Onsurity Editorial
March 12, 2025
8 min read
53Table of Contents
Fire insurance serves as a safety net for businesses as it ensures protection of business assets and safeguards their working capital, in case of fire-related damages. With increasing incidents of fire accidents across commercial and industrial sectors, having a comprehensive fire insurance policy is crucial.
Many business owners assume that purchasing a commercial fire insurance policy automatically secures them against financial losses. However, insurers scrutinise claims based on risk disclosures, compliance with safety norms and supporting documentation. Even minor lapses in this regard can affect payout eligibility and result in claim denials or reduced settlements.
In this blog, we will uncover six often-overlooked factors that could make or break your fire insurance claim. This will help you maximise claim success and avoid costly surprises. Stay tuned!
6 Overlooked Factors That Can Affect Your Fire Insurance Claim
1. Underinsurance: Are You Covering Enough?
Many businesses underinsure their properties to reduce premium costs, mistakenly believing they can still recover their full losses in the event of a claim. However, underinsurance can be detrimental when it comes to filing a claim.
The ‘Average Clause’ in fire insurance policies is a provision that penalises underinsurance. If the insured value of an asset is lower than its actual market value, the insurer applies the Average Clause. This reduces the asset insurance claim amount proportionally. For example, if a property worth ₹50 lakh is insured for only ₹25 lakh, the insurer will only pay 50% of the claimable amount.
Businesses can ensure proper valuation of their assets and avoid underinsurance by following these steps:
- Conduct Regular Asset Valuations – Periodically assess the current market value of assets to reflect depreciation or appreciation.
- Consider Inflation and Replacement Costs – Account for rising costs of materials and labour to ensure adequate fire insurance coverage.
- Engage Professional Valuers – Hire certified surveyors or valuation experts to determine the accurate worth of property and equipment.
- Update Insurance Coverage Annually – Review and adjust the sum insured every year, based on business growth and asset acquisitions.
- Consult an Insurance Advisor – Seek expert advice to align policy coverage with the true value of assets.
Also read: 6 Types of Business Insurance To Protect Your Company
2. Non-Disclosure or Misrepresentation of Information
A crucial factor in asset insurance claims is the accuracy of the information provided at the time of policy purchase. If insurers discover any misrepresentation or omission of material facts, they can reject the claim outright on the pretext of misrepresentation of risk exposure.
Incorrect business classification by the insured can also lead to claim denials or reduced payouts. This can cause substantial financial losses for the insured.
Here are the reasons why insurers may reject fire insurance claims, citing misrepresentation of information by the insured:
- Fraudulent Intent: If the insured intentionally provides false or misleading information, such as inflating asset values or failing to disclose risks, insurers may reject the claim on the pretext of fraudulent behaviour.
- Violation of Policy Terms: Misrepresentation about compliance with fire safety regulations or failure to maintain the property as required by the policy can lead to claim rejection.
- Incorrect Information on Property Use: If the insured misrepresents the nature or use of the property (e.g., using a commercial building for residential purposes), it can void the fire insurance policy coverage.
- Undisclosed Prior Losses: Failing to disclose previous fire-related incidents or damage can raise red flags, leading insurers to deny claims based on non-disclosure.
To avoid such problems, always communicate transparently with your insurer and supply exact details about your business and its risk profile.
Recommended read: Business Insurance for Tech Startups
3. Failure to Comply with Safety and Maintenance Standards
Regulatory instruments such as the National Building Code of India (NBC) and local municipal laws mandate fire safety measures for building constructions across the country. Non-compliance with these regulations by the insured can lead to claim rejection.
If an insured business fails to comply with fire safety regulations (Examples- absence of valid fire safety certificates, improper storage of flammable materials and unmaintained or expired fire extinguishers) the insurer may consider this as a breach of policy terms. In such instances, the insurer may argue that the fire resulted from preventable causes, and this may lead to the denial of fire insurance claims.
To avoid this, the insured businesses must follow all the prescribed fire safety regulations, conduct regular risk assessments and maintain proper fire prevention systems.
4. Fire Insurance Policy Exclusions: The Fine Print That Can Cost You
Common exclusions in fire insurance in India may include-
- Damage due to electrical failures.
- Losses from wear and tear or gradual deterioration.
- Damages arising from negligence or wilful misconduct.
- Damage due to poor maintenance such as faulty wiring by the insured
It is important for you to understand and negotiate fire insurance policy exclusions effectively. This will help ensure you get the most comprehensive fire insurance coverage possible.
Consider these key steps:
- Thoroughly Review the Exclusions: Carefully read the fire insurance policy to understand what is specifically excluded from coverage. This will help you avoid surprises during a claim.
- Evaluate Business-Specific Risks: Identify the risks unique to your business. For example, if you run a manufacturing facility, assess the likelihood of fire risks related to your equipment, materials or processes.
- Seek Clarifications from the Insurer: If any exclusion seems unclear, don’t hesitate to ask the insurer for a clear explanation.
