Fire insurance business is governed by the tariffs formulated by the Tariff Advisory Committee which is a statutory body established under the provisions of the Insurance (Amendment) Act 1968 “to control and regulate the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business.
The Tariffs provide rates of premium for almost all classes of risks as also rules and regulations governing the business and standard form of wordings for the contract and its extensions. The Tariff Advisory Committee has constituted four Regional Committees at Delhi, Calcutta, Madras and Bombay.
The States of Jammu and Kashmir, Punjab, Haryana, Rajasthan, Uttar Pradesh, Himachal Pradesh and the Union Territories of Delhi.
The States of Assam, Bihar, Orissa, West Bengal and the Union Territories of Andaman and Nicobar Islands, Manipur and Tripura.
The States of Andhra Pradesh, Kerala, Tamil Nadu and Karnataka and the Union Territories of Lackaday, Minicoy and Amandine Islands.
The States of Gujarat, Maharashtra and Madhya Pradesh.
Each region has its own Tariff providing for rates, warranties and other regulations applicable to risks situated in its territorial jurisdiction. The Tariffs applicable to each of the regions are similar in broad outline but differ in matters of detail such as actual rates which reflect local hazards and past experience of the area.
These Tariffs are formulated by applying the principles of fire insurance rating discussed earlier. Risks are classified into principal groups and rates are provided for each group on the basis of loss experience of each such group. After classification, discrimination is another feature of the tariff system of rating.
In the same group of risks, there will be differences in the circumstances of individual risks. The differences are dealt with by charging extra premium for unfavorable feature and granting discount for favorable features.
The following three broad principles are adopted by the Tariff:
Risks are classified according to the occupation of premises. Goods stored are classified into hazardous or non-hazardous. Under this factor manufacturing process heating, lighting and power, the nature of goods, combustion and damage by smoke and water, etc.
Buildings are classified into 3 or 4 categories according to materials used in the construction of external walls and roof. Fire resisting materials, fire extinguishers, etc., are considered.
Risks are estimated according to the situation of the property, big cities, smaller towns, narrow streets, fire brigade facilities, water supplies, survey facilities, etc. The tariff provides:
1. Definition of the class of risks.
2. A minimum basic rate for a normal risk in a class.
3. Extra rates for specified, common and special hazards of a particular risk, e.g., situation in the mousse, conflagration area, height, night work, etc.
4. Discount in the premium for improvements in the risk, e.g., sprinkler installation, fire extinguishing appliances.
5. General rules and regulations governing the business.
6. Standard wording for the policy forms, clauses and warranties.
The Tariff System in Practice :
The Tariffs have prescribed the order in which the various additional rates and discounts are to be applied to the final rate.
1. Tariff rates as mentioned against the relevant item in the tariff
2. Extra rate mentioned in the item itself.
3. Extra for inferior reconstruction.
4. Conflagration extra.
5. Artificial light extra.
6. Extra for the use of mobile goods handling appliances.
7. Mousse or classified towns extra.
8. Extra for electrical installation not in accordance with the Tariff regulations.
9. Night work extra.