If you are preparing for the IC 57 – Fire and Consequential Loss Insurance paper of the Insurance Institute of India, having clear, chapter‑wise IC 57 Fire and Consequential Loss Insurance Notes makes all the difference. Most candidates struggle because the book is dense, technical, and usually available as one long PDF, which is hard to revise quickly. In particular, mastering IC 57 Fire Insurance concepts is vital for exam success.
On this page, you will find a structured, chapter‑wise hub for IC 57 Fire and Consequential Loss Insurance Notes.
1. What is IC 57 – Fire and Consequential Loss Insurance?
IC 57 is an Associateship-level paper of the Insurance Institute of India focused on Fire and Consequential Loss Insurance. It covers material damage policies, fire hazards and prevention, tariffs, underwriting, claims handling, and loss of profits due to business interruption. Therefore, it is important to understand all aspects related to Fire Insurance, especially those outlined in the IC 57 syllabus.
The subject is critical for general insurance officers, surveyors, underwriters, and anyone dealing with property and fire insurance portfolios in India. Having IC 57 Fire and Consequential Loss Insurance Notes is essential for success.
2. IC 57 Syllabus and Chapter-wise Structure
As per standard references and III-aligned study material, the IC 57 syllabus is usually divided into the following chapters:
- Chapter 1: Basic Principles and the Fire Policy
- Chapter 2: Add-On Covers and Special Policies
- Chapter 3: Fire Hazards and Fire Prevention
- Chapter 4: Erstwhile Fire Tariff – Rules and Rating
- Chapter 5: Documents
- Chapter 6: Underwriting
- Chapter 7: Claims – Legal Aspects
- Chapter 8: Claims – Procedural Aspects
- Chapter 9: Consequential Loss Insurance – I
- Chapter 10: Consequential Loss Insurance – II
- Chapter 11: Specialised Policies and Overseas Practice
On this page, we will gradually add separate chapter-wise links so that you can open each chapter on a clean, dedicated page for reading and revision. Today, we are starting with Chapter 1. Moreover, these IC 57 Fire and Consequential Loss Insurance Notes will help streamline your revision process. For those who want to focus on IC 57 Fire Insurance, these resources will be immensely helpful.
3. How to Use These IC 57 Notes
To get maximum value from this chapter-wise IC 57 resource:
- Start with Chapter 1 and read it completely at least once. As you go, pay special attention to the IC 57 Fire Insurance portions for best results.
- While revising, use the chapter-wise link to jump directly to the topics you are weak in (for example, Indemnity or Proximate Cause).
- Combine these notes with III’s official book and a few mock tests so that concepts and questions are covered together.
🔥 IC-57 Complete Study Notes
Click any chapter below to open full notes — diagrams, formulas, exam tips & memory tricks included
📖 11 Chapters
🧠 Memory Tricks
📝 Exam Points
📐 Flowcharts
🔢 All Formulas
🗂️ Revised Edition 2025
Chapter 1
Basic Principles & The Fire Policy
6 Principles12 Perils
13 Exclusions15 Conditions
BSUS/BLUS
📖 Read Chapter →
Chapter 2
Add-On Covers & Special Policies
15 Add-OnsRIV Clause
Declaration PolicyFloater Policy
📖 Read Chapter →
Chapter 3
Fire Hazards & Fire Prevention
Originating HazardsFire Load
Fire ResistanceFire Triangle
📖 Read Chapter →
Chapter 4
Erstwhile Tariff – Rules & Rating
Short Period RatesRating Sections
DiscountsPer Se Rating
📖 Read Chapter →
Chapter 5
Documents
Proposal FormRisk Inspection
Cover NoteEndorsements
📖 Read Chapter →
Chapter 6
Underwriting
PML / EMLReinsurance
Quota ShareCRESTA
📖 Read Chapter →
Chapter 7
Claims – Legal Aspects
Proximate CauseWarranties
Ex-GratiaIndemnity
📖 Read Chapter →
Chapter 8
Claims – Procedural Aspects
72 Hours RuleSurvey Report
Time LimitsLoss Assessment
📖 Read Chapter →
Chapter 9
Consequential Loss – I
Gross ProfitTurnover Basis
Indemnity PeriodClaim Formula
📖 Read Chapter →
Chapter 10
Consequential Loss – II
Wages InsuranceOutput Basis
Difference BasisLay-Off
📖 Read Chapter →
Chapter 11
Specialised Policies & Overseas
Petrochemical TariffIAR Policy
UK PracticeUS Practice
📖 Read Chapter →
⚡ Quick Exam Numbers – IC-57
📅 Key Dates
Insurance Act: 1938 | Indian Contract Act: 1872Fire tariff withdrawn: Jan 2007
Petrochem Tariff: 1976 | IAR: 1 Jul 1997
BSUS/BLUS: 2021 | CRESTA: 1977
📊 Key %s
Deductible: 5% (min ₹10,000)Architect fees (policy): 3% | Add-on: 7.5%
Debris removal: 1% | Add-on: 10%
Declaration refund max: 50%
CL basis rate: 1.25× fire rate
⏱️ Time Limits
Written claim: 15 daysSurveyor appointed: 72 hours
Surveyor report: 30 days (max 6 months)
Settlement offer: 30 days of report
Payment after acceptance: 7 days
Chapter 1
Basic Principles & The Fire Policy
📜 6 Principles🔥 12 Perils
⚠️ 13 Exclusions📋 15 Conditions🏛️ BSUS/BLUS
1. Definition of Fire Insurance
Legal Definition – Section 2, Insurance Act 1938
Business of effecting contracts of insurance against loss by or incidental to fire or other occurrence customarily included among fire insurance risks.
