Types of Fire Insurance Policy in India

What is Fire Insurance

Fire insurance provides comprehensive coverage for any losses or damages caused to the property structure and contents due to an unexpected fire-related emergency. The cause of fire can vary from short circuits, faulty wiring, explosions, equipment or machinery failure, man-made hazards, combustile dust, etc. Fire insurance policy has different add-on policies with additional premium such as Storms, Tempests, Floods, and Inundation (STFI), or Riots, Strike, and Malicious Damage (RSMS), which provides extensive protection as per the risk exposure for natural calamities as well as riots, strikes or vandalism. With a suitable fire insurance policy, businesses can get security against any unprecedented fire emergency.

Fire Insurance Policy Coverage

Fire insurance coverage includes comprehensive protection against fire-induced damages and losses caused to property structure and contents. Here are key coverages of fire insurance:

• Repair and reconstruction costs for damaged commercial buildings caused by fire, explosions, lightning, and other perils.
• Coverage for damage caused to the inventory, furniture, equipment and machinery, or other assets that support business operations.
• Liability coverage for damages caused to external property or individuals. With several add-ons like STFI and RSMD, fire insurance coverage can also extend to fire induced as a result of natural calamities like storms, floods, hurricanes, or man-made like strikes, riots, etc. which could otherwise cause significant damage to the property and contents and impact business continuity.

Different Types of Fire Insurance Policy

There are several types of fire insurance policies which can be considered as per the unique requirements of business aligning with the specific risk exposure. Let’s explore different types of fire insurance policy as follows:

Standard Fire Insurance Policy

The standard policy is one of the most commonly bought fire insurance policies which covers any damages caused by fire and other related perils. The policy compensates for damages caused to the property structure and contents. Often, the standard policy forms the foundation for businesses to take the initiative to get secured against any unexpected fire emergency.

Valued Policy

The valued policy in fire insurance streamlines the claims settlement process by determining a fixed price for the insured items before the onset of the policy and getting coverage as per the damage caused and the limit fixed. The value of the insured items will be constant irrespective of the market fluctuations in the future. The valued policy is ideal for personal assets or other property contents such as paintings, jewelry, crafts, and relevant articles that could have price variations.

For instance, the business owner wants to insure 5 paintings on commercial premises, and the paintings are valued at ₹ 100,000. When the property gets damaged due to fire, impacting the paintings and other contents, the insured will get a coverage of ₹ 100,000 only despite the market prices have changed.

Average Policy

The average policy is one of the types of fire insurance policy that connects the claims settlement process with the application of the average clause. When the insured undervalues the property to pay a lesser premium, the standard policy gets converted to an average policy to ensure fairness with the other policyholders and insurers. When the insured property suffers more losses than the insured coverage limit, the average clause is implemented and the insured needs to bear a part of the losses incurred varying according to the proportion of underinsurance.

For instance, a property is insured for ₹ 16,00,000, but the business owner opts for a coverage limit of only ₹ 10,00,000. For damages worth ₹ 12,00,000 due to a fire-related emergency, the insurer will change the standard policy to the average policy and determine the final coverage amount based on the average clause. The claims amount is estimated according to the formula as follows: Coverage amount = (Insured value / Actual Value) * Loss = ₹ (10,00,000 / 16,00,00) * 12,00,000 = ₹ 7,50,000 So, based on applying the average clause formula, the insurer will have a coverage amount of ₹ 7,50,000 from the assured sum of ₹ 10,00,000 and the insured will have to pay the remaining amount as a result of underinsuring the property in the first place.

Floating Policy

The floating policy provides fire insurance coverage for more than one property, which could be located within the same city or in different cities. This is ideal for business owners with more than one commercial property. For instance, a business owner has 5 textile manufacturing units in Gujarat and 2 in Maharashtra, a floating policy can secure all 7 manufacturing units from any fire accident and would save the heavy premium cost of buying 7 distinct fire insurance policies for each unit individually. For any fire accident at any of the units, the insurer will settle the claims as per the terms and conditions of the policy.

Replacement Policy

Replacement policy as one of the kinds of fire insurance policy, consists of replacing the damaged property contents according to the risks covered and the coverage limit in the policy. Through the replacement policy, the insurer will provide the complete amount estimated to be the replacement value for the items insured under the policy. This replacement value is calculated according to the current market trends and depreciation rates.

Specific Policy

The specific policy as one of the types of fire insurance policy protects a single property with a pre-determined coverage limit fixed at the onset of the policy. This is an appropriate policy for business owners wanting to insure individual high-value assets or property and get coverage from any unprecedented crisis due to fire accidents.

When the property suffers a loss for more than the pre-determined coverage, a specific policy provides coverage for the fixed price. The insurer will not apply the average clause and avoid any penalty for the insured. For example, if the property is insured for ₹ 300,000 and the damages caused to the property estimated to ₹ 400,000, the insured will pay the complete sum assured worth ₹ 300,000 and not charge any property when insured with a specific policy.

Comprehensive Policy

The comprehensive fire insurance policy provides extended fire insurance coverage against any unexpected fire accidents that are even induced by natural calamities such as earth and man-made hazards leading to explosions, riots, lightning, etc. The comprehensive policy protects against multiple risks to build a solid safety net against any fire-related emergencies.

How to Choose the Best Fire Insurance Coverage?

Fire insurance secures businesses from any unexpected fire accident causing damages to the property structure and contents which include inventory, electronic gadgets, cash, as well as other personal valuable assets. Thus, it is important to opt for the best fire insurance coverage, which can be determined according to the following factors:

• Analyzing business requirements: When considering different insurers for fire insurance coverage, the primary step is to analyze the unique business requirements. This includes understanding the different risks, reviewing the location, nature of building materials, and type of property contents including inventory, machinery, and equipment. Furthermore, it is important to assess the fire safety measures for the commercial property. When all such requirements are analyzed, the business owner gets clarity on what are the coverage requirements and which insurer’s policies are meeting the same at affordable prices.
• Cost-benefit analysis of coverage vs premium: When buying fire insurance policies, it is important to have a cost-benefit analysis of the coverage limit with clarity on inclusions and exclusions and accordingly the price of the premium offered by different insurers. This helps understand which insurer best meets the unique business requirements at a specific budget and opts for the specific types of fire insurance policy accordingly.
• Claims settlement ratio (CSR): The insurer’s reputation with reference to the settlement of claims can be gauged by the claims settlement ratio of the insurer. The higher the CSR of the insurer, the higher the probability of the insurer to process the claims.
• Check for types and add-on coverage options: With different types of fire insurance, the insured is required to choose the coverage according to unique business requirements. Furthermore, review the different add-on cover options like STFI, RSMD, etc., and the aligning premium price and coverage options provided by different insurers.
• Customer support: Claims settlement can be a complicated process, but, with an expert customer support team assisting at every step of the claims process, the settlement gets streamlined without any hassles. Coverbiz has 24*7 customer support with expert advisors to make your claims processing hassle-free and guide you through any specific insurer requirements.

Conclusion

Fire insurance helps secure businesses from any unforeseen fire-related emergencies caused by natural disasters or man-made hazards. The different types of fire insurance policies have specific utility aligning with different business requirements and property valuation. Valued policy in fire insurance provides coverage for a fixed sum assured regardless of market fluctuations, the floating policy helps cover different properties in different locations, average policy implements an average clause in case of underinsurance, whereas specific policy determines the sum assured and refrains from implementing average clause and the comprehensive policy provides extended protection considering different risk factors and unique business requirements.