First of all one should identify a fire insurance company from which the policy is to be purchased. In India, four general insurance companies owned by Government were operating in this field. These companies are:
National Insurance Company,
Oriental Fire and General Insurance Company,
New India Assurance Company, and
United India Insurance Company.
Now private insurers have also entered the field. These companies can either be directly contacted or through a broker.
2. Proposal form
After having chosen a company, the proposer will have to fill in a proposal form which furnishes the basis of the contract. The proposal form requires the proposer to give details such as his name, address, occupation and value and nature of property to be insured, type of policy required, amount of assured sum, etc.
While indicating the value of the property or the goods, the insured should give the market value because the company takes into account the current market value of the subject matter at the time of settling the claim. A little margin may be added to such value for likely appreciation in its market value.
As the fire insurance contract is based on the principle of utmost good faith, care should be taken to avoid ambiguity, while answering questions in the proposal form. The proposal form should be signed properly and sent to the company for acceptance.
3. Evidence of responsibility
Fire insurance is a personal contract. Just by setting fire to the property, the insured can claim large sums of money. Hence, before accepting a risk, the insurance company requests the proposer to furnish reasonable evidence of his responsibility.
Before assuming the risk, the insurer has to ascertain whether the proposer is a respectable person and is taking policy in utmost good faith. This precaution is mandatory as the fire insurance involves a high degree of moral hazard which arises from the nature and behavior of human beings connected with the subject matter of insurance.
By purchasing a policy for setting fire to the property, the insured might get a large sum and make a quick buck out of it. If the proposer, on the other hand, is a well known figure, than the risk can be assumed without any enquiry but in case of new proposers or strangers of doubtful integrity, the insurer will have to compel them to produce some reasonable evidence of their integrity.
4. Survey of property
The next step in effecting fire insurance is a survey of property proposed to be insured through qualified experts known as surveyors. These surveyors are deputed to inspect the property carefully and to assess the degree of risk involved. It is on the basis of their report that the company accepts or rejects the proposal and determines the rates of premiums.
In case the risk is small, agent’s report will be sufficient and the insurer does not insist on the survey. For insuring private house, small shops and other small buildings etc., the insurer accepts such risks on the basis of information furnished in the proposal form. On the contrary, if the risk is very high, the insurance company will depute surveyors to inspect the property to to get first hand information and to and to estimate the degree of risk involved.
On the basis of this report, the insurance company may accept the proposal or reject it.
5. Acceptance of proposal form
After examining the contents of the proposal form and the surveyor’s report, the insurer will decide whether to accept the proposal or not. If he finds that the information furnished in the proposal form and surveyor ‘s report is satisfactory, he will accept the proposal and intimate the same to the proposer.
6. Commencement of Risk
As soon as acceptance of the proposal is conveyed, the proposer will be asked to pay the premium within a stipulated period of time. On payment of the premium, the fire insurance contract is said to have entered upon and the risk commences.
7. Issue of Cover note
Once the risk is assumed, the insurer is supposed to issue a fire policy to the insured. As the preparation of fire policy takes some time, the insurer will issue a provisional document known as Cover Note. The cover note is in the nature of interim policy and covers the risk immediately on the receipt of first premium.
The cover note is effective till the fire policy is issued. If the loss occurs before the final policy is issued, the cover note can be produced as an evidence of insurance. Thus, the cover note protects the insured as much as the policy.
8. Issue of Fire Insurance Policy
Later on, the insurer prepares the first insurance policy (to replace the cover note) and sends it to the insured. The policy is the final acceptance of the company and simultaneously it cancels the, provisional acceptance given before.
The fire policy contains the name and address of the insured, the sum insured, the terms and premiums, date of issuing the policy, policy number, description and location of property covered and other details. It is generally issued for one year.