- Policy is usually for 1 year (residential houses can exceed 1 year)
- Insurer liable only to extent of actual loss — no loss = no liability even if fire occurred
- Subject matter: any moveable or immovable property with pecuniary (financial) value
⭐ EXAM POINTPerils classified as: (i) Social – riot, strike; (ii) Natural – storm, flood; (iii) Miscellaneous – aircraft, impact
2. Five Essential Elements of a Valid Contract
5 Elements of a Valid Fire Insurance Contract
Offer & Acceptance
→
Consideration (Premium)
→
Agreement
→
Legal Competence
→
Legality
3. Six Basic Principles of Insurance
🤝 1. Utmost Good Faith
- Disclose ALL material facts
- Duty continues throughout policy (Condition 3)
- Breach → contract void/voidable
⚖️ 2. Indemnity
- Same financial position as before loss
- No profit allowed
- Subject to sum insured
💡 3. Insurable Interest
- Must exist at inception, during, AND at loss
- Legal right + pecuniary relationship
- Property sold → policy does NOT auto-transfer
🔗 4. Proximate Cause
- “Immediate and not the remote cause”
- Latin: causa proxima non remota spectatur
🔄 5. Contribution
- Multiple policies on same property
- Each insurer pays rateable proportion
- Corollary of Indemnity
↔️ 6. Subrogation
- Insured’s rights against 3rd party → transferred to insurer
- After insurer pays claim
- Corollary of Indemnity
⭐ MOST ASKED MCQContribution & Subrogation are BOTH corollaries of Principle of INDEMNITY
4. Bases of Sum Insured
| Property | Basis |
|---|---|
| Buildings, Plant, Machinery, Fixtures | Market Value OR Reinstatement Value |
| Other contents, Household | Market Value only |
| Art, manuscripts, obsolete machinery, heritage buildings | Agreed Value |
| Raw Materials | Market Value (purchase cost) |
| Semi-finished goods | Cost of RM + processing expenses |
| Finished goods | RM + all overhead (NOT selling price/profit) |
Market Value = Current replacement cost MINUS depreciation (physical, not accounting)
Reinstatement Value = Cost to replace with NEW property — NO depreciation
Book Value = Value in accounts after depreciation. NEVER use for sum insured.
5. Pro-Rata Average Condition
CLAIM PAYABLE (Under-Insurance)
Claim = Loss × (Sum Insured ÷ Value of Property)
💡 Example: Property Value ₹40,000 | SI ₹30,000 | Loss ₹16,000
Claim = 16,000 × (30,000/40,000) = ₹12,000
Claim = 16,000 × (30,000/40,000) = ₹12,000
6. Twelve Perils Covered (SFSP Policy)
🔥 FireActual ignition, accidental
⚡ LightningFire or no fire
💥 Explosion/ImplosionExcl. industrial boilers
✈️ Aircraft DamageExcl. pressure waves
🚨 RSMTDRiot, Strike, Malicious, Terrorism
🌊 STFIStorm, Cyclone, Flood etc.
🚗 Impact DamageRail/Road vehicle or animal
🏔️ SubsidenceLandslide/Rockslide
🚿 Water Tank BurstPipes/Apparatus
🚀 Missile TestingGovt. of India ops
💧 Sprinkler LeakageAccidental leakage
🌿 Bush FireExcl. Forest Fire
⭐ FIRE EXCLUSION — KEY RULESpontaneous combustion: first haystack excluded (inherent risk), but fire spreading to NEXT haystack = COVERED!
7. Key General Exclusions (13 Total)
- 5% deductible on lightning/STFI/subsidence (min ₹10,000)
- War & civil war
- Nuclear risks
- Pollution/contamination (with exceptions)
- Bullion, manuscripts, stamps, coins, explosives (unless covered)
- Cold storage stocks – temperature change (add-on available)
- Electrical machinery – overrunning, short circuit, arcing
- Architect fees >3% and Debris removal >1%
- Loss of earnings, loss of market, consequential losses
- Spoilage from process cessation
- Theft during/after insured peril
- Earthquake/volcanic eruption
- Property removed to other location (60-day exception for repairs)
8. Key Policy Conditions (15 Total)
| Condition | Subject | Key Rule |
|---|---|---|
| 1 | Utmost Good Faith | Policy voidable on misrepresentation |
| 2 | Fall of Building | Insurance ceases after 7 days of fall |
| 3 | Material Alteration | Ceases if risk increases, uninhabited >30 days, interest transfers |
| 5 | Cancellation | Insured: short period | Insurer: pro-rata | Notice: 15 days |
| 6 | Duty to Insured | Notice forthwith + written claim within 15 days. Limitation: 12 months |
| 7 | Right of Entry | Insurer can enter, possess, deal with property. Insured cannot abandon. |
| 8 | Fraud | All benefits forfeited |
| 9 | Reinstatement Option | Option with INSURER, not insured |
| 10 | Pro-rata Average | Under-insurance → proportionate reduction |
| 13 | Arbitration | Quantum only. 30 days to agree arbitrator |
| 15 | Maintain SI | Pro-rata premium deducted from claim |
9. New IRDAI Fire Policies (2021)
| Feature | SFSP | BLUS (Laghu) | BSUS (Sukshma) | Griha Raksha |
|---|---|---|---|---|
| Earthquake | Add-on | ✅ In-built | ✅ In-built | ✅ In-built |
| Terrorism | Add-on | ✅ In-built | ✅ In-built | ✅ In-built |
| Tsunami | ❌ | ✅ | ✅ | ✅ |
| Theft (7 days) | ❌ | ✅ | ✅ | ✅ |
| Floater Stock | Add-on | Add-on | ✅ In-built | — |
| Documents cover | ❌ | Up to ₹50,000 | Up to ₹50,000 | — |
| Start-up Expenses | ❌ | Up to ₹5 Lakh | Up to ₹1 Lakh | — |
| Debris Removal | 1% | 2% | 2% | — |
| Professional Fees | 3% | 5% | 5% | — |
📅 Key Date: Fire tariff (rating part) withdrawn: 1st January 2007 by IRDA | New BSUS/BLUS/Griha Raksha: 2021
🧠 Memory Tricks – Chapter 1
U-I-P-C-S-I = 6 Principles
“Uncle Inder Passes City Subway Instantly”Utmost Good Faith → Indemnity → Proximate Cause → Contribution → Subrogation → Insurable Interest
Sub & Con = Twins of Indemnity
Subrogation & Contribution are BOTH corollaries of Indemnity. They always come together in MCQs!12 Perils = FLEAS + BWIMS + RSMTD
Fire, Lightning, Explosion, Aircraft, STFI + Bushfire, Water tank, Impact, Missile, Sprinkler + RSMTD13 Exclusions, 15 Conditions
Odd = Exclusions (13). Odd+2 = Conditions (15). Always remember: EXCLUSIONS come first, LESS than conditions.Chapter 2
