Terrorism, Fire, Property Insurance India - Quick Guide

A Quick Guide to Terrorism/Property/Fire Insurance
[Courtesy http://www.insurancebrokerindia.com/ ]

At Bonsai Insurance, we help you understand the fine print of policies considered most ordinary, and strive to explain in the simplest ways the important points to be noted when you make the final buying decision.

Please note that we have tried to keep the article brief, to give a preliminary idea of what you may miss. For a detailed solution for your organization, please feel free to call/email us.

For most of the businesses, a Fire/Property Insurance policy is more like a routine electricity/water bill. The Insurance Company sends the renewal notice, you negotiate on premium and premium is paid off. The policy is then forgotten till the renewal comes up.

With terrorism and other risks growing, your business needs to be insulated and protected from any such financial catastrophe. Fire, Riots, Terrorism, Explosion, etc. can cause severe damage to the survival and continuity of any business. At the same time, you need to have the correct idea of what the policy covers and what are the extensions you can go for. Here it goes…

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What does Fire & Special Perils Insurance Cover?
Fire and Special Perils Insurance, one of the oldest forms of Insurance covers these risks, covers a majority of risks on property, making it one of the most crucial and basic covers any business needs to take.

It covers the following perils:
Fire
Lightning
Explosion/Implosion
Aircraft Damage
Riot, Strike, Malicious and Terrorism Damage
Atmospheric Perils: Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation.
Loss or visible physical damage to property due to impact of any Road/Rail Vehicle or animal in direct contact not belonging to the owner/employees.
Subsidence and Land Slide including Rock Slide.
Bursting/Overflowing of Water Tanks, Apparatus and Pipes
Missile Testing Operations
Bush Fire [Excluding Forest Fire]

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EXCLUSIONS:
Exclusions need to be carefully read, to understand the cover.
Note: Some of the exclusions can be waived by additional payment of premium.

Excess
Excess of Rs. 10000 for all perils except Act of God Perils.
5% or Rs. 10000 whichever is lower for Act of God Perils.
War/Act of Foreign Enemy
Loss due to any Nuclear Fuel/Waste
Loss caused by pollution or contamination.
Loss to Books of Accounts, Cheques, Money, Documents etc.
Loss or damage to stocks in Cold Storage due to change in temperature.
Loss to any machinery, fixture, Fitting due to over running, self heating, internal self destruction. Expenses incurred on Architects/Surveyors/Engineers not exceeding 3% of claims amount
Expenses incurred on Debris Removal not exceeding 1% claims amount.
Loss of earnings, market, by delay.
Loss or damage by spoilage from retardation/interruption caused by the perils covered.
Loss by theft during or after occurrence of insured peril except strike, riot, malicious and terrorism damage.
Loss directly or indirectly due to Volcanic Eruption.
Loss/Damage to property insured, if it has been taken to a third party of repair, cleaning, renovation not exceeding 60 days.
Marine Insurance will take the lead in paying Claims after fire, if the subject matter is insured with both coverages.

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IMPORTANT ADD ONS:
The following are some important Add-ons/Riders which could be added as per your frequirement to the policy:
Earthquake:
Earthquake is an Exclusion in the Standard Fire Policy, this needs to be taken as an add on cover with payment of additional premium.
Incremental Cost of Alternate Accommodation:
This provides for additional expenses incurred in for the alternate accommodation.
For e.g. you pay a lease of Rs. 2 Lakhs for your current property per month, and due to fire and alternate accommodation for your staff, you are forced to lease a property of Rs. 5 Lakhs, then you can insure your additional cost of Rs. 3 Lakhs. In case you own the property, you can insure the additional cost for Rs. 5 Lakhs.
Omission to insure additions and alterations:
If you have regular purchase of equipment, machinery, valuable parts – you can take a blanket cover of say 10% of the total value of equipment, to avoid the danger of omission to add/alter.
Start up Expenses
If after reinstatement of the property, there would be additional costs to start the smooth functioning of your business/production, you can take a cover against these expenses too.
Spoilage Material Damage
If your production plant runs continuously, then there is a risk of sudden stoppage, due to which there could be damage to the machinery as well as spoilage of material in the machinery. This damage can be covered as an ADD ON.

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IMPORTANT POINTERS;
Filling Proposal Form:
Proposal Forms are normally filled by Insurance Intermediaries or Employees on guess work/fair idea basis. In the opinion of Bonsai Insurance, Proposal Form holds primary importance in Insurance, since it forms the basis of the Insurance Contract entered into.
Some of the important touch points to be considered while filling the form are:

Class of Construction:
The correct description of construction should be communicated to the Insurance Company. For example if the Building is not an RCC Construction and has a wooden roof etc. – this should be clearly informed, as this would have an effect on the premium charged.

Hazardous Contents in your Property:
For Instance, if you have a Pantry and a Gas Cylinder in your plush office, this needs to be informed to the Insurance Company, so that it is correctly represented and hence covered under the policy.

Location and Correct Description of the Property:
Location of the Property holds importance, as it can affect underwriting. Similarly, say you have several detached buildings to be covered, providing information of separate buildings would be a correct representation of facts. At the same time, since the risk of peril is spread to smaller parts, the premium rating could be lower.

Valuation:
The Valuation of the property holds prime importance while claiming on Fire & Special Perils Insurance. In Fire Insurance, the Onus of valuation of the property is always on the insured
Valuation would require division of Property into 3 parts:
a. Buildings:
Buildings will include Building, Plant & Machinery, Accessories, Fixture, Furniture & Fittings, Electrical Installations.
b. Stocks:
Stock would basically include commercially saleable items in the line of business of the insured. So all Raw Material, Semi Finished Goods and Finished Goods would be part of Stocks.
c. Exotic Items:
Paintings, Curios, Manuscripts, Obsolete Machinery, Vintage/Antique Collection etc. are valued separately.

Generally the perception would be to insure your property at the value in your books
of accounts/balance sheet, but this is not true and amounts to undervaluation – which would lead to a proportionate lower claim being paid.

Buildings as defined above are to be valued at Re-instatement Value [RIV] or Market Value [MV], which is different from the value on the balance sheet/books of accounts.

Stocks are to be valued at Market Value only

Exotic Items like paintings etc. which are unique and cannot be valued on market basis, would have to be valued on “Agreed Value basis”. This means you and the Insurance Company agree on certain value of these assets.

RIV is the value by which the damaged property can be reinstated /replaced with a new property. Hence you need to think 2-3 years ahead and decide on what would be the cost to reinstate the property
Market Value is the Second Hand value. The amount at which the same property could have been brought and sold.

A Yearly valuation of re-instatement value is imperative to accurately cover your assets.

Fire Extinguisher Discount Warranty:
If you have disclosed and taken discount on Fire Extinguishers in your property, the same
- Needs to be maintained in efficient working conditions at all times
- An Annual Maintenance Contract with the local agency should be in form through the policy period.

Silent Risks:
If manufacturing or any activity is not carried out for a consecutive period of 30 days or more, this needs to be informed to the Insurance Company.

Any other Risk you are aware of needs to be informed:
Remember holding back any information due to which the acceptance of the proposal could be affected or premium could rise, would be a breach of warranty, so if you are in doubt, do tell us.

To conclude, Fire & Allied Insurance is a very vast and flexible Insurance Coverage, covering various man and god made calamities, extremely essential as a part of your Risk Management System.
It could be the most comprehensive coverage for you, at the same time, if you don’t invest time or professionals– it could actually be another electric bill, with no return.

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- The Technical Team at Bonsai/ http://www.insurancebrokerindia.com/