Page 162 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

b) The probable effects of any outbreak of fire on the stocks and the
possibilities of salvage

c) Fire Protection : The nature and number of fire extinguishing
appliances, fire brigade facilities sprinkler installation are factors
which are considered.

d) The situation of the risk : This is considered from three points of
view : (a) the degree of exposure hazard existing from adjacent or
contiguous properties, (b) the actual situation whether in cities,
towns or the mofussil, and (c) "conflagration hazard", i.e. hazards
from the adjoining buildings communicating with insured premises.

'Maximum Probable Loss (also known as "Estimated Probable Loss"
- EML) refers to the insurer's estimate of potential liability in the worst
event.

For example, in a large factory with a total sum insured of Rs.100
crores, spread over many blocks in a large area, the risk engineers
after inspection may determine that the highest PML may be Rs.25
crores restricted to one particular process block. If retention is fixed
with reference to sum insured i.e., Rs.100 crores it will be of smaller
amount and consequent ceding a large portion by way of reinsurance.

Reinsurance

Reinsurance is an arrangement whereby an original insurer who has
insured a risk insures a part of that risk again with another insurer, that
is to say, reinsures a part of the risk in order to diminish his own
liability.

Reinsurance is thus seen as an extended application of the insurance
principle viz., spreading of risks

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