Add-On Covers & Special Policies
➕ 15 Add-On Covers📋 Special Clauses
📦 Declaration Policies🌊 Floater Policies
1. What are Add-On Covers?
DefinitionExtensions of the fire policy granted by endorsements on payment of additional premium. Sum insured of add-on = Sum insured of main policy.
2. All 15 Add-On Covers – Quick Reference
| # | Add-On Cover | Key Points |
|---|---|---|
| 1 | Spontaneous Combustion (Fire Only) | “By fire only” cannot be omitted. 4 categories: I=₹0.25, II=₹0.50, III=₹0.75, IV=₹1.00 per mille |
| 2 | Earthquake (Fire & Shock) | 5% deductible. EQ+STFI together = Tsunami coverage |
| 3 | Forest Fire | Main policy covers Bush Fire only. This adds forest/jungle fire. |
| 4 | Impact – Own Vehicles | Insured’s own vehicles, forklifts, cranes. NOT animals. No selection of SI. |
| 5 | Cold Storage – Power Failure | Duration must exceed 24 hrs. Deliberate govt. act excluded. |
| 6 | Cold Storage – Machinery Damage | Machinery damaged by insured peril → stock damage covered. 24 hr duration rule. |
| 7 | Architect Fees (excess of 3%) | Policy: 3%. Add-on: up to 7.5% of admitted loss. |
| 8 | Debris Removal (excess of 1%) | Policy: 1%. Add-on: up to 10% of claim. |
| 9 | Omission/Additions Clause | New buildings/machinery up to 5% of SI. NOT stocks. Notify within 30 days of expiry. |
| 10 | Spoilage Material Damage | Stock-in-process loss + machinery damage. All stocks covered; average applies. |
| 11 | Leakage & Contamination | Oils & chemicals ONLY. Cover starts when liquid reaches tank. |
| 12 | Temporary Removal of Stocks | Up to 10% of Total SI at other premises. Pro-rata average applies. |
| 13 | Loss of Rent | Building unfit for occupation. Proportional to reinstatement period. |
| 14 | Additional Rent (Alternative Premises) | Non-manufacturing only. Max 3 years. Difference of new vs old rent. |
| 15 | Start-up Expenses | Plans, soil testing, approvals. BSUS: ₹1L inbuilt; BLUS: ₹5L inbuilt. |
⭐ EXAM POINTEQ + STFI both active simultaneously = Tsunami covered. Without either one = Tsunami NOT covered.
3. Escalation Clause
- Applicable to Buildings, Machinery, Accessories ONLY (NOT stocks)
- SI increases daily: 1/365 of specified %
- Maximum: 25% of original SI
- Premium: 50% of final rate on escalated amount
4. Reinstatement Value (RIV) Clause
- Applicable to buildings, plant, machinery, F&F ONLY (NOT stocks)
- Claim = NEW replacement cost (same kind, not superior) — NO depreciation deducted
- Reinstatement must be completed within 12 months
- Intent to reinstate must be intimated within 6 months of loss
- If not reinstated → settled on indemnity (market value) basis
⭐ RIV vs Condition 9RIV Policy: Insured’s option. Condition 9: Insurer’s option. Both require restoration to pre-loss condition only.
Local Authorities Clause
Extends RIV policy to cover extra cost of complying with building regulations. No additional premium charged.
5. Declaration Policies
PurposeFor stocks with frequent fluctuations. Insured fixes “Provisional SI” = highest possible value. Premium adjusted at year end.
Declaration Policy Cycle
Fix Provisional SI
→
Monthly Declarations
→
Year End Average
→
Refund (max 50%)
| Rule | Detail |
|---|---|
| Minimum SI | ₹1 Crore |
| Max refund | 50% of provisional premium |
| SI Reduction | NOT permitted |
| NOT for | Short period insurance | Stocks undergoing process | Railway siding stocks |
6. Floater Policies
PurposeSingle SI covers stocks at MULTIPLE locations (same or different states).
