Fire Loss Calculations - Examples



Fire policy loss Calculations Examples:

Fire Loss calculation - Case 1
Standard Fire and Special Peril Policy was issued to cover a manufacturing factory for the period 1-4-15 to 31-3-16. Arising out of severe cyclone on 30-9-15, insured suffered loss in respect of their Building, Plant and machinery and Stocks. Premium rate 3.00%o

           Details are as under                          (All values in Lacs} 
Property covered
Sum insured
Value of property
Gross Assessed loss
Building
100
90
20
Machinery
300
200
50
Stocks
480
600
160

Building is 5 years old and Rate of Depreciation @ 5% per year. 
Machinery is 7 years old and Rate of Depreciation @ 5% per year. 
Policy excess  AOG Perils- 5% of the claim amount subject to minimum of Rs 10,00,000/- and other perils – Rs 5,00,000/- 

Salvage Value (to be deducted)
Building     Rs 40,000/- 
Machinery Rs 70,000/- 
Stock         Rs 30,000/- 

Compute the amount of loss payable to the insured.

Solution – Case 1

a) Building (5 yrs old)
Gross Loss Assessed Rs 20,00,000
Less 25% Depreciation = Rs 5,00,000
Less Salvage = Rs  40,000
Net Amount  payable = 20 – 5 – 0.40 = Rs 14,60,000 

Note: Under insurance not applicable – Why ?
B) Machinery (7 yrs old) 
Gross Loss Assessed                    =  Rs 50,00,000/-
Less 35% depreciation                   =  Rs 17,50,000/-
 Less Salvage                                =  Rs  70,000/-
Net  Amount Payable                     = 50 – 17.50 – 0.70            
                                                       = Rs 31,80,000/- 

Note: Under Insurance not applicable – Why ?

Stocks 
a) Gross Loss Assessed    =  Rs160 lacs
b) Less Salvage                 =   Rs  30,000/- 
c) Net loss ( a-b)                 =   159.70 lacs
d) Less Underinsurance @ 20% on 159.70              =   Rs 31.94 lacs
e) Net  Amount Payable ( c-d)      = 159.70 – 31.94 =  Rs 127.76 lacs 
f) Total Claim payable for Building, Plant & Machinery & Stocks 
                                                                                  = 14.60+31.80+127.76                                                                                                                = Rs 174.16 lacs
g) Less policy  Excess @ 5% of claim = Rs   8.97 lacs
h) Minimum excess                              = Rs 10 lacs
i) Net payable loss (f - h)                      = 174.16 – 10 = Rs 164.16 lacs
RIP = from date of loss till expiry of policy =  182 days
j) RIP = 16416000 x 3/1000 x 182/365 = 24,556/-
Hence Final payable amount = ( i – j) = Rs 1,63,91,444/-

Loss Calculation Case 2

Standard Fire and Special Peril Policy was issued to cover a manufacturing factory for the period 1-4-15 to 31-3-16. Arising out Fire on 20-12-15, insured suffered loss in respect of their Building, Plant and machinery and Stocks. Premium rate 2.50%o.
           Details are as under                                 (All values in Lacs)
Property covered
Sum insured
Value of property
Gross Assessed loss
Building
100
120
30
Machinery
300
350
80
Stocks
400
650
70
          
Building is 10 years old and Rate of Depreciation @ 2% per year. 
Machinery is 7 years old and Rate of Depreciation @ 5% per year. 
Policy excess  AOG Perils- 10% of the claim amount subject to minimum of Rs 10,00,000/- and other perils Rs 5,00,000/- 

Salvage Value (taken over by the insured) 
Building                               Rs 40,000/- 
Machinery                           Rs 70,000/- 
Stock                                  Rs 30,000/- 
Compute the amount of loss payable to the insured.

Solution 

A) Building (10 yrs old)
a) Gross Loss Assessed Rs 30 lacs
b) Less 20% Depreciation @ 2% per annum = Rs 6 lacs
c) Salvage                                                       = Rs  40,000
d) Amount payable ( 30- 6- 0.40)                     = Rs 23.60 lacs 
e) Under insurance                                           = 100 / 120
f) Net loss to building                                        = 23.60 x100/120  = 19.66 lacs

B) Machinery (7 yrs old) 
a) Gross Loss Assessed                                   =  Rs 80 lacs
b) Less 35% depreciation @ 5% p.a.                =  Rs 28 lacs
c) Less Salvage                                                 =   Rs  70,000/-
d) Amount payable 80 – 28 – 0.70                    = 51.30 lacs  
e) Under insurance = 300 / 350
f) Net loss loss to Machinery                             = 51.30 x 300/350 = 42.97 lacs

