Unit 3: General, marine and fire insurance
Principles and Practice of Insurance notes · PTU syllabus (MCOPBI322-18)
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Unit summary
General insurance protects property, goods in transit and liabilities. This unit covers the general insurance business and the role of GIC, the nature of marine insurance contracts, kinds of marine policies and important clauses, marine losses and abandonment, the fire insurance contract, types of fire policies and claims, and miscellaneous insurance.
After this unit you can
- Explain the general insurance business in India and the role of GIC
- Explain marine insurance contracts, policies, clauses and losses
- Explain fire insurance contracts, policies and claims
- Describe miscellaneous insurance covers
PTU syllabus topics
- General insurance business and role of GIC
- nature of marine insurance contracts
- kinds of marine policies
- important marine policy clauses
- marine losses and abandonment
- fire insurance contract nature
- types of fire policies
- fire insurance claims
- miscellaneous insurance
Actual total loss
Subject-matter destroyed
Ship sinks
Constructive total loss
Saving costs more than its value
Badly wrecked cargo
General average
Sacrifice for the common good, shared
Cargo thrown to save the ship
Particular average
Partial loss borne by the owner
Some goods damaged
Topic 1
General insurance business and GIC
- General Insurance Business (Nationalisation) Act, 1972: 107 insurers merged into GIC with four subsidiaries — National, New India, Oriental, United India; opened to private players in 2000.
- GIC Re: since 2000, GIC functions as the national reinsurer (subsidiaries delinked in 2002); listed in 2017.
- Today: public sector insurers, private general insurers (ICICI Lombard, Bajaj Allianz, HDFC ERGO), standalone health insurers, specialised insurers (AIC, ECGC).
Topic 2
Marine insurance
Marine insurance (Marine Insurance Act, 1963) is a contract whereby the insurer undertakes to indemnify the assured against marine losses incident to a marine adventure.
- Subject matter: hull (ship), cargo, freight; insurable interest must exist at the time of loss.
Voyage policy
One voyage between ports
Time policy
Fixed period (usually hull)
Mixed policy
Voyage and time combined
Valued policy
Value agreed in advance
Unvalued policy
Value ascertained at loss
Floating policy
Total amount declared; shipments declared as made
Open cover
Agreement to insure all shipments over a period
Blanket policy
Single premium for a maximum value
- Important clauses: Institute Cargo Clauses A, B, C; sue and labour clause (insured must minimise loss, costs reimbursed); warehouse to warehouse clause; running down (collision) clause; inchmaree clause (latent defects, negligence of crew); jettison; barratry (wrongful act of master/crew); general average clause.
Marine losses and abandonment
Total loss
Actual total loss (destroyed or irretrievably lost) and constructive total loss (repair cost exceeds value)
Partial loss
Particular average (accidental partial loss borne by owner of the interest) and general average (voluntary sacrifice for common safety shared by all interests)
- Abandonment: in a constructive total loss, the insured gives notice of abandonment to the insurer, surrendering rights in the subject matter to claim a total loss.
Example
To save a ship in a storm, the captain throws cargo worth ₹10 lakh overboard (jettison). This general average loss is shared by ship owner and all cargo owners in proportion to their saved values.
Topic 3
Fire insurance
- Fire insurance contract: contract of indemnity to compensate loss or damage by fire (and allied perils) during a specified period, usually one year.
- Essentials: actual fire (ignition), accidental, proximate cause, insurable interest at inception and at loss.
- Standard Fire and Special Perils (SFSP) policy covers fire, lightning, explosion, aircraft damage, riot, strike, malicious damage, storm, flood, inundation, impact damage, subsidence, bursting of tanks, missile testing, bush fire; earthquake and terrorism as add-ons; replaced for most businesses by Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha (2021).
Specific policy
Fixed sum, not linked to value
Average policy
Average clause for under-insurance
Valued policy
Agreed value
Floating policy
Goods at different locations
Declaration policy
Stocks fluctuate — periodic declarations
Consequential loss (loss of profits) policy
Business interruption after fire
Reinstatement value policy
Cost of replacement without depreciation
Fire insurance claims
- 1
Immediate notice to insurer and police (if needed)
- 2
Take steps to minimise loss
- 3
Surveyor appointed (claims above threshold)
- 4
Submit claim form, documents, fire brigade report
- 5
Assessment
Average clause, depreciation, salvage
- 6
Settlement or repudiation with reasons
Topic 4
Miscellaneous insurance
| Cover | Protects |
|---|---|
| Burglary | Loss from theft involving forcible entry |
| Personal accident | Death and disability from accidents |
| Motor | Third party (compulsory) and own damage |
| Engineering | Machinery breakdown, contractor's all risk, boiler explosion |
| Fidelity guarantee | Employer against employee dishonesty |
| Liability | Public, product, professional indemnity, D&O |
| Travel | Medical emergencies, baggage loss abroad |
| Crop | PMFBY |
Key terms
- Marine insurance
- Indemnity against marine losses
- General average
- Voluntary sacrifice for common safety shared by all interests
- Constructive total loss
- Loss where recovery or repair costs exceed value
- Abandonment
- Surrender of the subject matter to claim a total loss
- Consequential loss policy
- Cover for business interruption after fire
Quick revision
- GIC 1972 with four subsidiaries; GIC Re national reinsurer.
- Marine policies: voyage, time, mixed, valued, floating, open cover.
- Clauses: ICC A/B/C, sue and labour, warehouse to warehouse, inchmaree.
- Losses: actual and constructive total; particular and general average; abandonment.
- Fire: SFSP and Bharat policies; types; claim procedure; miscellaneous covers.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.When was general insurance nationalised in India?
- Q2.What is a floating marine policy?
- Q3.What is the sue and labour clause?
- Q4.Distinguish particular average and general average.
- Q5.What is a consequential loss policy?
- Q6.What is fidelity guarantee insurance?
Long-answer questions
- Q1.Explain the general insurance business in India and the role of GIC.
- Q2.Explain the kinds of marine policies and important marine clauses.
- Q3.Explain marine losses and abandonment.
- Q4.Explain fire insurance contracts, types of policies and claim procedure.
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