- Premium: Highest rate applicable + 10% loading
- Kutcha construction: ignored for rating
⭐ Floater Declaration PolicyMin SI = ₹2 Crores | Min retention = 80% of annual premium
7. Special Clauses
| Clause | Purpose & Key Rule |
|---|---|
| Agreed Bank Clause | Payment goes to Bank. Bank’s receipt = valid discharge. Policy not invalidated by insured’s acts without bank’s knowledge. |
| Contract Price Clause | Imported goods ONLY (not local). Claim = contract price (includes profit — exception to indemnity principle). |
| Designation of Property | Property classified as per insured’s books. Avoids classification disputes at claim time. |
🧠 Memory Tricks – Chapter 2
SC = FIRE ONLY (Cannot omit “by fire only”)
Spontaneous Combustion add-on = only FIRE damage from SC. The endorsement MUST contain “by fire only.”Declaration Numbers: 1-50-12
Min SI = ₹1 Crore | Max Refund = 50% | Monthly = 12/yearRIV = No Depreciation | Condition 9 = Insurer’s Choice
RIV Policy: insured decides to reinstate, no depreciation. Condition 9: insurer decides, restores to pre-loss only.Floater = 10% loading | Floater Declaration = ₹2Cr + 80%
Simple floater = 10% loading on highest rate. Floater Declaration = double the min SI (₹2Cr vs ₹1Cr).Chapter 3
Fire Hazards & Fire Prevention
⚠️ Types of Hazards🔬 Fire Load🏗️ Fire Resistance🚒 Prevention
Types of Fire Hazards
Three Types of Fire Hazards
Originating Hazards
CAUSE of fire (15 types)
CAUSE of fire (15 types)
+
Contributory Hazards
Help fire SPREAD
Help fire SPREAD
+
Construction Hazards
Building features
Building features
15 Originating Hazards (Common Causes)
⚡ 1. Electrical (Most Common)
Sparks, faulty equipment🚬 2. Smoking
Near inflammable materials🔧 3. Friction
Hot bearings, misaligned parts🌡️ 4. Overheated Materials
Driers, heated liquids🔥 5. Hot Surfaces
Boilers, furnaces, lamps🔦 6. Burner Flames
Portable torches, gas burners✨ 7. Combustion Sparks
Incinerators, furnaces🌾 8. Spontaneous Combustion
Oily waste, coal, hay⚙️ 9. Cutting & Welding
Use hot work permit🔨 10. Mechanical Sparks
Metal in machines🏭 11. Molten Substances
Metal from furnaces⚗️ 12. Chemical Action
Reactions out of control🌩️ 13. Static Sparks
Ignites vapors/gases☁️ 14. Lightning
Use lightning rods🔥 15. Incendiarism
Arson⭐ EXAM POINTElectrical is the LEADING cause of industrial fires.
Fire Load & Fire Resistance
Fire Load
Fire Load = Σ(Weight × Calorific Value) ÷ Floor Area
| Fire Load | Occupancy | Resistance Needed | National Fire Code |
|---|---|---|---|
| Low | Residences, Offices, Hotels | 1 hour | Class IV |
| Moderate | Retail Shops, Factories | 2 hours | Class III |
| High | Godowns, Warehouses | 4 hours | Class I |
Spontaneous Combustion – 3 Causes
1. Slow Oxidation
Oily rags, linseed oil + textile waste. Heat builds until ignition.2. Oxygen Absorption
Porous substances like coal. Softer/newer coal = higher risk.3. Bacterial Action
Hay, grain, jute, cotton. Moisture + poor ventilation.Fire Triangle & Extinguishment Systems
Remove ANY ONE element to stop fire
🌡️ HEAT (Ignition)
+
🪵 FUEL (Combustible)
+
💨 OXYGEN (Air)
=
🔥 FIRE
| System | Best For |
|---|---|
| First Aid (Portable extinguishers, buckets) | Early-stage fires |
| Sprinkler Installation | All – Auto-detects AND extinguishes; sounds alarm |
| CO₂ Extinguishers | Electrical equipment, flammable liquids (NOT ordinary combustibles) |
| Dry Chemical | Flammable liquid & electrical (NOT delicate electronics) |
| Foam Systems | Oil/gasoline fires ONLY |
⭐ EXAM POINTSprinkler = automatically DETECTS AND EXTINGUISHES fire + sounds alarm bell simultaneously.
🧠 Memory Tricks – Chapter 3
Low-Mod-High = Res-Retail-Warehouse (1-2-4 hours)
“Residents survive in 1 hour, Shops need 2, Warehouses need 4!”SC = OBA
Spontaneous Combustion: Oxidation | Bacterial | AbsorptionElectrical = #1 Always
In every MCQ about “most common cause of industrial fire” → Electrical.Chapter 4
Erstwhile Tariff – Rules & Rating
💰 Rating Principles⏱️ Short Period Rates🎯 Discounts🏭 Risk Classification
Short Period Rate Scale
| Period | % of Annual Rate |
|---|---|
| Up to 15 days | 10% |
| Up to 1 month | 15% |
| Up to 2 months | 30% |
| Up to 3 months | 40% |
| Up to 4 months | 50% |
| Up to 5 months | 60% |
| Up to 6 months | 70% |
| Up to 7 months | 75% |
| Up to 8 months | 80% |
| Up to 9 months | 85% |
| Exceeding 9 months | Full annual rate |
⭐ EXAM POINTExtension of short period policies is NOT PERMITTED.