- Negotiate Coverage Options and Add-Ons: Once you are aware of the exclusions, explore options to customise the policy. You can negotiate for additional fire insurance coverage or endorsements that would fill the gaps in your policy.
Quick read: A Guide to Commercial General Liability Insurance
5. Delayed Reporting of Incidents
Insurance companies require policyholders to report fire incidents within a specific timeframe, usually within 24-48 hours. Delayed reporting by the insured can complicate the verification of facts, diminish the availability of evidence and potentially raise suspicions of fraud. These may, in turn, reduce the chances of the claim approval.
Here are certain important steps to follow after an incident:
- Notify your insurer immediately.
- Use photographs and videos as proof of the damage.
- File a police report if necessary.
- Preserve evidence until the insurer conducts an inspection.
6. Insufficient Documentation and Proof of Loss
Proper documentation is crucial for asset insurance claim approval. Lack of financial records, purchase invoices and audit reports can delay or weaken asset insurance claims. Such lack of evidence can make it difficult to prove the cause and the extent of the damage.
Without sufficient documentation, such as photos, witness statements or fire department reports, insurers may challenge the ownership of the asset and the validity of the claim.
Here are some best practices to follow for documenting losses effectively-
- Maintain both physical and digital copies of important documents.
- Conduct routine audits and update asset registers.
- Use cloud storage for secure document retention.
Also read: Asset Insurance to Safeguard Your Business Investments
How to Maximise Your Fire Insurance Claim Success?
- Regular Policy Reviews and Updates: As businesses grow, asset values change. Regular policy reviews can ensure adequate fire insurance coverage.
- Consulting with an Insurance Advisor: An expert can help identify gaps in coverage and recommend policy improvements.
- Keeping Updated Records and Compliance in Check: Ensuring proper documentation and safety compliance increases the likelihood of a smooth claim process.
Conclusion
By addressing these overlooked factors, businesses can safeguard their financial interests and maximise claim settlements. Remember, it’s essential to regularly review your fire insurance policy to ensure it aligns with your current needs and complies with all requirements.
Proactive risk management plays a vital role in reducing the likelihood of claims being denied and ensuring your business remains protected. By staying informed and taking preventive measures, you can increase the chances of a successful payout when you need it the most.
Want to know more? Compare the best fire insurance plans in India and choose the perfect fit for your unique needs. Get in touch with Onsurity today for comprehensive insurance coverage and absolute peace of mind!
FAQs
1. What is the ‘Average Clause,’ and how does it affect my claim?
The ‘Average Clause’ in fire insurance means that if the insured property’s value is underinsured, the payout for a claim will be reduced proportionally. For example, if the property is insured for only 70% of its actual value, the insurer will pay only 70% of the claim amount. This clause ensures that policyholders maintain adequate coverage and discourages underinsurance. It directly impacts the compensation you receive in case of a fire, potentially leaving you to cover a larger portion of the loss.
2. Can my claim be denied if I miss safety inspections?
Yes, your fire insurance claim can be denied if you miss mandatory safety inspections, especially if the policy requires them for coverage. Insurance companies often include such conditions to ensure that the property meets safety standards and reduces the risk of fire. If you fail to comply with these conditions, the insurer may view it as negligence, and this could lead to a denial of your claim. Always check your policy to understand the specific requirements for inspections and maintenance.
3. What happens if I delay reporting a fire incident?
Delaying the reporting of a fire incident to your insurer can result in complications, such as a reduced payout or even denial of your claim. Insurance policies typically have time limits for reporting incidents. Failing to adhere to these deadlines can be seen as a breach of contract. It’s important to notify your insurer as soon as possible to ensure your claim is processed smoothly and to avoid any issues with coverage.
4. Will my insurance cover all types of fire damage?
Fire insurance generally covers damage caused by accidental fires, but it may not cover all types of fire-related damage. For example, damage from wildfires, arson or certain natural disasters may be excluded depending on your policy’s terms. Some policies may also have exclusions for specific causes, like electrical fires or fires due to negligence. It’s essential to review your policy to understand the specific coverage limits and exclusions regarding fire damage.
5. What documents are required when filing a fire insurance claim?
When filing a fire insurance claim, you will typically need to provide the following documents: a copy of the fire report (from the fire department), proof of ownership or value of the damaged property (like receipts or inventory), photographs of the damage and a completed claim form from your insurer. You may also need repair estimates or contractor invoices. Ensure you keep detailed records of all communication with your insurer for reference during the claims process.
6. Can I reinstate my policy if it has lapsed due to non-payment?
In most cases, you can reinstate your insurance policy if it has lapsed due to non-payment. However, it depends on the insurer’s terms and the duration of the lapse. Insurers may require you to pay any overdue premiums along with possible interest or penalties. Some insurers may also ask for proof that the property is still in good condition or may require a new policy application. It’s best to contact your insurer promptly to inquire about your options for reinstating the coverage.