C) Stocks 
a) Gross Loss Assessed                                                           =  Rs 70 lacs
b) Less Salvage                                                                        =  Rs 30,000/- 
c) Net  Amount Payable ( a – b )                                               = 69.70 lacs
d) Loss net of Under Insurance = 6970000 x 400 / 650            = 42.89 lacs
e) Total Claim payable for Building, Plant & Machinery & Stocks          = 19.66 + 42.97 + 42.89                                                                                                      = Rs105.52 lacs
f) Less policy  Excess ( Fire claim)                                                        = Rs   5 lacs
g) Hence, payable loss net of excess ( 105.52 – 5)                               = Rs 100.52 lacs
h) RIP for 102 days  = 100.52 x 2.5 /1000 x 102/365                            = Rs 7022
Final payable loss = ( g - h)                                                                 = Rs  100.45 lacs


Fire Loss Calculations Case - 3
‘Stock of Coir’ was ‘covered’ under ‘Fire  Declaration Policy’ effective from ‘1st April 18 to 31st Mar 19 for a Sum of Rs 20 lacs.
Insured’s stocks were destroyed by Fire on 6th June 18, resulting  a  Loss of  Rs 13 lacs.
It was found that Insured made Declaration for May 18 (the Last  Declaration immediately prior to the Loss) was Rs 6,25,000/- and the Surveyor confirmed that the Value of stocks for May 18 was Rs 6,50,000/-
Realizable Salvage Value of the Damaged Stocks was Nil according to the Surveyor.
‘Excess’: - Rs  10,000/-
Compute the Net Loss payable under the Policy.

‘Solution’ Case – 3

‘Gross - Loss - Assessed’.
Rs. 13,00,000.
Under Insurance ( Declaration in May / Market Value)
 6,25,000 / 6,50,000
Loss net of Under Insurance 13 x 6.25 / 6.50
Rs. 12,50,000
‘Less’: - ‘Excess’.
Rs. 10,000
‘Net - Payable’.
Rs. 12,40,000

 Apportionment of loss ( Contribution)  Case - 4

‘Value of Stock’ covered under 3 different policy at the time of Fire = Rs. 150 lacs.
‘Total assessed loss                                                                            = Rs. 15 lacs
1) Sum Insured under ‘Standard Fire Policy’ ‘A’                            = Rs. 50 lacs
2) Sum Insured under ‘Standard Fire Policy’ ‘B’                            = Rs. 30 lacs
3) Sum Insured under ‘Standard Fire Policy’ ‘C’ issued on Declaration basis = Rs. 100 lacs
 Compute the Loss payable by each policy.

Solution’ to Case 4

As per the terms & conditions of Fire policy, the loss shall be recovered first from Fire policy & then the balance amount ( if any) shall be payable under Fire Declaration policy.
‘Share of Loss’ = Sum Insured/ Value of Property x Loss assessed.
A’s Share                            = 50 / 150*15 = 5 l acs
B’s Share                            = 30 / 150*15 = 3 lacs
C’s Share                            = 100/150*15 = Rs. 10 lacs. But this shall be restricted to Rs 7 lacs as the total loss is Rs 15 lacs only.

Fire Loss Calculations Case – 5
A fire policy was issued for a sum of Rs 10 crs for Building Plant & Machinery with an exces of 5% of claim with min of Rs 25000  & following add on covers. 
a) Debris removal                          - 10% of claim with max. of Rs 15                                                      lacs eei
b) Start up expenses                     - 10 lacs
c) Architect Surveyor & Consulting Engineer’s fee – 5% of claim with max. of 25 lacs
Insured suffered a fire loss on Bldg & Machinery and the loss was assessed for Rs 250 lacs after application of depreciation & Salvage.
Following add on covers were also triggered
Debris removal                              - 20 lacs
Start up expenses                         -  8 lacs
Architect fee                                  – 26 lacs
Calculate the final payable loss if the value of property was Rs 12 crs at the time of loss.

Solution  Case – 4

a) Loss assessed on BMA (net of depreciation)  = Rs 250 lacs
b) Debris removal expenses claimed Rs 20 lacs but payable = Rs 15 lacs ( Why?)
because 10% of 2.50 crs = 25 lacs with upper limit of Rs 15 lacs
c) Start up expenses claimed Rs 8 lacs but payable                    = Rs 8 lacs ( Why?)
because Upper limit is Rs 10 lacs
d) Architect fee claimed Rs 26 lacs but payable                           = Rs 12.5 lacs ( Why?)
because 5% claim i.e. Rs 250 lacs is Rs 12.5 lacs.
e) Total loss with add on covers = 250 + 15 + 8 + 12.5                = 285.50 lacs
f) Loss net of Under insurance = 285.50 x 10 /12                         = 237.92 lacs
g) Policy excess – 5% of 237.92 ( min Rs 5 lacs)                         = 11.90 lacs
h) Net payable loss = 237.92 – 11.90                                          = 226.02 lacs

                                                ***********************************************


Comments

  1. UnknownAugust 16, 2020 at 6:26 PM

    Sir how can we best assessed to occupancy on the basis of proposal form

    ReplyDelete

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