Pre-Inspection for Property Insurance Underwriting

“Importance of Pre-Inspection and Risk Management in property insurance”

Pre-inspection of risk has an obvious advantage in property insurance especially in fire insurance underwriting.

It may be considered as an important and essential tool for assessing/evaluation of risk properly.

Insurance and risk management goes hand-in-hand. Risk management can play a crucial role in property underwriting with regard to improvement of risk thus reducing or minimizing the chances of fire losses.

Moral hazard is an important element when it comes to fire underwriting. It is unknown to have fraudulent claims

emanating from moral hazard.

Every fire loss is a waste which may have an adverse impact on the national economy.

Moral hazard may be evident in various things such as; poor housekeeping/untidy premises, attitude of the management towards maintenance of property, poor bookkeeping, refusal of property owners to carry out risk improvement recommendations etc. 

Fire underwriters should not accept a risk based only on the information contained in a Proposal Form which may prove dangerous for an insurance company in the event of a claim exposing them to serious financial loss.

There is always a possibility that a proposer may provide wrong or incorrect  information (knowingly or unknowingly) or suppress/hide facts relating to risk. One such piece of important information relates to past claims experience. 

Pre-inspection or physical inspection of risk may be able to address these issues.

It is not prudent or professional on the part of a fire underwriter to commit the company and blindly underwrite a fire risk without prior inspection of the risk.

It is important to note that some risks may be poor and therefore unacceptable, others may be average and may be  underwritten subject to compliance of certain risk improvement recommendations  prescribed by the insurer within the stipulated time period. 

While conducting a pre-inspection it is important among others to focus on various important aspects of risk namely; Fire Detection and Fire Protection system installed in the premises etc.

Fire detection systems include fire alarm systems, smoke detectors etc.

On the other hand fire protection systems shall include, sprinkler system, fire hose reel, circuit breaker, fire extinguishing appliances – FEAs’, fire door etc. Fire extinguishing appliances may include fire extinguishing cylinders (CO2 type, Dry Powder type, Foam type) used depending upon the nature or occupation of business.

It is not enough to have these systems installed in the premises. It is also important to ensure that they are in proper working order  or condition during the period of insurance and that there is an annual contract in place with a professional company for their maintenance.

For a large and complex industrial unit, there should be a facility for fire drill conducted on a periodical basis.

It is also important to have in-house trained personnel (fire marshal) who are competent enough to fight a fire at its initial stage until the time Civil Defence or Fire Brigade Service arrives at the scene of fire.

A pre-inspection report should include risk improvement recommendations (if any). Compliance of those recommendations may be verified by arranging re-inspection of the risk. It is an ongoing process and should be followed up vigorously.

taking into consideration various aspects discussed above, the importance of pre-inspection of risk cannot be undervalued or overlooked.

Pre-inspection may assist in removing or reducing certain undesirable elements present in the risk thus improving the quality of risk.

This exercise together with risk management may be useful and come handy in reducing the number of fire claims leading to healthy and profitable underwriting results for the insurer(s) at the end of the day.

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