Cancellation Rules
| By Whom | Refund Basis |
|---|---|
| By Insured | Short period scale |
| By Insurer | Pro-rata (15 days notice) |
| Govt. order / building demolished / construction complete | Pro-rata |
Mid-Term Cover Rules
- STFI/RSMTD mid-term cover: generally NOT permitted
- If granted: premium in cash/DD | Cover commences 15 days after receipt
- Mid-term SI increase: Pro-rata | SI decrease: Short-period basis
Rating Sections
| Section | Type | Key Rate Examples |
|---|---|---|
| Section III | Simple Risks | Dwellings, offices, hotels, shops |
| Section IV | Industrial/Manufacturing (~205 types) | Brickworks ₹1 → Celluloid ₹15/mille |
| Section V | Utilities (outside industrial) | Boiler house ₹1.5, Roads ₹1 |
| Section VI | Storage Godowns/Silos | Non-hazardous ₹1 → Coir ₹12/mille |
| Section VII | Tanks/Gas Holders | Gas holders ₹5, LPG ₹5, Others ₹2 |
“Per Se” RatingEach risk charged at its OWN merits. Used in Multi-Occupancy Industrial Estates — NOT the highest rate for all risks.
Discounts
| Type | Discount |
|---|---|
| Hand Appliances + Hydrant System | 5% |
| Hand Appliances + Sprinkler/Fixed Water Spray | 7.5% |
| Hand Appliances + Hydrant + Sprinkler | 10% (Max) |
| Kutcha Construction | +₹4 per mille loading |
📅 Key Date: Fire tariff (rating) withdrawn: 1st January 2007
🧠 Memory Tricks – Chapter 4
Short Period: 10-15-30-40-50-60-70-75-80-85-100
Jump by 10 from 30 to 70, then slow down (75,80,85), then full rate.Kutcha = 4 letters = ₹4/mille
Easy memory: KUTCHA has 4 consonants = ₹4 loading!Highest Rate = Celluloid = ₹15/mille
Both start with C: Cotton gin ₹10.5, Celluloid ₹15. “C for Costly!”Chapter 5
Documents
📋 Proposal Form🔍 Risk Inspection Report📄 Cover Note✏️ Policy Drafting
1. Proposal Form – 5 Sections
Proposal Form Contents
1. Proposer Details
→
2. Coverage Required
→
3. Property Details
→
4. Sum Insured
→
5. Declaration Clause
⭐ EXAM POINTDeclaration Clause converts proposer’s answers from representations into WARRANTIES — must be literally true. Risk NOT covered until proposal accepted + premium paid (Sec 64VB).
2. Risk Inspection Report
Main ObjectiveProvide underwriter a COMPLETE PICTURE of the risk to determine rates & terms. Also recommends risk improvements.
| Section of Report | Contents |
|---|---|
| General Info | Name, premises, construction, age, maintenance |
| Process of Manufacture | Hazards, raw material storage, machinery age |
| Exposure | Adjacent buildings, conflagration hazard |
| Fire Protection | Extinguishers, hydrants, sprinklers, fire brigade distance |
| Moral Hazard | Commercial standing, past failures |
| Risk Improvement | Recommendations for hazard reduction |
| Conclusion | General impression + PML estimate |
3. Cover Note
Cover Note / Acceptance cum ReceiptEvidence of insurance PENDING preparation of actual policy. Binds insured to all policy terms even if not yet seen.
4. Policy Schedule – 3 Data Types
A. Identification Data
Name, address, policy no., period, co-insurer sharesB. Risk Description
Property description, SI (block-wise), net rate, warrantiesC. Occupancy Data
Risk code, rates, CED, FEA discounts5. Endorsements & Renewal Notice
- Endorsements: used for mid-term changes. End with: “Subject otherwise to all other terms and conditions of this policy.”
- Renewal Notice: Issued 30 days before expiry. NOT legally binding — just a reminder.
🧠 Memory Tricks – Chapter 5
Declaration Clause = Warranty Creator
Signs declaration → representations become WARRANTIES → breach = voidable contract.Cover Note = Temporary Shelter
Temporary protection until permanent policy is issued. All policy rules still apply!Renewal = Reminder, NOT a Right
Non-receipt of renewal notice = NO excuse. Insurer not obligated to send it.Chapter 6
Underwriting
📊 Underwriting Factors🔢 PML/EML🔄 Reinsurance🌏 CRESTA
Underwriting Factors
UnderwritingPrinciples & practices for: (1) Acceptance/rejection of risks, (2) Fixing rates, (3) Total acceptance, (4) Retention, (5) Reinsurance of surplus.
4 Underwriting Steps
1. Large Volume
(Spread risks)
(Spread risks)
→
2. Select Business
(Assess hazards)
(Assess hazards)
→
3. Fix Retention
(PML basis)
(PML basis)
→
4. Reinsure Surplus
PML Terminology
| Abbreviation | Full Form |
|---|---|
| PML | Probable/Possible/Potential Maximum Loss |
| MPL | Maximum Possible/Probable Loss |
| EML | Estimated Maximum Loss |
| MFL | Maximum Foreseeable Loss |
⭐ PML BURSTActual loss LARGER than PML estimate = PML Burst. Low PML estimate = more retention = bigger loss for insurer.
Reinsurance Methods
Reinsurance Types
Facultative
Each risk individually | Can decline
Each risk individually | Can decline
⊕
Treaty
Portfolio basis | Cannot decline
Portfolio basis | Cannot decline
Treaty splits into:
Proportional
(Quota Share + Surplus)
(Quota Share + Surplus)
⊕
Non-Proportional
(Excess of Loss)
(Excess of Loss)
| Feature | Facultative | Treaty |
|---|---|---|
| Acceptance | Reinsurer can DECLINE | OBLIGATORY – cannot decline |
| Documentation | Heavy – each risk separately | Light – periodic accounts |
| Line = | — | Ceding insurer’s net retention |
Burning Cost Rate
Pure Burning Cost = (Incurred Losses ÷ Gross Net Premium) × 100
Loaded = Pure BC × (100÷70) or (100÷80)
Loaded = Pure BC × (100÷70) or (100÷80)
CRESTA & Indian RI Programme
CRESTAEstablished 1977. Uniform global system for electronic transfer of exposure data. 19 CAT zones for India.
