6. What is fire loss?

In the fire insurance policy, the loss of subject matter which is caused by fire is known as fire
loss. Fire is very important for the human being but it also may be the cause of losses.
Sometimes it destroys the wealth of business and makes the owner to winding up his
business. Sometimes it also destroys the natural wealth.
According to G.S.Panda, Loss by fire means a sufficiently rapid combustion to
produce ignition and probably requires presence of flame.
According to Gitendra, The wastage which is caused by fire is known as fire loss.
The causes of fire may be two types are as follows:
a. Direct causes: It refers to the risk of fire in the property which may occur due to
inflammable nature, construction, artificial lighting and heating, lack of extinguishing
apparatus use of the property etc.
b. Moral/Indirect causes: The moral hazard depends upon the man as physical hazard
depends on the property. The property may be set on fire by the owner or by any
person with his willingness; carelessness and lack of sense of duty may also increases
the fire waste.
So from the above discussion we can say that, the fire may occur by direct or indirect cause.
The fire may also be the cause of fire loss. So that every person want to relief from this fire
loss by fire insurance policy.

7. What is average policy?
A fire policy containing Average clause is called an average policy. Under this policy, if the
actual value is greater than the insured amount, the insurance company will pay
proportionately and the insured is deemed to be his own insurer, for the balance. The claim is
arrived at by dividing the amount of insurance by the actual value of the subject-matter and
multiplying it by the amount of loss.
For instance, if a person insures his goods worth Tk. 40,000 for Tk.30,000 only, and the loss
caused by fire is Tk. 20,000, then the amount of claim to be paid by the insurer will be:

Claim =



=

= Tk. 15,000.
The insured will have to bear his own loss for Tk. 5,000. Thus, under an average policy, the
insured is penalized for under-insurance of the property. The object of this policy is to
prevent under-insurance and to induce the insured to take out a fire policy for the correct
value.
According to M.N. Mishra, Average policy containing average clause is called an
average policy.
According to Zakir Hossain Md., An average insurance policy is one which
contains the average clause.
So from the above discussion we can say that,
i. Average policy contains average clause;
ii. This policy is applicable when actual value is greater than the insured amount;
iii. No financial loss for insurer;
iv. This insurance prevent under-insurance and to induce the insured to take out a fire
policy for the correct value.
In the end, we can say that, in modern insurance world average policy is a very special form
of insurance policy. Insurer developed this policy as supported form of insurance business.

8. Causes of Losses / Wastage of Fire
The losses occurred by fire is called fire loss. Basically, if insured subject matter occurred by
fire and the insurance recipient faces the loss, that is called causes of fire loss or wastages of
fire. Every year, billions of immovable, movable assets are wasted by fire and sometimes the
businessman becomes destitute and bankrupt. So fire insurance has emerged to save the
businessman from such kind of bankruptcy. Lots of damages are occurred by fire in personal,
commercial, social even in national level. The causes of fire loss or wastages of fire are
discussed below:
A. Direct/Moral causes of loss: In fire insurance, insured subject matter becomes
damaged due to some direct and moral causes. If direct or moral activities become the
causes of loss, it is called direct or moral causes of loss. The direct or moral causes
which can set up fire are as follows:
1. Self-firing: Compensation can be demanded from insurant by setting up fire
on own property. Insurant is not bound to compensate if it is proved.
2. Firing by others: Setting up fire can be done by others to comprehend the
fraudulent claims which are illegal and violates the principles of utmost good
faith.
3. Negligence: Someone can neglect to protect fire. Such kind of negligence can
create fire which is illegal.
4. Carelessness: Most of the fire is occurred due to carelessness. Insurant must
be aware to protect fire. But the fire which is occurred from carelessness is
illegal.
5. Firing by enemy: Opponent is the cause of most fire. Overwhelmed by
jealousy opponent can set up fire which is illicit. Insurant is not bound to
compensate if this fire is not insured.
B. Indirect/Natural causes of loss: Insured property can be damaged in normal way
without someones persuasion. These normal causes are called indirect or natural
causes of loss. The indirect or natural causes in fire insurance are-
1. Burning nature of wealth: Some products or properties are flammable in
nature or made of flammable ingredients. Fire can be occurred easily if the
insured content is flammable in nature. Flammable substances like petroleum,
gas, explosives, coal etc. can be flammable by own.
2. Unplanned construction/structure: If the construction structure of insured
content becomes unplanned and faulty, the possibility of catching fire is more.
Like- fire can be occurred easily if building or the arrangement of tools
becomes faulty.
3. Crack: If there is crack in the building or arrangement of tools, it may work as
the source or carrier for catching fire.
4. Heat: If temperature is higher or insured content produces a lot of
temperature, it may help to catch fire. Industries where goods are produced in
high temperature, there may catch fire any time due to faulty infrastructure.
5. Electric short circuit: Electric short circuit causes lots of catching fire. So
where the electric pillar is not improved, there is more likely to catch fire.
6. Favorability of fire: Where the position of subject matter is in favorable
condition to catch fire easily occurs fire. Like- fire occurs often in normal
houses in our country.
7. Nearest position of building: There is more likely to catch fire if the insured
buildings position is too near to another.
8. Defective layout of division: Fire may occur very easily due to defective
layout of division of industry or building.
9. Storing of burning matter: If burning matter is stored in warehouse, fire can
easily occur from this.
10. Absence of fire protective instrument: Industries should have fire protective
instruments. If there are no fire protective instruments, fire can easily be
spread.
11. Explosion: Industries can be set on fire due to explosion. Generally, where
production activities are done using broiler or chemical elements, it is natural
to occur explosion in such industries anytime.
12. Lightning: Fire is occurred easily by lightning. It is natural to catch fire if it is
lightning on flammable substance.
13. In accessible: Where fire protective instruments or vehicles cannot access
easily, everythings are burnt and damaged as soon if it catches fire there. Fire
cant be controlled in such inaccessible places if it catches fire.
14. Collapse: Multi-storied industry building collapses due to error construction.
Generally, friction of various metallic substances of collapsed building creates
such kind of fire.
Finally can say, various causes of catching fire are discussed. But without the discussed
causes, it is necessary to identify and take necessary protective actions against the most
probable causes which may cause fire and losses.

