FIRE INSURANCE CLAIM

INSURANCE:

Insurance provides a service to customers who wish to be protected from loss caused by events such as fire, theft,accident,illness or death .The customer plays a regular premium and receives a written policy that sets out the conditions under which an insurance company pays compensation.

INSURANCE POLICY:

Insurance policies are contracts of insurance between the insured and insurer. The insured needs to understand the policy issued to him before the loss occurs.

INSURED:

The insured is the trader of the businessman who obtains an insurance coverage in order to protect himself from the consequential financial loss. 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.

INSURER:

The insurer is the insurance company which provides the insured with insurance coverage.

INSURANCE COMPANY:

Insurance Company means any insurer being a company whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business.

GENERAL INSURANCE:

General Insurance business means fire, marine or miscellaneous insurance business, whether carried on singly or in in combination with one or more of them.

FIRE INSURANCE:

Fire insurance business means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies.

STANDARD FIRE INSURANCE:

Fire insurance policy is suitable for the owner of property ,one who holds property in trust or in commission ,individuals/financial institutions who have financial interest in the property. All immovable and movable located at a particular premises such as buildings, plant and machinery,furniture,fixtures,fittings and other contents, stock and stock in progress along with

goods held in trust or in commission including stocks at suppliers/customers premises, machinery temporarily removed from the premises for repairs can be insured.

Standard Fire Policy Coverage Includes:

a)Fireb)Lightningc) Explosion/implosiond)Aircraft damagee)Riot, strike, malicious damagef) Storm, typhoon, hurricane, tornado, flood and

inundationg) Impact damageh)Subsidence and landslide including rock slidei) Bursting & overflowing of water tanks, apparatus and

pipesj) Missile testing operationsk) Leakage from automatic sprinkler installationl) Bush fire

In Case of Fire loss:a)Contact the fire brigade/policeb)Try to minimize the loss and protect the property

Insurance Claims:

Claims are submitted as a result of personal accident, loss of goods in transit, theft, loss of profits, fire, flood and storm damage. Large scale disasters such as floods generate a huge number of claims, all requiring prompt attention.

To Claim Fire Policy:

a) If a misfortune befalls, don’t worry but intimate such loss/damage immediately so that a competent surveyor maybe deputed to minimize the loss.

b)Give an account of all properties damaged or destroyed with estimated amounts having regard to their values as on the date and place of loss.

c) Cooperate with surveyors by providing all the necessary documents for assessment of loss and establishing liability.

d)Cooperate with the insurer in all their activities of entering the premises, taking possession of

properties, their examining, sorting, removing or selling to your account, without prejudice.

e) Inform particulars of all other insurances existing on the property at the time of loss.

For Claims under Fire Insurance Policy

a)Firstly the insured should take all possible steps to minimize the loss

b)The fire brigade may be intimated immediately.c) Lodge a police complaint in case of a fire arising out

of - rioting mob, striking workers, malicious damage by third parties or terrorist damage.

d) Inform insurer as early as possible, in no case later than 24 hours

e)To cooperate with the surveyor appointed by the insurer by relevant information.

f) obtain a meteorological report in case of loss due to cyclone, flood and inundation from a local water source, MRO report may be obtained.

g) If the policy is on reinstatement basis, the claim is settled only after completion of repairs/replacement of the damaged items and submission of bills for claim payment.

Documentation required by insurer for processing the Fire Claims

The common documents required to be submitted for processing of all claims under a Standard fire Policy are:a)Certified True copy of the policy along with

schedule and Endorsement/clauses.b)Claim form, duly filled in and signed by the

insured.c) Newspaper reports on the incident, if any.d)Photographs, if taken by the insured.e)Departmental Note about the incident.f) Past claims experience.g)Fire Claims (additional documents)h)Report of the internal committee constituted for

the purpose of investigating the cause of fire.i) Fire brigade report.j) First information Report/Letter of intimation to the