| Risk Category | Criteria | Key Rule |
|---|---|---|
| Non-Risk Booked (Small) | SI ≤ ₹30 Crore | 100% retained in India |
| Medium Sized | SI > ₹30 Cr, PML < ₹26 Cr | Indian market retention: 95% |
| Listed Risks | PML > ₹26 Crore | Multiple layers including foreign RI |
📅 Key Dates: CRESTA: 1977 | Indian RI Programme: 1 April 2001
🧠 Memory Tricks – Chapter 6
Facultative = Faculty = Choice
Facultative reinsurance: reinsurer has the FACULTY (freedom) to accept or reject. Treaty = no choice = obligatory.PML Burst = Balloon Popping
You estimated max air (PML). If balloon (loss) exceeds it = PML BURST. Danger for insurer!Small = ≤₹30Cr = 100% India
Non-Risk Booked (SI ≤ ₹30 Cr) stays 100% within India. Safe bets stay home!Chapter 7
Claims – Legal Aspects
⚖️ Legal Framework📋 Duties of Insured🔐 Warranties💰 Indemnity
Duties of Insured After Fire
Post-Loss Duties of Insured (In Order)
↓
Act as if UNINSURED – Utmost Good Faith
↓
Immediately EXTINGUISH fire
↓
Co-operate with fire brigade
↓
Give IMMEDIATE NOTICE to insurer
↓
WRITTEN CLAIM within 15 days
↓
Provide PROOF (books, vouchers, plans)
Onus of Proof
| What to Prove | Onus On |
|---|---|
| Loss was direct result of fire | Insured |
| Loss caused by excepted peril | Insurer |
| Breach of policy condition | Insurer |
Proximate Cause
Classic Definition“The active efficient cause that sets in motion a train of events, which brings about a result, without the intervention of any force started and working actively from a new and independent source.”
💡 Case Study 1 – Johnstone v. West of ScotlandFire weakened wall → authorities ordered demolition → wall fell on adjacent building → FIRE = proximate cause → PAYABLE
💡 Case Study 2 – Gaskarth v. Law UnionFire damaged wall → wall stood for days → STORM blew it down → STORM = proximate cause → NOT payable under fire policy
⭐ KEY RULEFire still actively operating = Fire is proximate cause. New independent event intervenes = New event is proximate cause.
Warranties vs Representations
| Feature | Warranty | Representation |
|---|---|---|
| Nature | Condition PRECEDENT to contract | Statement before/at contract |
| Truth required | LITERALLY true | Substantially true |
| Breach effect | Avoids claim EVEN if breach didn’t cause loss | Avoids contract only if material |
Indemnity – Property-wise Basis
| Property | Basis |
|---|---|
| Buildings | Reconstruction cost LESS depreciation |
| Machinery | Replacement cost LESS depreciation + betterment |
| Stock-in-trade | Cost of replacement (NOT selling price) |
| Raw Materials | Landed cost (market + transport) |
| Stock-in-process | RM cost + all direct & indirect costs up to that stage |
| Finished goods | Net manufacturing cost (traditional) OR Market value (modern) |
Depreciation = Reduction in value due to usage, wear, tear, rust, corrosion, metal fatigue.
Betterment = Superior qualities of replaced machinery – increased output, lower power consumption etc.
⭐ KEY RULEIn fire insurance, insured has NO RIGHT OF ABANDONMENT — unlike marine insurance!
🧠 Memory Tricks – Chapter 7
Proximate Cause: PROVE → SHIFT → SHIFT BACK
Insured proves fire → Insurer proves excepted peril → Insured disproves excepted peril.Warranty = ZERO tolerance
Warranty must be LITERALLY (100%) true. No “close enough.” Even technical breach = insurer can avoid claim.Fire ≠ Marine (No Abandonment)
Marine = can abandon damaged property. Fire = CANNOT. Remember: fire policy is stricter!Chapter 8
Claims – Procedural Aspects
📝 Registration🔍 Surveyor⏱️ Time Limits📊 Loss Assessment
Claims Processing Flow
Complete Claims Process
↓
Fire → Insured gives immediate notice
↓
Verification (policy active? peril covered? location correct?)
↓
Claim Registration + Claim Number allotted
↓
Issue Claim Form to Insured
↓
Appoint Licensed Surveyor (within 72 hours)
↓
Preliminary Report → Final Report
↓
Discharge Voucher → Cheque Settlement
Critical Time Limits – IRDA Regulations
| Event | Time Limit |
|---|---|
| Appoint surveyor after intimation | 72 hours |
| Surveyor submits report | 30 days (extendable with consent) |
| Maximum time for surveyor | 6 months from appointment |
| Insurer calls for additional report | Within 15 days of receiving report |
| Surveyor submits additional report | Within 3 weeks of request |
| Insurer offers settlement / rejects | Within 30 days of final report |
| Payment after insured accepts | Within 7 days |
| Interest on delayed payment | Bank rate + 2% |
Surveyor’s Primary Duties (Rule 13(1))
- Investigate cause of loss
- Ascertain extent of loss
- Advise insured on loss minimisation & salvage protection
- Advise insurer on salvage disposal
- Submit detailed report
Condition 15 – Pro-rata Premium
⭐ KEY RULEAfter claim settlement: insured pays pro-rata premium for unexpired period on loss amount. Deducted from net claim. SI maintained at full level.
Exception: If insured opts NOT to reinstate SI → it reduces by loss amount.
Exception: If insured opts NOT to reinstate SI → it reduces by loss amount.
