Fire Insurance in India has been completely reformed post IRDAI’s (Insurance Regulatory and Development Authority of India) efforts in bringing Fire and Allied Perils Insurance business out of the ambit of the All India Fire Tariff, 2001.
For a long time insurance companies would offer only one Fire and Allied Perils Insurance product, namely the Standard Fire and Special Perils (SFSP) policy which would offer protection to all businesses and homes against a long list of perils, including fire, lightning, strikes, and over a dozen more.
However, with effect from 1 April 2021, Fire and Allied Perils Insurance in India is now offered in 4 distinct products. This was done to de-tariff the prices for certain businesses, particularly dwellings, micro level, and small level enterprises. The new products are :
- Bharat Griha Raksha policy - this provides Fire and Allied Perils coverage to all residences / dwellings and housing societies within the country. Commercial enterprises are strictly kept out of the scope of this policy.
- Bharat Sookshma Udyam Suraksha (BSUS) policy - this provides coverage to all businesses whose Sum Insured is not more than ₹5 Crore
- Bharat Laghu Udyam Suraksha (BLUS) policy - this provides coverage to all businesses whose Sum Insured is more than ₹5 Crore but less than ₹50 Crore
- Standard Fire and Special Perils (SFSP) policy - this old product is still offered but only for those businesses whose Sum Insured is more than ₹50 Crore
Let’s examine the differences between the three Commercial Fire Insurance products in detail. But before we begin, let’s lay down some important definitions :
- Excess - Also known as ‘Deductible’, Excess is a fixed amount or a percentage of loss that is deducted before any claims settlement is made. Loss corresponding to the excess amount has to be borne by the insured
- STFI cover - This cover in Fire and Allied Perils Insurance includes loss or damage due to Storm, Typhoon, Tempest, Hurricane, Flood, or Inundation
- RSMD cover - This cover in Fire and Allied Perils Insurance includes loss or damage caused by Riots, Strikes, or Malicious damage
- Reinstatement Value - A method of claim settlement under a Fire Insurance policy where the damaged property or asset is simply reinstated by the insurer. This is done by considering the cost of replacing the damaged property with a new property of the same type. This cost is then paid to the insured as a claim amount
- Market Value - A method of claim settlement under a Fire Insurance policy where the claim amount reflects the price that the damaged asset would command in a competitive and open market. Under this method claims are settled after deducting depreciation on the damaged asset / property.
- Escalation Clause - Under this clause, the Sum Insured gradually increases to take into account unexpected fluctuations in the price of the insured asset. This is done to ensure that the business does not become underinsured and liable to bear excess losses
Apart from some technical differences stated above, the three Fire Insurance products largely offer coverage against the same list of perils, including fire, floods, malicious damage, and come with roughly the same list of exclusions. The introduction of these separate categories of products for different sizes of businesses has made purchasing Fire Insurance much easier for businesses.