Fire Insurance Claim for Loss of Stock

Loss of stock in fire insurance is the loss incurred by a business when its stock or inventory has suffered damage due to an unforeseen fire accident. This inventory can be raw materials, finished items or in-process goods.

A fire insurance policy offers financial coverage to businesses to recover the expenses incurred in repairing or replacing the damaged stock.

Fire insurance claim refers to the claim raised by a policyholder with an intention to recover losses/damages incurred to the insured stock due to a fire incident. The best fire insurance policies usually cover the stock damage caused due to smoke, fire as well as the water used to extinguish fire.

• Fire insurance claims are divided into two categories:

• Insurance claim for loss of stock

• Insurance claim for loss of profit

Fire Insurance Claim for Loss of Stock

According to the fire insurance principle of indemnity, a claim can only be filed for the actual value of the loss, not beyond the total sum insured. A claim for the loss of stock can be made under two conditions:

Total Loss: If the insured items sustained a total loss, the claim amount will be equivalent to the actual loss (given that all items are insured). However, if the actual loss goes beyond the sum insured, the claim amount is equivalent to the policy amount.

Partial Loss: If the insured goods have sustained partial damage, the amount of the claim is equivalent to the actual loss. However, in the case of under-insurance, the claim amount will vary based on the type of fire insurance policy as follows:

Without Average Clause: The claim amount is equal to the actual loss or sum insured, whichever is lower.

With Average Clause: The claim amount is proportionately reduced and calculated using the formula below:

Amount of Claim = Loss of Stock x Sum Insured / Insurable Amount (or total cost)

Note: the average clause is only applicable when the insured value is less than the total cost.

Fire Insurance Claim for Loss of Profit

Fire insurance claim for loss of profit refers to the consequential loss incurred by a business due to disturbed business operations during the period of a fire accident. This results in multiple standing expenses such as salaries, rents, etc., which cause a loss of profits to the businesses.

This type of loss is usually insured under the “Consequential Loss” or “Loss of Profit” policy. This type of policy can be purchased along with the other fire insurance plans. A loss-of-profit fire insurance policy covers the following:

• Loss of net profit

• Any additional operational costs, such as the cost of renting temporary premises

Step 1: Reporting the Fire Incident

The first step after sustaining a fire accident is to report it. This is an important step because you will need to submit this report to your insurance provider at the time of intimating the claim.

Step 2: Documenting the Loss

The next step to raise a fire insurance claim loss of stock is to meticulously document it. For this, it is strongly advised to have detailed records of inventory including its quantity, types, value and other information. You should also capture multiple photos and videos as proof of a fire accident.

Step 3: Filing a Claim

The next and most important step, file a fire insurance claim for loss of stock by reporting the incident to your insurer. For this, fill out the claims form and provide as much information as you can about the incident. This includes the date, time and venue of the accident, extent of loss and so on. At this time, also submit the documents you have prepared.

Step 4: Assessment of Damage

After receiving the claim request, the insurance company starts their investigation by sending a surveyor to the location to assess the damages. The surveyor or claim adjuster also determines the cause of the fire to determine whether or not the company is liable to pay for the said damages.

Step 5: Settlement Adjustment

Once the investigation is done, the insurance provider calculates the total amount of compensation by taking into account the policy terms and conditions. If you feel that the compensation proposed by the insurer is unfair, you can negotiate it by providing more proof and documents to reach a fair compensation amount.

Step 6: Claim Reimbursement

Once a fair settlement is reached and agreed upon by both parties, the insurance company will initiate the reimbursement and close the claim.

Documents play a crucial role in a fire insurance claim procedure for the loss of stock. Below is a list of important documents you need to make a stock loss claim in such an event:

• Complete and sign the claim form

• A copy of the fire insurance policy

• Fire brigade report

• A signed copy of the FIR

• Forensic reports

• Final police investigation report

• Photographs and videos of damage

• Newspaper report of the incident (if any)

• Report submitted by the insurer’s investigator regarding the causes of the fire incident

Fire accidents can cause unbearable loss and damage to a business. However, a fire insurance policy makes it a bit easier to overcome the losses and bring your business back on track. Below are some tips that will help you expedite your insurance claim for loss of stock:

• Arrange as many supporting documents as you can.

• Understand the policy inclusions and exclusions well before raising a claim.

• Do not delay filing a claim.

• Seek professional assistance if needed. You can hire a public representative or attorney to negotiate the claim.

Fire insurance is one of the most essential types of business insurance that helps you overcome the losses caused by an unforeseen fire accident. By providing the necessary financial compensation, it offers you a chance to resume the normal functioning of your business.

For these reasons, every business owner should invest in a fire insurance policy to safeguard their business against such fire accidents.

At Tata AIG, we also have Fire and Burglary Insurance that offers adequate coverage to mitigate the unforeseen losses incurred due to fire and burglary incidents.

What is not covered under fire insurance?

The exclusions of a fire insurance policy differs from one insurance provider to another. However, the most common exclusions are willful or voluntary damage, damage incurred due to a legal order, damage/loss due to war or related emergencies and a few others. For more information, get in touch with your insurance company.

What is the period of a fire insurance policy?

Most fire insurance policies come with a tenure of one year or 12 months.