🧠 Memory Tricks – Chapter 8
72 → 30 → 6 → 15 → 3W → 30 → 7
Appoint(72hr) → Report(30d) → Max(6mo) → Additional request(15d) → Submit(3wk) → Settlement(30d) → Payment(7d)Delay Interest = +2% above bank rate
Simple: whatever bank rate is, add 2%. That’s the penalty for late payment.Chapter 9
Consequential Loss Insurance – I
💹 Gross Profit📈 Turnover Basis⏳ Indemnity Period🧮 Claim Formula
Why CL Insurance?
💡 Key ConceptFire insurance = MATERIAL DAMAGE. But fire also stops business → income stops, expenses continue! CL Insurance = Business Interruption (BI) Insurance = Loss of Profits Insurance.
1. Net Profit
Income minus ALL expenses. Stops/reduces after fire.2. Standing Charges
Fixed overheads that CONTINUE despite fire (rent, salaries, interest, taxes).3. Increased Cost of Working
Extra spending to maintain business (overtime, temp premises, sub-contracting).Turnover Structure
Turnover = 3 Components
Variable Charges
Raw material – varies with output
Raw material – varies with output
+
Standing Charges
Fixed overhead
Fixed overhead
+
Net Profit
=
TURNOVER (100%)
GROSS PROFIT = Standing Charges + Net Profit
Turnover“Money paid or payable for goods SOLD & DELIVERED and services RENDERED at the premises.” = Sales
Key Formulas
Rate of Gross Profit (RGP)
RGP = (Gross Profit ÷ Turnover) × 100%
CL Claim (Before Average)
Claim = (RGP × Reduction in T/O) + ICOW − Savings in Standing Charges
Reduction in Turnover
Reduction = Standard Turnover − Actual Turnover during IP
Average (Under-insurance Check)
Insurable Amount = RGP × Annual Turnover
If SI < Insurable Amount → Apply Average Proportionately
If SI < Insurable Amount → Apply Average Proportionately
Key Definitions
| Term | Definition |
|---|---|
| Annual Turnover (ATO) | T/O for 12 months immediately BEFORE date of damage |
| Standard Turnover (STO) | T/O in the CORRESPONDING period of previous year = same months as indemnity period |
| Indemnity Period | Begins at damage; ends when business ceases to be affected; MAX = period in schedule |
| Net Profit | Net TRADING profit BEFORE income tax; AFTER depreciation; excludes capital receipts |
⭐ MATERIAL DAMAGE PROVISOCL claim payable ONLY IF fire (material damage) claim is ALSO paid or payable. This is the MOST important rule in CL insurance.
Worked Example
💡 Step-by-Step Claim Calculation
Prev year: GP = ₹3,00,000 | T/O = ₹12,00,000 → RGP = 25%
STO = ₹10,00,000 | Actual T/O during IP = ₹4,00,000
Reduction in T/O = 10L − 4L = ₹6,00,000
Loss of GP = 25% × 6L = ₹1,50,000
ICOW = ₹70,000 (≤ 25% × 3L = ₹75,000 ✓) → Add ₹70,000
Total = ₹2,20,000
Annual T/O = ₹16L → Insurable Amount = 25% × 16L = ₹4,00,000
Actual SI = ₹3,00,000 → Average applies
Final Claim = 2,20,000 × (3,00,000/4,00,000) = ₹1,65,000
Prev year: GP = ₹3,00,000 | T/O = ₹12,00,000 → RGP = 25%
STO = ₹10,00,000 | Actual T/O during IP = ₹4,00,000
Reduction in T/O = 10L − 4L = ₹6,00,000
Loss of GP = 25% × 6L = ₹1,50,000
ICOW = ₹70,000 (≤ 25% × 3L = ₹75,000 ✓) → Add ₹70,000
Total = ₹2,20,000
Annual T/O = ₹16L → Insurable Amount = 25% × 16L = ₹4,00,000
Actual SI = ₹3,00,000 → Average applies
Final Claim = 2,20,000 × (3,00,000/4,00,000) = ₹1,65,000
🧠 Memory Tricks – Chapter 9
GP = Standing Charges + Net Profit (Variable excluded)
Variable costs disappear when sales stop. Only FIXED things and PROFIT are lost.STO = Same Period LAST Year
Standard Turnover = compare same season, same months of the previous year. Apples with apples.ICOW Economic Limit
ICOW cannot exceed GP EARNED by it. “You can’t spend ₹10 to save ₹5!”Indemnity Period ≠ Policy Period
Policy = 1 year. IP = 3 months to 3 years. IP can go BEYOND policy expiry!Chapter 10
Consequential Loss Insurance – II
💵 Wages Insurance⚙️ Output Basis📊 Difference Basis📋 Claims Procedure
CL Premium = Basis Rate + % for IP
Basis RateMinimum = 1.25 times average fire rate on contents of PROCESS BLOCKS. (Storage/utility blocks excluded even if communicating.)
Wages Insurance – 4 Methods
| Method | Description | Feature |
|---|---|---|
| A. Full Indemnity Period | Wages included as standing charge for full IP | Simplest; for highly mechanised factories |
| B. Annual Method | Wages for shorter IP on annual SI | Supplements Method A |
| C. Period/Pro-rata Basis | Wages for specific weeks (4, 8, 10 weeks) | For unskilled workers |
| D. Dual Basis | Full wages initial period + % for remaining IP | Carry Over + Option to Consolidate |
⭐ Dual Basis Features: Initial full cover ≥ 4 weeks | Partial period ≥ remaining IP (min 12 months total) | Partial % ≥ 10%
Carry Over: Saved wages in initial period can be used later.
