Property & risk
Fire cover got cheap. Now it’s getting dearer. What to check either way
For a year, business property cover was sold at steep discounts. The regulator has warned about it, the floods have tested it, and rates are now turning. Whichever way your renewal moves, the clauses that decide a claim have not changed, and that is where to look.
The renewal quote came in lower than last year. Nobody asked whether the building was still insured for what it would cost to rebuild.
Over the past year, fire insurance for Indian businesses became a buyer’s market. Insurers competed hard on price, and the Insurance Regulatory and Development Authority of India warned general insurers against aggressive pricing after receiving complaints of discounts of up to 99 per cent on large industrial risks. Fire premiums collected in the first half of this financial year were down by roughly a quarter on a year earlier.
Then the floods came. After heavy losses in Gujarat, Assam and Odisha, insurers are pulling discounts back, and property rates are hardening by an estimated 25 to 30 per cent, more sharply on the natural-catastrophe side. Many businesses that enjoyed a cheap renewal last year will see a dearer one next.
Here is the part that matters more than either price. A fire claim is decided by what the policy says, not by what it cost. A cheap year can quietly leave a business underinsured, and a dear year tempts it to trim the very cover the floods just proved it needs.
In short
- Fire and property rates fell sharply over the past year and are now rising again after the floods.
- The price is the headline; the sum insured and the add-ons decide what a claim actually pays.
- Insured for less than the true value, a business is paid in proportion, even on a small claim. That is the average clause.
- A rising renewal is the wrong moment to drop flood or earthquake cover to hold a budget.
Put simply: the average clause is the rule that pays a claim in proportion when the sum insured is lower than the real value of what is insured. Insure a building for half of what it would cost to rebuild, and a fire claim, even a small one, is paid at roughly half. It is the most common reason a fire claim pays less than the owner expected.
A cheap year can hide an underinsured one
When a renewal comes in lower, it is natural to sign and move on. But a low premium says nothing about whether the sum insured still matches the asset. Building costs rise, machinery is added, stock grows, and a sum insured set years ago on book value can drift far below what it would cost to replace everything after a fire. The discount did not cause that gap; it just made nobody look.
Why rising rates tempt the wrong saving
When the next renewal arrives dearer, the easy way to hold the budget is to cut the sum insured or drop an add-on. The add-ons most often dropped are the ones that cover flood, storm and earthquake. This year’s losses came precisely from those perils. If cost must come down, it is safer to discuss deductibles and structure with your broker than to strip out the cover that answers the risk in the news.
What decides a fire claim, whatever the price
Four things decide most fire and property claims. The basis of the sum insured: what it would cost to rebuild and replace, not what the asset is worth on the books. The add-ons: flood, storm and inundation cover, and earthquake, are usually separate sections. Loss of profit: the money a business loses while it is shut after the damage. And the conditions in the policy: warranties, deductibles and exclusions, which can change at renewal even when the headline price does not.
How each property risk maps to cover
It helps to see what actually answers each part of the problem. This is category-level, general guidance, not any one insurer’s product.
| The risk | What answers it |
|---|---|
| Fire, lightning, explosion | The standard fire policy |
| Flood, storm and water inundation | The flood, storm and inundation section, usually an add-on |
| Earthquake | The earthquake add-on |
| Profit lost while the business is shut | Fire loss of profit cover |
| A claim cut because the sum insured was too low | A sum insured set on rebuild-and-replace value, reviewed every year |
A five-minute check before your next renewal
You don’t need a valuation project to find the gaps. Five questions usually surface them:
- When was the sum insured last set, and on what basis?Rebuild-and-replace value, not book value. If nobody remembers, it is due.
- Is flood, storm and earthquake cover in the policy?Check the schedule, not the proposal. These are often separate sections.
- Does the stock figure reflect your busiest month?Stock that peaks for a season needs cover that keeps up with it.
- Is loss of profit covered?Rebuilding is only half the cost; the months of lost trading are the other half.
- What changed at renewal besides the price?Compare deductibles, warranties and exclusions line by line with last year’s policy.
Frequently asked questions
What is the average clause in fire insurance?
It is the rule that pays a claim in proportion when the sum insured is lower than the real value of the property. If a building is insured for half of what it would cost to rebuild, a claim is paid at roughly half, even for a small fire. Setting the sum insured on rebuild-and-replace value avoids it.
Why did fire insurance get cheaper, and why is it rising now?
Over the past year insurers competed hard on price, with very deep discounts on some large risks, and the regulator warned against it. After this year's floods brought heavy losses, insurers are reducing those discounts, so rates are rising, more sharply on the natural-catastrophe side.
Does a fire policy cover floods?
Usually only if the flood, storm and inundation section is included. It is often an add-on, so check the policy schedule rather than assuming. Earthquake is typically a separate add-on too.
Should we cut our sum insured to manage a higher premium?
It is usually the wrong saving, because a lower sum insured can trigger the average clause and cut every claim, not only a large one. Talk to your broker about deductibles and structure before reducing the cover itself.
Can a broker help?
A broker's duty under IRDAI regulation is to you, the client, not the insurer, so a broker can review your sum insured and add-ons before renewal and, if there is a loss, fight the claim on your behalf. That describes the effort put in, not a guaranteed outcome.
What happens when you talk to us
A 20-minute video call with a Growth Advisor. No obligation, and no quote pushed. It opens with a five-minute video from our founder on how the benefits stack works and why Ethika exists; the rest is your questions. You’ll leave with an honest read on your current cover and claims experience, and a straight answer on whether we can genuinely help, even if you never become a client.
20 minutes with a Growth Advisor. No obligation.
A note on this page. Everything here is general information, not insurance, legal, financial or tax advice, and nothing is an offer. What any fire or property policy covers depends on its own wording and schedule. Market figures are drawn from reporting dated 20 September and 22 October 2026. For advice about your situation, talk to us.