Police Station duly endorsed/Police Panchnama.k) Laboratory Test reports, if required.l) Forensic Laboratory Report on samples collected

at affected sitem) Drug Inspectors Report on destruction of

Drugs/Pharmaceuticals items (for claim on pharma products only)

n)Final investigation Reporto)Action taken on the suggestion of TAC/LPA on

loss minimization of prevention.p) Inventory of loss.q)Repairs bills.

r) Flood claims (additional documents): Meteorological Report

s) Explosion Claims (additional documents ): Factory Inspectors Report or Report of Director of Industrial Safety and Welfare.

t) INSURANCE CLAIMS ASSESSORSu)Insurance claim assessors are employed by

insurance underwriters to investigate claims made by policy holders. Insurance claims assessors, sometimes known as claim inspectors or officials, work for insurance underwriters and are responsible for investigation claims submitted policyholders. They check that each claim is covered by the terms and conditions of the policy and investigate the cause of loss or damage. The assessor might have to interview the claimants who will be upset, shocked especially if death is involved.

v) The assessor might need to inspect damaged buildings, vehicles in order to gather the evidence needed to determine a settlement. They may evidence in more complicated cases any talking to solicitors, police and the eye witness. In straight forward claims agreement between an insurance company and claimant may be reached quickly. However even after they have decided whether the insurance company should pay out, it can take a long time to decide what the

settlement sum should be. Throughout the investigation the assessor must be aware that the claim could be fraudulent.

w) Very complicated claims required the intervention of an independent loss adjuster who acts as an intermediary between insurer and claimant. A loss adjuster performs the sane function as an insurance claim assessor but is employed by a company of loss adjusters rather than an insurance company. Some insurance firms had many assessors and loss adjusters specialise in a particular type of insurance such as aviation, motor or marine.

x) Risk is an integral aspect of every business of every business activity. There are two types of risk insurance and non insurance risk in business. Risk from fire is an insurance risk. general insurance i.e. non life category of insurance covers fire insurance. Business organisations insure there firms against the risk arising due to fire by obtaining a fire insurance coverage policy and by paying a premium on it. In the event of loss to the goods/property of the firm due to fire the insurance company after assesses the extent of the loss will reimburse the claim amount to the businessman. Prior to

sanctioning the claim amount the insurance company verifies the validity of the insurance policy and also the books of the accounts of the business firms in order to check the extent of loss as supported by the books of accounts.

Akash

Situation -2:Books of accounts are not maintained or are totally lost in fire :

In case where the books of accounts are not maintained or are totally lost in fire the businessman has no data regarding stock from which he can ascertain the loss of stock. In this case the businessman does not know the quantity and value of the stock which were lying in the premises at the time of fire.Insuch an extreme situation businessman has to obtain the information from the relevant sources by undertaking several steps to prior to preparation of the insurance claim.

In case the businessman has availed of bank finance against hypothecation or pledge of stock then monthly stock statement indicating the quantitative data of opening stock ,purchases, production ,sales and closing stock are filled with the blank.In this case such stock statements help to workout the required figures .The working has to

done only for the period subsequent to the latest month for which the data is already furnished with the blank.

In case the bank finance against stock is not availed of the following steps have to be followed :

h)Opening Stock:In order to obtain the opening stock at the beginning of the accounting year records available with the statutory auditors ,tax consultants ,copies of statements annexed with the income tax return ,excise returns ,sales tax return ,etc

i) Purchases:in order to calculate purchases from the coomencement of the year to the date of the fire the following will help

y)Credit Puchases: In order to determine the credit purchases a copy of the traders accounts in the books of the suppliers is obtained .Also copies of invoices and acknowledged copies of delivery challans can serve as a record for this purpose.The same can be compared and verified with the statements obtained from the banks and records with the excise department .Using the concept of single entry system ,the total creditors accounts can be constructed .In this manner the total purchases during the period can be determined

Cash Purchases: Cash Purchases can be determined using single entry system by constructing the Cash A/c and Bank A/cby putting various available figures and determining cash purchases as balancing figure.this process requires

a thorough examination of past records and comparing it with the bank statements .

j) Sales :Sales from the commencement of the accounting year till the date of fire is determined as follows:

