How do general insurance companies calculate claim to be paid under fire insurance:
Fixed Assets
Standard fire Policy
| Description | Amount |
| Replacement Value as new at the time of loss | 100,000 |
| Less: Depreciation, say @ 25% of above | 25,000 |
| Value at risk | 75,000 |
| Sum Insured under the Policy Item | 50,000 |
| Amount under-insured by | 25,000 |
| Cost of repairs and replacements carried out | 75,000 |
| Less: Depreciation, say @ 25% of above | 18,750 |
| Depreciated cost of repairs and replacements | 56,250 |
| Less: Salvage value, say @ 10% of repairs/replacement cost | 7,500 |
| Loss Assessed | 48,750 |
| Less: pro-rata average application | 16,250 |
| Net Claim Assessed | 32,500 |
Notes:
- Fixed Assets would generally include:
- Building (excluding plinth and foundation [which can be insured separately for earthquake])
- Plant, Machinery & Accessories
- Electrical Installations (can also be included in the above depending on its purpose)
- Furniture, Fixture and Fittings,
- Office Equipment
- The above is as per the new tariff and wordings applicable from May 2000. Under an older Policy, excess or deductible would be adjusted further, on the aggregate claim amount, depending on the type of claim (fire, flood, etc.)
- Under the new Policy wordings, deductible or excess is 5% of claim amount for all flood, storm, cyclone, etc., lightning, and landslide/subsidence related claims.
- Repairs and replacements must be of same type or kind. Any improvements would be adjusted suitably.
- Depreciation is technical and subjective in nature, based on various factors like:
- estimated useful life
- technical and technological obsolescence
- efflux of time
- condition and type of asset, etc.
- In the above example, if the sum insured was 75,000 then no deduction for pro-rata average would be made.
- The above working and assessment would be made for each and every item insured under the Policy, separately.
- When Reinstatement Value Clause is specifically requested and endorsed, the claim computation changes as shown below. There is no extra cost for taking the said Clause.
Reinstatement Value Clause Policy
| Description | Amount |
| Replacement Value as new at the time of reinstatement completion | 100,000 |
| Sum Insured under the Policy Item | 50,000 |
| Amount under-insured by | 50,000 |
| Cost of repairs and replacements carried out | 75,000 |
| Less: Salvage value, say 10% of above | 7,500 |
| Loss Assessed | 67,500 |
| Less: pro-rata average application | 33,750 |
| Net Claim Assessed | 33,750 |
Further Notes:
- Repairs and replacements must be of same type or kind. Any improvements would be adjusted suitably.
- Unless otherwise permission is granted, a time period of one year is allowed for such completion of repairs and replacements.
- In the above example, if the sum insured was 100,000 then no deduction for pro-rata average would be made.
- The above working and assessment would be made for each and every item insured under the Policy, separately.
Stocks
Standard Fire Policy
| Description | Amount |
| Market Value of total Stocks / Stocks-in-process at the time of loss | 100,000 |
| Sum Insured under the Policy Item | 50,000 |
| Amount under-insured by | 25,000 |
| Market Value of affected stocks / stocks-in-process | 75,000 |
| Less: Salvage value, say @ 10% of | 7,500 |
| Loss Assessed | 67,500 |
| Less: pro-rata average application | 33,750 |
| Net Claim Assessed | 33,750 |
Notes:
- Stocks would generally include:
- Raw Materials
- Work-in-progress
- Intermediates
- Packing Materials
- Finished Goods
- Stores and Spares, etc.
- The above is as per the new tariff and wordings applicable from May 2000. Under an older Policy, excess or deductible would be adjusted further, on the aggregate claim, depending on the type of claim (fire, flood, etc.) and policy.
- Under the new Policy wordings, deductible or excess is 5% of claim amount for all flood, storm, cyclone, etc., lightning, and landslide/subsidence claims.
- In the above example, if the sum insured was 100,000 then no deduction for pro-rata average would be made.
- When Declaration Clause is specifically requested and endorsed, the claim computation changes as shown below. There are certain criteria and conditions to be fulfilled for taking the said Clause.
Stocks Declaration Fire Policy
| Description | Amount |
| Market Value of total Stocks / Stocks-in-process at the time of loss | 100,000 |
| Sum Insured under the Policy Item | 50,000 |
| Amount under-insured by | 25,000 |
| Declaration value received by the Insurers immediately prior to loss occurrence | 50,000 |
| Declaration value that ought to have been made | 75,000 |
| Amount under-declared | 25,000 |
| Market Value of affected stocks / stocks-in-process | 75,000 |
| Less: Salvage value, say @ 10% of | 7,500 |
| Loss Assessed | 67,500 |
| Less: pro-rata average application | 33,750 |
| Net Claim before under-declaration adjustment | 33,750 |
| Less: pro-rata under-declaration adjustment | 11,250 |
| Net Claim Assessed | 22,500 |
Further Notes:
- Stocks eligible for Declaration Clause would generally include:
- Raw Materials
- Intermediates
- Packing Materials
- Finished Goods
- Stores and Spares, etc.
- The stocks should be stored at specified storage locations
- In the above example, if the sum insured was 100,000 then no deduction for pro-rata average would be made.
- In the above example, if the declaration made was 75,000 then no deduction for pro-rata under-declaration would be made.
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