How Fire Insurance Industry is Developed

Fire insurance has not a long history. The real establishment of fire insurance came only after the great Fire of London in 1066.

This fire lasted for four days and nights burning, over 436 acres of ground and destroying over 13,000 buildings was the most disastrous fire in history and forcibly awakened the people to the necessity for a form of protection against such calamities.

The main cause of its late development was slow progress of trade and commerce. After a certain period when the business and commerce ran high, fire insurance received a real fillip.

Previously there was no basis on which the premium could be based.

There were a few concerns which made a remarkable progress. Gradually as they gained experience the data went on accumulating and the premium rates became more equitable and scientific.

The decisions of law court also brought the principles of fire insurance a standard form. With increasing competition and experience, the fire insurance is evolved in its present scientific form.

However,

the progress in fire insurance was not so tremendous and categorical as was in the case of life insurance.

The business of effecting, otherwise than incidentally to some other class of insurance business, contract of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies.

The occurrence of a fire will result not only in loss of or damage to material property but also other consequential losses such as loss of production causing loss of profit.

The function of fire insurance is to make good the financial loss suffered as a result of fire. It is not the function of fire insurance to replace the economic loss termed the ‘fire waste’.

Such damage apart from causing financial loss to the owners dislocates the economic activity of the community. In spite of sustained efforts made by human ingenuity to achieve complete mastery of fire, material property continue to be liable in varying degree to destruction or damage by the escape of fire from its contract.

Some of the insurable properties are buildings, electrical installation, contents of building such as machines plant and equipment accessories, etc. goods such as raw materials, goods in process, finished goods, goods in the open or in the premises, contents in dwellings, shops, hotels furniture, fixture and fitting and other movable and immovable properties.

Fire insurance is a device to compensate for the loss consequent upon destruction by fire.

Thus the fire insurer shifts the burden of fire losses from their actual victims over to all the members of the society.

It is a cooperative device to share the loss. It relieves the insured from the horror of the fire losses to which he is exposed.

Functions of Fire Insurance

It is a well-known fact that the fire causes huge losses every year. The individual owner by taking fire Insurance can prevent the fire waste to some extent.

The insurer acts as a middle man between all the members of the society who are exposed to the fire risk on the one hand and the members who will be the actual victims of the fire losses on the other.

The insurer charges the premium from all the insured members and makes good the losses when they occur to any of them.

The system of fire insurance cannot save the society from the economic loss to the community to the extent of the property lost by fire, but it compensates someone and this saves him from a ruinous loss, at the cost of group of some others.

Fire insurance contract may be defined as “an agreement, whereby one party in return for a consideration undertakes to indemnify the other party against financial loss which the latter may sustain by reason of certain defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount”.

The party responsible to indemnify the loss is called the insurer, the party who is to be indemnified is called the insured, the consideration for the contract is termed ‘the premium’, the defined subject-matter is termed ‘the property insured” the sum set forth in the contract is called the assured sum, and the document containing the terms and conditions of the contract is known as ‘the policy.’

The contract of insurance involves all the elements of an ordinary contract and insurance contracts. The elements of contract are discussed in following paragraphs.

Before discussing the elements of the fire insurance contract, the special meaning of the ‘Fire’ must be understood.

Definition of Fire in Insurance

Fire, in order to make the insurer liable under the contract, must satisfy two conditions. First, there should be actual fire or ignition, and second, the fire must be fortuities in its nature.

Definition of Ignition in Insurance

The express in the policy we have to construct is loss or damage occasioned by fire.

This means that loss or damage must be either by ignition of the article or property or premises or part thereof. In other words, the damage should be occasioned by fire. Loss or damage caused by excessive fire heat cannot be included in ‘loss or damage by fire’.

If should be proved here, that the loss should be caused by fire. The cause of fire is not important.

The fire even if caused by the negligence of the servant or himself may come under the definition of fire. There should be no fraud or willful misconduct by the assured. There should be actual ignition but a process resembling fire may not be fire.

For example

The damage done due to smoke due to faulting chimney or overheated iron is not the example of fire. Similarly chemical actions, explosion, lighting, etc. are not occasioned or example of fire.

Fire should be accidental and not intentional

Any loss caused by fire lighted purposely is not a loss by fire if it was intentional. However, the property burned accidentally in an ordinary fire, such as domestic fire, the loss is covered even if the fire remains under control.

When a fire was purposely lighted but became out of control at a later stage is taken under the definition of fire. The object of fire insurance is to indemnify the insured against accidental loss by fire.