I. Credit Sales : Copies of businessman’s accounts from the books of the customers, copies of relevant documents such as sales invoices , delivery challans and bank statements are obtained in order to construct the total Debtors A/c using the single entry system.In this manner total credit sales during the period is determined

II. Cash Sales: Cash Sales is determined using the single entry system,by putting the various figures is the cash sales.In case the business both cash purchases as well as cash sales then the balancing figures so arrived at would either be net cash purchases or net cash sales.In order to find out the probable figures of cash purchases and cash sales the historical ratio of the same can be obtained from the past data and applied to the figures of net cash purchases or net cash sales.

k) Cost of Sales :The purchases figures are at cost prices whereas the sales figures includes profit element.In order to remove the profit made by the

trader from the sales figure in order to make it comparable with the purchases

l) Estimation of gross profit rate : In order to estimate the gross profit rate different methods are used depending upon the ssituation

1)1) where gross profit margin is fixed: in certain business the goods are supposed to be sold at fixed price .The administered price mechanism or the Maximum Retail Price (MRP)system regulates the selling prices.Thus if a products is manufactured at a cost price of rs 7 and supposed to be sold at a sales value of rs 10 the gross profit is calculated as follows

2)Where gross profit margin is specified : from the examination point of view the gross profit margin is specified hence there is no need of any estimation .In this case also the rate of profit may be specified on cost price or on selling price in which case the figures calculated would be different in the both the case

3)Where the gross profit margin is not specified : In order to determine the gross profit margin when it is not specified the previous years data is utilised for the same

Only past one year data available: the rate of gross profit for that earlier year is determined by preparing the Trading A/c fo that year and applying the

b)Rate According to Trend :In case of rising or falling trend in rates of gross profit the average rate will show an incorrect picture .In case of rising trend the rate of margin for the current year will be higher compared to the position in the in immediately prceding year and vice versa.Hence care must be taken in order to maintain a rate according to the trend .c)Sale Of Abnormal Goods : Application of average rate of gross profit assumes that all the sales are not of the sames quality item and the profit margin is uniform thereon . But in reality there is defective ,shop soiled or outdated .Hence while determining the average rate of gross profit on such abnormal items must be excluded in order to determine the normal rate of gross profit . Only the normal items must be considered for finding out the average gross profit rate.d)Different Lines of business : In case the business firm is enagaged in several lines of business and the rates of gross profit are different the Trading A/c must be constructed column wise for each line separately in order to determine the gross profit rate on each of the line separatelyStock at the location of fire is an useful data in order to apply for the insurance claim .Alternatively,A proforma Memarandum Trading A/c is prepared for

the period from the beginningof the financial year to the date of fire

Case study

Setting the new mark in speedy response.

Client.

Candela 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, gujurat.

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 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/-.

Role of Bajaj allianz

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 to carry out the survey.

They carried out the survey on 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 Completely.

M/s mehta & padamsey pvt.ltd. Deputed July 13, 2004 Setting the new mark in speedy response sent to pharma chem at vapi. An on-account payment of Rs.5 lacs was released on after confirming all the facts and verification of records based on the interim survey report on July 14, 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.

LESSONS LEARNT.

For Bajaj Allianz, this was an opportunity to set a new performance standard and they seized this with both hands. The speedy response not only delighted the customer and raised their confidence level in Bajaj Allianz, but also set the new benchmark in productivity.

SITUATION III.

Books of accounts are saved through the stock records are either not maintained or are destroyed by fire.

III. Business man to be reimbursed with only for the cost of what he has lost due to fire.

IV. Figures of cost are to be converted to their actual costs and then the trading a/c is to be prepared accordingly.

AVERAGE CLAUSE.

m) Where the stock on the date of fire is more than the sum insured, the claim for loss will be proportionately reduced by considering part of the stock as uninsured.

n)Formula for determining the insurance claim in case of an average clause is as follows:-

o) INSURANCE CLAIM = SUM INSURED/ ACTUAL STOCK ON THE DATE OF FIRE * LOSS OF STOCK DUE TO FIRE.