Page 32 - The Insurance Times February 2026

time of loss at Rs. 6,50,000. How much the insured is en- assessment, subject to observance of procedure for salvage
titled to get and how the claims will be settled? disposal. The amount realized through salvage disposal will
be set off by insurer against losses paid by them."
Average to be applied. Declared Value / Actual Value * Loss
5,00,000 / 6,50,000 * 6,000 = Rs. 4,615 - Rs. 250 = Rs. 4,365 What you see and read above is practice. The existing un-
derstanding is that both the Regulator and the insurers have
Consider another example to understand First Loss considered Salvage as something to be disposed of to re-
policy. Midway Supermarket insured their stock with TATA duce the losses of the insurer. The Law, Regulator and the
AIG against theft under First Loss Policy. They informed the insurer could not think of any other use for Salvage except
underwriter that the actual value of the stock is Rs. the above mentioned. This very thought has made insurance
10,00,000 and the maximum amount that could be stolen selfish and self-centred.
in any one incident is Rs. 2,00,000.
Y The rate applied to this type of risk is 3% (per mille). There is a legal maxim attributed to the renowned 18th-
century English jurist William Blackstone which reads: "It is
Y TATA AIG grants 10% discount for those insuring their
stock under first loss policy. better that ten guilty persons escape than that one inno-
cent suffer." This legal maxim and therefore the law gives
Y The policy is subject to Rs. 250 deductible.
maximum importance to the innocent rather than the guilty.
In case of insurance, exactly opposite is the case. We give
Five months after the outset of the policy a theft incident more importance to reducing insurers losses than making
took place. Stock of Rs. 15,000 were stolen. The claim sur- the society a safer place to live. This unfathomable gap is
veyor estimates the actual value of stock at Rs. 17,00,000. costing insurance much more than the losses paid.
Based on this information:
1. Calculate the insurance premium paid by Midway Su- No sir! A contract of insurance does not end with the pay-
permarket.
ment of claim. Yes. We are following the law in letter by
2. How much the insured is going to get for his claim? settling the claim, but violating it in spirit. The spirit of law
is honored when the insurer voluntarily takes a step further,
Premium Calculation - Declared value * Rate = 10,00,000 make meaningful use of salvage. Meaningful use of salvage
* 3/1000 = 3,000 is, for instance, to use the salvage to educate the society
TATA AIG grants 10% discount = 3,000 * 10% = 300 and to prevent future accidents and loss of lives and prop-
erty. This is the gap our Insurance Salvage Patent aims to
Final premium paid = 3,000 - 300 = Rs. 2,700/-
fill; to make the world a better place to live.
Claim Calculation - Since the declared value of stock is less When I run over libraries, persuaded of the principles of In-
than the actual value, average is to be applied.
demnity and Salvage, what havoc must I make? If I take in
Declared Value / Actual Value * Loss = 1,000,000 / my hand any volume of insurance or the decided case laws
1,700,000 * 15,000 = Rs. 8,824 for instance, allow me to ask, does it contain any information
Final amount payable = 8,824 - 250(deductible) = Rs. 8574 of definition of Indemnity and Salvage? No. Does it contain
any explanation giving reasoning concerning Indemnity and
"Generally, the job of salvage disposal is entrusted by the Salvage? No. Commit it then to the flames: for it can contain
insurance company to the surveyor who carried out the loss nothing but sophistry and illusion! (Inspired by David Hume).

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The Insurance Times February 2026 29