It’s tough to buy insurance policies

Experts say the frequency of claims in fire is much lower than in other areas of insurance

Manish Shah, who runs a chemical factory in Taloja on the outskirts of Mumbai, had a tough time buying an insurance policy. Shah  wanted a fire policy but was denied one initially since he did not have water sprinklers at the plant. By the time he got one, he had  incurred a loss of Rs 50,000 on raw materials damage following a boiler burst. He was lucky as the damage was nominal in financial terms  and no lives were lost.

A major fire at the Om Siva Sakthi Fireworks factory at Sivakasi in Tamil Nadu killed 40. With a small insurance of Rs 60 lakh from New India  Assurance, the owners might be able to do little more than to either pay some compensation to the deceased or start afresh.

An official from a private general insurance company says, “A textile factory had its raw materials and finished goods placed in close  proximity due to space constraints. We didn’t issue them a policy until they built a wall in between and separated the goods. A fire can destroy both.”

Experts say the frequency of claims in fire is much lower than in other areas of insurance. But the flip side is when it occurs, it has a greater impact and causes high loss.

Amarnath Ananthanarayanan, managing director and chief executive at Bharti AXA General Insurance says it’s a myth risky businesses find difficulty in getting a fire policy. “Issuing a fire policy takes seven to 10 days, including the time taken to inspect the plant. At times it takes even less depending on the complexity of the business. Although fire insurance is of utmost importance, only 50 per cent of the SMEs (small and medium enterprises) take a fire policy,” he said.

K Pethannan, senior branch manager, New India Assurance, says, “If your business is into risky sectors, such as fire or chemicals, you may have to cough up a premium of Rs 225 for Rs 1 lakh sum assured vis-a-vis Rs 50 for textile-related business (which is considered less risky) for the same cover.”

The premium rates depend on the construction of the building and occupancy. A discount in premium is given based on past claims experience and safety measures in the building.

There is no minimum amount for which a person can take cover for his business. The sum assured will depend on the nature and value of his business.

A basic fire insurance policy typically covers losses incurred due to fire, lightning, explosion, perils and bursting. However, there are add-on covers one can choose from in order to upgrade their policy and make it more comprehensive in nature.

Add-on covers, such as terrorism, spontaneous combustion (where goods catch fire automatically), deterioration of stocks in cold storage, damage due to own vehicles, omission to insure additions (where certain goods in the factory are forgotten to be insured), fees of architect/surveyor/consulting engineer and so on. One typically has to pay about one per cent extra on the add-on covers depending on their nature. For instance, an HDFC Ergo policy might charge 0.25 to 0.80 per cent per Rs 1,000 for a terrorism add-on cover.

The disadvantage of a fire insurance policy is it doesn’t cover the first Rs 10,000 of each and every claim. Which means, if your first claim is of Rs 1 lakh, the company will pay only Rs 90,000.

In addition, for any claim arising out of lightning, storm, tempest, flood and landslide (which are not included in the basic fire policy), the policy holder will have to bear five per cent of the losses arising out of those perils.

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