in force at all times throughout the currency of this policy”.
- Warranties are linked to the rates charged under the policy-If shops are rated as ‘non-hazardous’, then it is warranted that storage of following materials should not exceed 5% of the total stock.
- Endorsements-There are, as in the case of policy wording, numerous type of endorsement wording in common use and the wording may vary as between companies.
- Endorsements are issued for making the following changes, which are common:
- Change in the name of the insured i.e. change in interest.
- Incorporation of a Bank’s name or of a financial institution.
- Change in the address or location of the property insured.
- Alteration in the risk i.e. a change in its occupation or construction.
- Variations in the sum insured.
- Alteration in the period of insurance
- Additional Interest-“It is hereby declared and agreed that K. C. Shah of 17, of Sir. P. M. Road, Bombay is also financially interested in the insurance by this policy as Mortgagee.”
- Transfer by Will or Operation of Law-It is hereby declared and agreed that the interest in the insurance by this policy is now vested in Central Bank of India as Executors of the within named A. B. C and not as heretofore.
36.Change of Address of an Insured-It is hereby declared that the address of the Insured is now the new address of the insured.
37.Alteration of Risk-It is hereby declared and agreed that the premises described in this policy are
no longer used for manufacturing purposes and are silent.
- Renewal Notice-This is generally issued to the insured 30 days in advance of the expiry date of the policy and it is purely a reminder as a matter of business courtesy. It is not legally binding on the insurers to send a Renewal Notice and an insured cannot plead non-receipt of this notice as an excuse to make the insurers liable for any loss, should thereby any break between the periods of request for renewal.
- A renewal notice gives brief details of the policy. It takes into consideration all the changes that have been made during the currency of the policy and calls for renewal on the revised basis. On receipt of the renewal premium the procedure followed is as outlined earlier.
40.The following is a summary of the contents of the proposal form.
- Details about proposer
- Coverage
- Details of the property
- Details of sum insured
- Declaration clause
41.For manufacturing risks like large factories, huge plants or industrial complexes with a large number of different blocks, a risk inspection report is submitted by the insurer’s engineers.
42.The main object of risk inspection report is to provide the underwriter with a complete picture of the risk so that he is enabled to determine the rates of premium and the terms of insurance.
43.During the time lag between the receipt of a proposal and the issue of the policy the insurers provide evidence of insurance protection through the issue of an Acceptance cum Receipt and/ or a Cover Note.
44.Fire Policy is drafted based on information furnished in Proposal Form and Cover note which is replaced by the Policy.
- Drafting of the policies means completion of the schedule which forms part of the fire policy.
46.The policy Schedule provides for all individual details of the insurance contract.
47.The format of policy schedule varies among the insurers. The format provides for individual details of the policy which may be considered to fall under three categories of data:
- Identification details
- Risk Description
- Occupancy-wise Net Rate Data
48.An endorsement has the same basic information as is found in the policy format. An endorsement alteration usually affects part of the policy only.
- Renewal Notice is generally issued to the insured 30 days in advance of the expiry date of the policy and it is purely a reminder as a matter of business courtesy.
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