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FIRE INSURANCE

We can say that the growth of fire insurance is of recent one unlike other kind of insurances. The basic need for fire insurance was thought after the Great Fire of London in the year 1066 which lasted for almost four days and destroying over 436 acres of area along with approximately 13,000 building properties. It was one of the worst fire accident most remembered by the civilized world and this incident necessitated the importance of fire insurance. Slow progress of the trade and commerce was attributed as the main reasons for the laggardness in the growth of the fire insurance industry.

With the industrialization picking up in the eighteenth century, the fire insurance business too grew with it. During the preliminary stage of its development, fire insurance saw many hurdles in the form of improper premium calculation because people did not know how to calculate the premium and what were the risk factors involved.

Later with the competition heating up and entry of judiciary to set right the anomalies whenever there was one, saw the scientific principles being adopted in calculating the premium for the fire insurance. However, the growth of fire insurance was not as spectacular as that of life or motor insurance because of the nature of risk involved.

What is fire insurance?

It is an instrument to compensate for the loss consequent upon destruction by fire. The advantage of taking fire insurance is that the insurer shifts the burden of fire losses from the actual victims to over all the members of the society who comes under the umbrella of fire protection and hence serves as a cooperative device to share the loss. In other words, the insured is relieved from the horror of fire losses to which he / she is exposed.

Why shall I take a fire insurance policy?

Everyone knows the power of fire and its destructive ability. Millions of dollars are lost across the world because of the fire accident and a tiny spark is sufficient to produce a fire of magnitude that would convert valuable goods stored in a large show room into useless ashes. This reminds us the importance of fire cover and the insurer acts as a middleman between all the members of the society who are exposed to the dangers of the fire on the one hand and other members who will be the actual victims from fire on the other.

Just to make good the losses suffered from fire to the victims, the insurer collects premium from all the insured members. The fire insurance itself cannot save the society from the economic loss in its entirety but it compensates the victim adequately and thereby saving the affected from ruinous loss whenever the fire strikes.

Reasons of fire

Two reasons could be attributed for the outbreak of fire and they are classified as physical and moral hazard.

Physical hazard :

It refers to the inherent risk associated with the property which may be due to inflammable material associated with the building, nature of use the building is put into, non availability of sufficient number of fire extinguishers in the building, type of artificial lighting or heating adopted (in the building) etc.

Moral Hazard :

As for as the physical hazard is dependent on the property, the moral hazard depends on the man who insures his / her property. The owner of the building willingly sets the insured property so as to gain windfall property especially when the market price of the property is on the decline. There exists a moral hazard whenever the insured property is destroyed by fire with the connivance of the insured person.

The principle behind insurance is that it is used as a measure for indemnification of loss and not for prevention of loss although every reasonable step shall be taken to minimize the risk through the involvement of loss prevention agencies. The loss prevention in insurance helps us in two ways by 1. Indemnification and 2. Preventive efforts

Effort of Indemnification :

The doctrine of indemnification says that the financial loss suffered by the risks insured against will be compensated in full and it shall not be more or less than that. In other words, the insurance acts as a means of indemnifying the financial loss suffered by the injured and the reason for damage is beyond the control of insured or the insurer.

Preventive efforts :

The loss or damage to the property cannot be prevented by insurance. But fire insurance definitely helps those who are ready to involve in the prevention efforts by offering financial assistance. When the loss suffered by the society is reduced by supporting the society financially, more and more people will be voluntarily purchasing new policies and this in turn helps the company to grow and financially stable.

This paves the way for the company to charge less premium, which will in turn trigger the growth rate. That is they are mutually beneficial to the insured and the insurer alike. Fire insurers help to augment the supply of protective devices and advocate using better construction material. It also helps in installing more number of fire extinguishing apparatus, water supply and improved engineering logistics.

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