Page 176 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

of the probability of (i) a fire outbreak, (ii) its spread
in relation to the total risk value and (iii) a catastrophic
loss.

The assessment of these three aspects of the risk is
done on the basis of the insurers' thorough knowledge
of the fire hazards, different kind of building materials,
different types of goods and the methods of fire protection
and extinction, by surveys and inspections.

c. Maximum probable loss /estimated probable loss-
The term ' Maximum Probable Loss' is also called '
Estimated Probable Loss'. This refers to the insurers'
estimate of potential liability in case of the worst
scenario. So, the decision of retention amount and ceding
amount are decided on the basis of PML or EML.

For e.g, in a large factory, where the total sum insured
is Rs.100 crores, the PML estimated by the engineers
after inspection was found to be Rs.25 crores for a

particular process block. So, if retention is fixed with

respect to the sum insured, then would not be adequate.

The insurers can then retain on the basis of PML.

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