9. Method of Taking Fire Insurance Policy
A fire insurance contract is a contract of indemnity and as such the insured cannot claim more
than the actual amount of losses. The property so covered under fire insurance policy must be
clearly described. Properties held in trust are not covered under fire insurance policy. When a
house is insured under fire insurance policy, it does not cover household goods. The
following steps are observed while taking fire insurance policy:
Figure: The Method of Taking Fire Insurance Policy
1. Collection and filling up application from: A person desiring of taking a fire
insurance policy has to select and contact a fire insurance office. He will obtain a
proposal form from the office and fill up the proposal form. While filling up the
proposal form of principles of good faith must be observed and he has to fill up the
form with utmost good faith. The following points need be mention in the application
form:
i. Name, address and profession of the person
ii. Details of proposed property
iii. Location of the property
iv. Types and dimension of the property
v. Insurance time
vi. Quality of the property and element of making
vii. Power source of the property
viii. Explanation of combustible substance used in the property
ix. Methods of using the property
x. Previous information of insurance etc.
2. Collection of character certificate: Character certificate is essential to prevent moral
hazard in fire insurance. Thats why a person who is desiring of taking a fire
insurance policy need to collect character certificate from the first class Gazetted
Officer or UP Chairman or ward commissioner or related persons.
3. Submission of application with necessary documents: Application form along with
character certificate and others document need to submit to the insurance company.
The person who desires of taking fire insurance policy can submit application form
directly or with the help of an insurance agent.
4. Supervision of subject matter and acceptance of offer: The proposed property to
be insured is surveyed by an expert called the surveyor. The surveyor inspects the
property and estimate the degree of risks involved in such property. On the basis of
the surveyor's report the insurer accepts or rejects the policy.
5. Payment of premium and collection of policy: After the receipt of surveyor's report,
it is scrutinized to see whether risks is acceptable or not. When the insurer is satisfied
with regard to the report of the surveyor, he accepts the proposal and gives intimation
to the proposer accordingly. The rate of premium is decided and on acceptance of
appropriate premiums a cover note is issued. After the issue of cover note, policy
document is prepared. It is duly stamped document which contains terms and
conditions of the insurance. The policy serves as an evidence of insurance between
the insured and the insurer.
So from the above discussion, we can say that, the methods of taking fire insurance policy
all over the world are as same as Bangladesh. But, in terms of law and insurance
companys own procedure can slightly change the above method.

10. Difference between Marine Insurance and Fire Insurance
Fire and marine insurance contracts are similar in most of the cases because both these
contracts are indemnity contracts. But, the following differences are observed in both the
contracts.
Topics Fire Insurance Marine Insurance
1.Nature of
event
The event (fire) that belongs to
this contract is uncertain which
may or may not take place.
The event (sea perils) that belongs
to this policy is uncertain which
may or may not take place or
which may happen partially.
2.Insurable
Interest
Insurable interest must present
both at the time of the policy
taken and at the time of loss.
Insurable interest must exist at the
time of the loss but need not
present when the policy is taken.
3.Claim limit Under fire insurance contract only
the actual market value of the
property or gods destroyed by fire
can be claimed from the
insurance company. In other
words there is not any profit
motive.
Under marine insurance contract,
not only is the cost of goods
destroyed the sea perils but also
10% to 15% margin of anticipated
profit plus shipping charges
payable by the insurer.
4.Duration The duration range of such type
of insurance is from 10 days to 12
months. However it can be
renewed after the expiry of
period.
Some types are issued for
particular voyage but other
policies cover a period of twelve
months maximum.
5.Assignment of
policy
As it is personal contract between
the insurance company and
assured so he assign his policy
without the prior consent of the
insurer.
As the goods may change several
hands during the voyage so policy
may be transferred along with the
transfer of the ownership in
goods. It is not essential to serve
notice to the insurer at the time of
assignment.
6.Compensation Amount insured or actual loss
whichever is less is given as
compensation.
Purchase price of good and 10 to
15 percent profit is given as
compensation.
7.Premium Premium depends upon the
amount insured. More the amount
insured more will be the
premium.
Premium depends upon nature of
perils.
8.Objective To cover the risk of fire To cover the sea perils
9.Jettison Jettison is not applicable in fire
insurance.
To throw part of the cargo or gear
of the vessel overboard to lighten
the load and save the vessel is
applicable and accepted in marine
insurance.
10.Moral
Hazard
In fire insurance, the chances of
moral hazard are too low.
In marine insurances, the chances
of moral hazard do not exist so
much as are in the fire insurance.
11.Profit Fire insurance policies generally
dont allow any profit.
Marine insurance policies
generally allow certain margin of
profit to be charged at the time of
indemnification of losses.
12.Character
certificate
Character certificate is essential
for the insurer and organization.
Character certificate is not
required for the insurer and
organization.