Page 31 - The Insurance Times February 2026

The Net actual V. protected = Actual Value for both stores Rs. 8,00,000 / Rs. 8,40,000 * Rs. 1,05,000 = Rs. 1,00,000/-
(less) The SI for the first.
Now let us deal with the loss on reinstatement basis.
100,000 - 40,000 = Rs. 60,000.
The formula is: Sum Insured / Value * Loss = Settlement
Therefore, the amount payable by 2nd policy is: 40,000 / Rs. 8,00,000 / Rs. 9,20,000 = 86.96%. Average will not
60,000 * 400 = Rs. 267/- apply

The total amount payable is: 1,600 + 267 = Rs. 1,867/-. The
Therefore, claim on reinstatement basis is Rs. 114,000 and
insured has to bear the difference i.e., Rs. 133/-.
payable in full provided the insured elects to reinstate.
85% Condition of Average (Reinstate- Consider another example - A fire occurred at a factory and
ment Memorandum) the loss adjuster obtained the following information:
Y Value at risk at the time of the loss Rs. 8,40,000
This is a policy condition to protect the interest of insurer
by giving the insurer the right to reinstate rather than Y Loss on indemnity basis Rs. 1,05,000
making cash settlement at the time of the claim. The in- Y Reinstatement value at the time of the reinstatement
surer may choose to reinstate: Rs. 9,60,000
Y When dealing with difficult insured (amount)
Y Loss on reinstatement basis Rs. 1,14,000
Y If fire is suspicious
Y The Fire Policy with S.I. of Rs. 8,00,000 carries a "Rein-
Y If it is less expensive to reinstate statement Memorandum"
Y If contribution arises
Let us deal with the claim on an indemnity basis first. The
Thus, Reinstatement is an endorsement to original policy, formula is:
requested by the insured at inception to give the insured Sum Insured / Value * Loss = Settlement.
the right to request reinstatement. The reinstatement must Rs. 800,000 / Rs. 840,000 * Rs. 105,000 = Rs. 100,000
be carried out & that must be without delay or it may be
Now let us deal with the loss on reinstatement basis. The
carried on the same site or other site provided the liability
of the insurer is not increased. formula is:
Sum Insured / Value * Loss = Settlement
Reinstatement is a form of "new for old" used in case of Rs. 8,00,000 / Rs. 9,60,000 = 83.33%. Therefore, Average
building and machinery (not stocks). It is applied for partial will apply
and total losses and is subject to 85% condition of Average.
Thus, the formula is: 83.33% * Rs. 1,14,000 = Rs. 95,000/-.
S.I. /Reinstatement cost at the time of reinstatement * Loss In this case, the insured is better off with indemnity basis
= Settlement
First Loss
For Example, A fire occurred at a factory and the loss ad- First Loss - is normally used to insure Supermarkets and other
juster obtained the following information: similar risks against theft. The premium calculation is based
Y Value at risk at the time of the loss Rs. 8,40,000 on the declared value rather than the S.I. and then the
Y Loss on indemnity basis Rs. 1,05,000 premium is to be discounted. The application of average is
based on the relationship between the actual value at risk
Y Reinstatement value at the time of the reinstatement at the time of loss and the declared value.
Rs. 9,20,000
Y Loss on reinstatement basis Rs. 1,14,000 For Example: Ratna Deep Supermarket was insured with
UIIC on First Loss basis. The S.I. was Rs. 2,00,000 and the
Y The Fire Policy with S.I. of Rs. 8,00,000 carries "Rein-
declared value of goods was Rs. 5,00,000. The policy is sub-
statement Memorandum".
ject to average and there was a deductible of Rs. 250. Dur-
Let us deal with the claim on an indemnity basis first. The ing the currency of the policy unknown persons broke into
formula is: the Supermarket and stole goods valued at Rs. 6,000. The
Sum Insured / Value * Loss = Settlement. Loss Adjuster estimated the actual value of goods at the

28 February 2026 The Insurance Times