Page 183 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes
Therefore if domestic rates stagnate at lower levels, even as reinsurance rates harden,
local insurers may find it hard to rope in reinsurers.
Internationally, say industry sources, reinsurers insist on insurance companies bearing a
higher portion of each policy issued through higher deductibles.
A deductible is that portion of the loss that an insurer has to bear in the event of a claim.
As in the case of fire insurance, a draft of the revised tariff will be placed on the TAC
website for comments before a final version is notified.
In a related move, the IRDA has said that insurance companies should follow the ‘file and
use’ practice — normally used for non-tariff products — when dealing with mega risk
policies as well. The ‘file and use’ procedure is similar to the filing of a draft prospectus for
a public issue with SEBI (Securities and Exchange Board of India). Although there is no
vetting of the policy, the filing period gives the regulator time to ensure that the pricing
is fair and the product is not detrimental to the market. File and use applies to non-tariff
products only since tariff policies such as motor and fire insurance are standard and
devised by TAC. Even in the case of non-tariff products, filing was needed only for those
policies that were sold as packaged products. But tailor-made policies needed no filing.

The Mega Risk policy is a policy designed for big buyers of insurance such as refineries
and other plants with heavy concentration of risk. Due to limited capacity in India these
risks are typically insured only after reinsurance support is finalised. As this policy was
launched in ’99, when there was no regulator for insurance, the Mega Risk policies were
never filed with the IRDA. This practice continued even after the IRDA was set up as
insurers felt that this was not a new product but a renewal of an old cover. Sources say that
the now the IRDA will treat each renewal as a new product unless the terms and conditions
of the renewal policy are same in all respects as the expiring policy.

Under the Mega Risk policy, these plant owners instead of purchasing insurance at the
tariff rates could shop around for the best deals in the reinsurance market. After striking
the deal with the reinsurer, the buyer would then strike a deal with a local insurance
company who would underwrite the risk on the back of reinsurance support. IRDA has
also asked insurance companies to provide details of the claims experience under each
Mega Risk policy.

Source: http://articles.economictimes.indiatimes.com/2003-06-26/news/27533907_1_reinsurance-rates-
insurance-products-tariff-advisory-committee
The word ‘fire’ should be construed in its simple meaning and sense without attributing any
technical or scientific concepts or meanings to the term. The risk of fire is simply an unforeseen
or unexpected event caused either by accident or incident that cannot be forecasted. The contract
of fire insurance is valid as long as the assured has an insurable interest in the asset insured. In
the absence of the insurable interest in the contract of insurance, the contract becomes a wagering
contract, and thus, becomes void.

Task Collect some more definitions of fire insurance from internet or other sources and
prepare a collage in your own handwriting.
A fire insurance policy cannot be assigned without the permission of the insurer because the
insured must have insurable interest in the property at the time of contract as well as at the time
of loss. The insurable interest in goods may arise out on account of (i) ownership, (ii) possession,

178 LOVELY PROFESSIONAL UNIVERSITY