Option to Consolidate: Convert to 100% cover for more weeks.
Carry Over: Saved wages in initial period can be used later.
Option to Consolidate: Convert to 100% cover for more weeks.
Lay-Off / Retrenchment Compensation
| Term | Meaning |
|---|---|
| Lay-Off | Employer’s INABILITY to give employment (power failure, machinery breakdown, raw material shortage) |
| Retrenchment | Termination by employer for any reason. Excludes: voluntary retirement, superannuation, continued ill-health. |
Rate: 50% loading over CL basis rate. Under Industrial Disputes Act 1947.
Output vs Difference Basis
Output Basis
Use when insured maintains TURNOVER using accumulated finished stocks despite production stoppage.
Claim
RGP per unit × Shortage in Output
Difference Basis
GP = (T/O + Closing Stock) − (Opening Stock + Specified Working Expenses)
✅ Simpler | Auto-includes new charges | No risk of omitting standing charges
Revenue Policy & Gross Fees Policy
| Policy | For | Insures |
|---|---|---|
| Revenue Policy | Hotels, Clubs, Schools, Hospitals | Gross Revenue (whole revenue — no RGP needed) |
| Gross Fees Policy | CAs, Solicitors, Doctors | Gross Fees + Additional Expenses + Document replacement costs |
🧠 Memory Tricks – Chapter 10
Dual Basis = D for “Dual-purpose workforce”
Full wages early to retain key staff. Partial wages later as business revives. Carry-over = unused early wages used later.Output = Production | Turnover = Sales
If production fell but turnover didn’t (stock clearance) → Use OUTPUT. If turnover fell → Use TURNOVER.Difference Basis = Subtraction Method
(T/O + Closing) MINUS (Opening + Working Expenses) = GP. Like a bank account: inflows minus outflows.Lay-Off = Can’t Give Work | Retrenchment = Fired
Lay-off: employer WANTS to give work but can’t (breakdown, no power). Retrenchment: employer TERMINATES the service.Chapter 11
Specialised Policies & Overseas Practice
🛢️ Petrochemical Tariff🏭 IAR Policy🌍 UK Practice🌎 US Practice
1. Petrochemical Tariff
PurposeScientific underwriting for oil & petrochem plants. First version: 1976. Latest revision: 2001.
Eligibility – ALL THREE criteria must be met:
- Uses Class A/B hydrocarbon / natural gas as raw material
- Total SI in one compound > ₹50 Crores
- SI of hydrocarbon plants > 35% of total SI
Classification of Flammable Materials
| Class | Flash Point | Risk Level |
|---|---|---|
| Class A | Below & up to 23°C | Highest Risk |
| Class B | Above 23°C to 65°C | High Risk |
| Class C | Above 65°C to 93°C | Moderate Risk |
| Class D | Above 93°C | Lowest Risk |
| Key Rule | Detail |
|---|---|
| Max tank capacity (Class A/B) | 30,000 KL |
| Fire & Explosion rate band | 65% to 165% of basic rate |
| Excess clause | 5% of claim, min ₹5 lakhs per event |
| Silent period minimum | 60 continuous days (purged + empty) |
| Proven process | Commercial operation elsewhere OR insured plant ran for 5 years |
2. Industrial All Risk (IAR) Policy
EligibilityAll industrial risks EXCEPT petrochemical with SI ≥ ₹100 Crores. Introduced: 1st July 1997.
✅ Compulsory Covers
- Fire & All Special Perils
- Burglary (free)
- Machinery Breakdown/Boiler Explosion/EEI
- Fire Loss of Profit (FLOP)
Optional Cover
- Machinery Loss of Profit (MLOP)
Policy Basis
- Buildings/Machinery: RIV basis ONLY
- Stocks: Market Value
- Under-insurance ≤ 15%: ignored
| Section | Deductible (SI ₹100Cr–₹1500Cr) |
|---|---|
| Material Damage | 5% of claim, min ₹10 lakhs |
| FLOP (Non-petrochem) | 7 days Standard GP |
| FLOP (Petrochem) | 14 days Standard GP |
| MLOP | 14 days Standard GP |
3. UK vs India vs US – Key Differences
| Feature | India (SFSP) | UK (ABI) | US (ISO Forms) |
|---|---|---|---|
| Fire Tariff | Rating withdrawn 2007 | No tariff | ISO/AAIS forms |
| Standard perils | 12 perils (broad) | Fire + Lightning + Limited Explosion only | Basic: 11 | Broad: 15 | Special: All Risks |
| BI/CL period | Max IP in schedule (3-36 months) | Max IP in schedule | Until restoration complete + 30 days |
| Earthquake/STFI | In SFSP | Special peril (extension) | Separate flood program (NFIP); EQ separate |
4. General Insurance Council
Represents collective interests of non-life insurers in India. Speaks on common issues, facilitates discussions on policy formation, advocates high customer service standards. Recent contribution: consensus revision of deductibles in fire & engineering products.
🧠 Memory Tricks – Chapter 11
Flash Points: 23-65-93
Class A <23 | B 23–65 | C 65–93 | D >93. Just memorize: 23-65-93. No shortcut, just repeat!IAR = ₹100Cr | Petrochem = ₹50Cr
IAR threshold is DOUBLE the Petrochem threshold. IAR covers everything EXCEPT petrochem.UK Basic = Only 3 Perils (F+L+E)
UK standard = Fire + Lightning + Limited Explosion. India has 12 perils — much more comprehensive.65%-165% Band for Petrochem
After all loadings & discounts, petrochem Fire & Explosion rate stays within this band. Below 65% or above 165% is NOT allowed.
