Page 279 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes 10. The fire insurance contracts insure the property of the assured and are covered by the
principles of general insurance. The contract of insurance cannot save the asset from the
risk but it can provide the compensation or replacement in place of the asset that is lost/
damaged by fire.
11. The contract of fire insurance comes into existence just as any other type of an insurance
contract. The assured, by filling up the proposal and providing the information of the
asset insured submits the proposal of fire insurance contract to the insurer. The insurer,
after verifying the facts and figures mentioned by the assured and satisfying himself
accepts the premium and issues the cover note or the policy document to the assured as a
token of the conclusion of the contract.
12. The fire insurance policies are of short duration. The period of the contract normally
ranges up to one year. The policy has to be renewed after the expiry of the period of the
insurance. Once the policy lapses, the cover also lapses. The renewals of the policy, by
paying the premium, make the contract valid for another term on the original terms and
conditions of the policy. The insurer issues a new policy document to the assured on
renewal.

13.5.1 Subrogation

"Subrogation is the right which an insurer gets, after he has indemnified the loss, to step into the
shoes of the insured and avail himself all the rights and remedies which the insured may have
in respect of the loss indemnified".
Subrogation is the principle, which is applied to all contracts of indemnity. It means that after
indemnifying the loss, the insurer gets the right of taking all steps to recover any money in
compensation from the third party or by the sale of the asset against which claim has been paid.

13.5.2 Reinsurance

Reinsurance is a form of an insurance cover for the insurance where several Insurance companies
come together to issue one single risk. One entity (i.e., re-insurer) takes on all or part of the risk
cover under a policy issued by an insurance company in consideration of a premium payment.
It is similar to underwriting (on the party of reinsurer) as insurance companies go in for
reinsurance so that they could protect themselves from the potential loss. It could be treaty
reinsurance (blanket protection) or facultative reinsurance (specific).

13.6 Kinds of Fire Insurance Policies

The following are some of the fire insurance policies:

Figure 13.2: Classification of Fire Insurance Policies

Kinds of Fire Insurance Policies

Valued Unvalued Long-term All risk Limited

policies or open mid-term and policies risk
policies short-term policies
policies

274 LOVELY PROFESSIONAL UNIVERSITY