Presentation ON Fire Insurance

PRESENTATION
ON
FIRE INSURANCE
WAITING FOR MEMBER…
S.M. Faysal Raj: 172-11-5575

DEFINITION OF FIRE INSURANCE
The fire insurance contract is defined as “an agreement, whereby one party in return
for a consideration undertakes to indemnify the other party against financial loss.
FIRE INSURANCE SHOULD BE INCLUDED:
1. It is a co-operative device to share the loss
2. It involves two parties
3. It is a compensation contract
4. During a particular time the compensation will be completed
5. It may be fire by loss

FIRE WASTE AND CAUSES OF FIRE WASTE:
Two types of hazards:
1. Physical Hazard:
It refers to the inherent risk of fire in the property which may occur due to inflammable
nature, construction, artificial lighting and heating, lack of extinguishing apparatus use of
the property, etc.
2. Moral Hazard:
The moral hazard depends upon the man as physical hazard depends on the property.
The property may be set on fire by the owner or by any person with his willingness;
carelessness and lack of sense of duty may also increase the fire waste.
Sometimes, when market price is going down the owner can willingly set fire on the
property and gain from the payment of insurance money. Thus, where the property was
destroyed with the willingness of the property owner, moral hazard exists.
TYPES OF FIRE INSURANCE POLICIES
1. Valued Policy
The value of the property to be insured is determined at the inception of the policy. In this case, The
insurer pays the total admitted value irrespective of the then market value of the properties. The
measure of indemnity is, in consequence, not value at the time of the fire, but a value agreed upon
the inception of the policy. The insurer pays the insured a fixed sum following the destruction of the
insured property.
2. Valuable Policy
The valuable policy is that policy where the claim amount is to be determined at the market price of
the damaged property. The amount of loss is not determined at the time of commencement of risk but
is determined at the time and place of loss. This policy is truly representing the doctrine of indemnity.
3. Specific Policy
Where a specific sum is insured upon a specified property in case of a specified period, the whole of the
actual loss is payable provided it does not exceed the insured amount.
4. Floating Policy
The floating policy is the policy taken to cover one or more kinds of goods at one time under one sum
assured for one premium and about the same owner.
This policy is useful to cover fluctuating stocks in different localities.
WAITING FOR NEXT MEMBER…
Maliha Bintay Zaman: 161-11-5029

5. Average Policy
The policy is containing an ‘average clause’ called an Average Policy. The amount of indemnity is determined
concerning the value of the property insured..
The insurer will pay only such proportion of the actual loss as his insurance amount bears to the actual value of the
property at the time of loss.
6. Excess Policy
Sometimes, the stock of a businessman may fluctuate from time to time, and he may be unable to take one policy or
a specific policy. If he takes a policy for a higher amount, he has to pay a higher premium. On the other hand,
if he takes insurance for a lower amount, he will have to bear the proportionate amount of loss.
7. Declaration Policy
The excess policy contributes to only a ratable proportion of the loss because if the amount of excess stock exceeds
the sum set in the excess policy, the businessman will not have a full cover owing to the average condition.
On a fixed date of every month or a specific period, the insured furnishes a declaration of the amount. The premium is
provisionally paid to 75% of the annual premium amount.
Waiting for next member…
Sheikh Safiur Rahman: 172-11-5611

Essential elements of a fire insurance contract:
 (1). Feature of general Contract: All the features of general contract are also applicable to the fire insurance
contract.

(a) Proposal: The proposal for fire insurance can be made either verbally or in writing. The proposes gives the
necessary description of the property to be insured. In practices the printed proposal from is used for the purpose.
Introduction, type of properties, value of properties, construction, occupation, etc.

(b) Acceptance: On receipt of the proposal form, the insurer will assess the risk. Sometimes, when the contents &
subject-matters are not of very high amount, the insurer may accept on the basis of proposal forms only. When the
subject-matters is of larger magnitude & where the hazard involved is of a variable or unknown nature, the insurer
may send his surveyor to survey the property.
 (c) Commencement of risk: The risk commences as soon as the contract is completed provided there is no
specific time for the purpose. As soon as the proposal is accepted, risk will commence irrespective of the fact that
no policy was issued & no premium was paid. Where risks are unknown & tremendous, the payment of premium
will be the basis of the completion of the contract.
2. Insurable interest exists when an insured person derives a financial or other kind of benefit from the
continuous existence, without repairment or damage, of the insured object
3.Principle of Indemnity
As a rule, all insurance contracts except personal insurance are contracts of indemnity.
According to this principle, the insurer undertakes to put the insured, in the event of loss, in the same
position that he occupied immediately before the happening of the event insured against, in a certain form
of insurance, the principle of indemnity is modified to apply.
4.Doctrine of Subrogation
The doctrine of subrogation refers to the right of the insurer to stand in the place of the insured, after the
settlement of a claim, in so far as the insured’s right of recovery from an alternative source is involved.
5.Warranties
There are certain conditions and promises in the insurance contract which are called warranties.
According to Marine Insurance Act, “A warranty is that by which the assured undertakes that some
particular thing shall or shall not be done, or that some conditions shall be fulfilled, or whereby he affirms
or negatives the existence of a particular state of facts.”
6.Proximate Cause
The rule; is that immediate and not the remote cause is to be regarded. The maxim is “sed causa proximo
non-remold-spectator”; see the proximate cause and not, the distant cause.
The real cause must be seen while payment of the loss. If the real cause of loss is insured, the insurer is
liable to compensate for the loss; otherwise, the insurer may not be responsible for a loss.
Sayra Banu Neha: 153-11-4858

Problem: 1
• The house worth Tk. 10,00,000 was insured for Tk. 6,00,000 under an average policy. The house was destroyed by
fire and actual loss ascertained at Tk. 1,20,000. How much can the insured recover from the insurer?

Solution:
Insurance claim: ( Insured sum/ Value of property) x Amount of loss
= 6,00,000/10,00,000 x 1,20,000
= 72,000 Tk.
Problem: 2
• Y & co. Insured their factory building for Tk. 2,50,000 to A co. and for Tk. 1,50,000 to B co. The factory was
destroyed by fire and actual loss was ascertained Tk. 1,00,000. How much the insured can recover from the
insurer?
Solution:
A) Calculation of A co : Policy value of A co. ÷ Total policy value(A+B) × Actual loss
= 2,50,000 ÷ ( 2,50,000 + 1,50,000 ) × 1,00,000
= 62,500 Tk
B) Calculation of B co : Policy value of B co. ÷ Total policy value(A+B) × Actual loss

= 1,50,000 ÷ ( 1,50,000 + 2,50,000 ) × 1,00,000
= 37,500 Tk
THE END
THANKS FOR YOUR PATIENT…

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PRESENTATION

S.M. Faysal Raj: 172-11-5575

1. It is a co-operative device to share the loss

2. It involves two parties

4. During a particular time the compensation will be completed

5. It may be fire by loss

Maliha Bintay Zaman: 161-11-5029

Sheikh Safiur Rahman: 172-11-5611

Sayra Banu Neha: 153-11-4858

B) Calculation of B co : Policy value of B co. ÷ Total policy value(A+B) × Actual loss

THANKS FOR YOUR PATIENT…

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