Fire insurance covers loss or damage to your property caused by fire or lightning. Some of the special perils which can be included under fire policy are:

• Riot and strike
• Malicious damage
• Terrorism
• Explosion excluding boiler & other pressure vessel explosions
• Impact damage
• Aircraft damage
• Cyclone storm, tempest and flood, tidal waves, Tsunami
• Earthquake
• Electrical fire damage
• Bursting and overflowing of water tanks and pipes
• Sprinkler leakage
• Spontaneous combustion

Physical Assets
The property to be insured may consist of the following physical assets:

• Building
• Furniture, fixtures and fittings
• Plant and equipment
• Office equipment
• Stock-in-trade from raw materials to finished products

In addition, the following expenses which may be incurred following the operation of an insured peril, can also be insured:

• Cost of Removal of Debris
• Architects' Surveyors' and Consultant Engineers' Fees

Sum Insured
The property can be insured on a depreciated value basis or on reinstatement value basis.

On depreciated value basis, the settlement of a claim is the replacement/reinstatement cost of the property at the time of the loss, less depreciation. The sum insured should thus represent the depreciated value of the property insured.

However, to ensure that in the event of a loss the insured is in a position to reinstate the property at today's value, it is common to insure on a current reinstatement cost where the basis of settlement of a claim is new for old without a factor for depreciation. The sum insured would then have to reflect the current reinstatement cost of the property insured.

The sum insured on stock-in-trade should be based on cost of material, labour and factory overhead expenses (excluding profit).

Adequate Coverage
It is important to ensure that the sum insured is adequate. Otherwise, in an event of a claim under-insurance will result in the application of "average". This means that the insured will be considered as being his own insurer for the uninsured position and will therefore have to bear a ratable proportion of the loss accordingly.

Exclusions

Natural perils

• Inundation from the sea
• Volcanic eruption
• Subsidence and land slides
• Forest fire

Industrial Environment Perils

• Damage to the property by its own fermentation and natural heating
• Leakage and contamination

Other Extraneous Perils

• Loss by theft during or after the occurrence of fire

Properties

• Goods held in trust or commission
• Bullion or unset precious stones
• In curio or work of art for an amount exceeding Rs.500/-
• Documents and computer system records

Nuclear Perils

Burning of property by public authorities or by sub-terranean fire

War Perils

Mutiny, military or popular-rising insurrection, rebellion, revolution, etc.

The fire policy only covers physical loss or damage to the property insured but does not cover loss of profit arising from such physical damage. As a result of the loss or damage to the physical assets, the Insured is unable to carry out its planned level of business, thus leading to a fall in gross profits.

The policy is designed to cover during the period of interruption:

• Loss of Gross Profit due to a reduction in turnover
• Increased Cost of Working incurred in minimizing that loss of Gross Profit

Apart from the policy period, there is also the indemnity period which is the maximum length of time likely to elapse before the loss or damage can be reinstated and the earnings of the business restored to their pre-loss situation.

The sum insured should represent the estimated annual gross profit and correspondingly be increased if the indemnity period is more than twelve months giving due consideration for variations and trends.

Definitions
Gross Profit is the sum of Net Profit and Insured Standing Charges.

Net Profit is the 'Net Trading Profit' excluding capital receipts, accretions and outlay chargeable to capital after making provisions for all standing charges but prior to deduction of tax.

Standing Charges are expenses which do not diminish proportionately with a reduction in turnover. Indemnity Period commences with the date of the damage, and lasts till such time as the business is restored to its pre-damage level, or the period stipulated in the policy, whichever is earlier. This policy insures earnings of the business lost during the Indemnity Period.

Basis of Sum Insured
This is based on the annual net profit of the business as per the previous year's accounts plus the 'standing charges'. An Insured is entitled to return of premium (not exceeding 50% of the premium paid) in case the Gross Profit earned during the financial year concurrent with the period of insurance is less than the Sum Insured.

Extensions

• Lay-Off Wages
• Auditor's Fees
• Public utilities

Exclusions
Same as excluded in the Standard Fire and Special Perils Policy and Terrorism

All industrial risks having overall sum Insured of LKR.1B and above in one or more locations are eligible to obtain an Industrial All Risk Policy.

This is a package policy with the following covers:

• Fire and Special Perils
• Consequential Loss (Fire)
• Machinery Breakdown, Boiler Explosion, Electronic Equipment
• Consequential Loss following Machinery Breakdown - Optional

Basic Insurance
Buildings, Machinery, Furniture, Fixtures and Fittings & Electrical Installations shall be on reinstatement value basis only.

Stocks shall be covered on market value basis. Facility of declarations for stocks is not available under this policy.

Extensions

• Architects', Surveyors' and Consulting Engineers' Fees
• Designation of Property Clause
• Escalation Clause
• Omission to Insure Additions, Alterations or Extensions Clause
• Temporary removal of stocks
• Loss of rent