Insurance Companies Tread With Caution Over Fire Claims

Domestic insurance companies have said that they are cautious in recessionary market conditions in meeting fire insurance claims made by corporates.

Insurers believe that during slack demand conditions, some corporates deliberately burn their inventory pile up and claim insurance against the damage to mobilise working capital.

In the past we have received cases where corporates have deliberately burnt their inventory and claimed funds from us. Normally they burn their old stocks rather than fresh inventory, said the chairman of a subsidiary of the General Insurance Corporation.

Such cases normally come to us during the last quarter of a financial year, but we have not yet come across such a case in the current year though, he added.

 

If demand for goods does not pick up as the year ends, the corporates have the additional burden of servicing the inventory pile up by paying warehousing costs. They hope to obtain a discounted cash flow by setting fire to the stock pile up and claiming insurance, sources said.

Insurance companies, however, played down the phenomenon stressing that such cases are not rampant in the industry.

The 1997-98 financial year saw two major fires one in a South-based cycle company and another one in a textile company.

An official at a GIC subsidiary said the company individually provides claims of up to Rs 20,000 against fire.

Claims for more than Rs 20,000 are met jointly along with other insurance companies, the official added.

Insurance companies have assessors and surveyors to look into the validity of claims. We make a thorough assessment of the claims. We have our own surveyors, and when a fire breaks out in a corporate, investigations into the incident are conducted by other agencies too. We also study their financial performance and consider their past performance before coming to any such conclusions, the insurers said.