The term Rate Fixation refers to determination of an appropriate premiums rate for different
risks. The rate fixation in fire insurance is not so scientific as in life
insurance. While fixing the rates of premium for different risks in
fire insurances various factors or
both the physical and moral hazards are
to be property evaluated and calculation work is to be carried out as accurately as
possible. The rates of premiums
determined must be adequate not unfairly discriminatory not excessive,
economically feasible stable and flexible
and should encourage loss
prevention. In other words the rates of
premium should be adequate enough to
provide for full payments of claims
including catlastrophe losses
administrative costs I.e. printing
costs. transport requirements staff salaries etc., provision for unexpectedly large claim in the form of reserve and a
margin of profit.
SYSTEM OF RATE FIXATION: The actual process of rating consists
of three steps viz. (1) Classifications (2) Discrimination and (3)
Fixing rates or schedule rating. (1)
CLASSIFICATIONS: The first step in
fixing rates of the premiums for
different risks is the process of classifying
the various properties to be insured. Properties are generally classified into three categories viz (a) Common or ordinary (b) Hazardous
and: ( C ) Extra hazardous or
doubly hazardous. Different rates
of premiums are determined for each
class of property. These classifications
do not hold good for a long time
because of varied nature of risk. Now
the risk or properties are classified
into a various classes according to
factors affecting fire risk. (a) CONSTRUCTIONS: For the purpose of rating
simple risks e.g. dwellings offices etc., building are classified into two
categories according materials used in constructions of external walls and roof. Class A
constructions includes building which have external wall of stone/ bricks
concrete blocks and off RCC /
Masonry asbestos concrete sheets Metel sheets/ Tiles . The layer of
grass hay or reeds on incombustible
roofing is permitted . Any
constructions other than Class
“A” constructions as above stated is
considered class “B” constructions. (b)
OCCUPANCY : Risks or properties are
classified according to occupancy of the premises e.g. Private residents shops, godowns, industrial or manufacturing risks etc., Again the goods stored in
godown are classified into non-hazardous and external
hazardous categories .
This
system of classifications takes into account the various factors of occupancy which may cause or aggravate
fore loss or damage such as the nature of goods exposed to varying degrees to
ignition . combustion etc., manufacturing
process methods of heating
lighting and power etc. ( C ) NATURE OF FLOORING: Wooden floors add
fuel to fire . Besides wooden floors collapse easily in the event of fire,
causing damage to property on lower
floors through falling machinery or goods from upper floors. (d) HEIGHT: The greater the number of stroeys
the greater the hazard because of
difficulties of fire extinguishment . Besides the greater number of floors
involve of the risk of collapse of the upper floor causing heavy impact
damage. (e) FLOOR AND WALL OPENINGS:
Openings in the floor for lifts and belts constitute higher physical hazard. It
may cause greater chances of ignition of fire and can cause difficulty in
extinguishing the fire. (f) EXPOSURE:
The degree of risk of each
building is influenced by its
surroundings . If a number of factories
and workshops are situated around dwelling houses, the hazard
involved is far greater.
(g) LIGHTING
HEATING AND POWER: The fire may take place due to short circuit . combustion can also arise from faulty installation and dampness . The lighting system e.g. gas or oil leakage of fuel and naked flames cause more hazard to
property. (h) PLACE: The
geographical area where the property is
located is of great importance . Losses
compared with the amount to the of
insurance vary from State to State.
(I)TIME/: Five years is generally taken as a minimum period upon which rates are based. Good and bad
years must be averaged out for rate
making purposes over a sufficiently long period of time to enable the
companies to accumulate during the years of light losses, funds
necessary to absorb the stock of heavy
losses at other times. (j) PROTECTION:
Protection may be of two kinds: Public and Private. Public or Municipal
protection is of great importance.
Private protection consist of device
installed by the owner such as fire extinguisher sprinklers system and buckets, fire alarm
etc.