November 17, 2021

Why do you need Fire Insurance?

Why do you need Fire Insurance?

Running a business takes time, effort, and commitment. Not to mention huge amounts of financial and human resources. So it only makes sense to protect your investment from known and unknown risks. You can do this by hiring security guards for your warehouse, auditing all your transactions, and most importantly, by purchasing Fire Insurance for your physical premises.

Thousands of businesses go under every year because of unforeseen events like fire, lightning strikes, explosions, floods, earthquakes, riots, etc- with fire causing most of the damage. Pharmaceutical manufacturing units, hotels and restaurants, hospitals, and textile mills are all prone to such mishaps, and the growing number of natural disasters owing to accelerated climate change has only increased their frequency.

According to 2018 data gathered by the India Risk Survey (IRS), fire outbreaks are the third biggest risk to business continuity and operations.

These accidents are mostly attributed to inadequate fire safety measures and limited fire stations in the area. In 2017, The Ministry of Home Affairs told the Parliament that India only had 2,987 fire stations against the requirement of 8,559 in 2012- a shortfall of 65%. The ministry further added that India needs an additional 559,681 trained fire personnel, 221,411 firefighting equipment, and 9,337 fire-fighting vehicles and specialised equipment before these disasters can be successfully pre-empted.

Considering this, and the fact that these incidents can significantly damage a business’s finance, having Fire Insurance becomes essential.

Fire Insurance is a legal contract between an insurance company and the insured, whose property is insured against fire and allied perils. If the insured’s property is damaged due to the events defined under the policy, they are compensated according to the Sum Insured in the policy.

In other words, Fire Insurance gives you the financial support to keep your business going if and when certain unforeseen events happen.

As a business manager, we understand you have a lot to do. What with doing everything from managing employee deliverables to reviewing financial data, you probably don’t have time to worry about events that may or may not happen such as fires, floods, riots, and terrorist attacks. Even if you think about these unforeseen events, you can’t entirely stop them from happening. Your best bet is to mitigate the damage through Fire Insurance.

If your business is damaged by fire or other covered events, you can file a claim with your insurer. Your insurance company will then send a surveyor or “risk adjuster” to verify the loss of property. Based on the surveyor's report you can be compensated for the damages.

It is important as a business owner looking to purchase Fire Insurance to understand certain principles that guide all fire insurance policies.

  1. Insurable Interest: A person is said to have an insurable interest in the insured property if he/she will be directly benefited by the continued survival of said property or will suffer a financial loss in case of loss or damage to the insured property. Generally speaking, owners, tenants, purchasers, etc. of the property are said to have an insurable interest in it. Under a Fire Insurance policy, the policyholder must have insurable interest in the insured asset both at the time of purchasing the policy and at the time of making the claim. Moreover, this insurable interest must be quantifiable in monetary terms
  2. Indemnity: This principle states that in the event of loss or damage to the insured aset, the insured can claim the amount of actual loss from the insurance company. However, this amount will be limited to the Sum Insured of the policy- this is the maximum amount of claim a policyholder can make
  3. Uberrimae fidei: This is the principle of utmost good faith which entails that the insured and the insurer are compelled to disclose all necessary information that may affect the contract of insurance. For example, the policyholder must disclose the correct valuation of stocks, the construction of the property, the nature of the stocks, the possibility of various risks, etc. to the insurer. If the insurance company finds that any important details were not disclosed, it has every right to terminate the contract without making any claim. Likewise, the insurance company has to disclose all the clauses and conditions of the policy, failing which they are liable to be sued.
  4. Proximate Cause : Fire insurance policies will only be applicable when the direct & proximate cause of loss or damage to the insured property is a risk specifically mentioned in the policy. The particulars of what is covered under the policy should be carefully read and understood before deciding to enter the contract.

These general principles (among others) apply to almost all Insurance policies.

Want to know more about which kind of Fire Insurance policies are available in India? Head to our detailed blog here

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.