What is STFI and RSMD in Fire Insurance?

Introduction:

According to the data released by the General Insurance Council, fire insurance premiums have increased by 8.16% so far in FY 2023-24(1). Generally, businesses with fire insurance are covered for any loss or damage caused to the structure and contents of property unless intentional damage, gradual deterioration, or lack of maintenance and repair. However, there are some add-ons such as STFI and RSMD, which provide an additional layer of protection against any loss caused by natural calamities and malicious damages.?

For example:

A warehouse named in Dadar, Mumbai was hit by fire due to electrical failures. This was a result of heavy floods in 2018, causing damage to stocks worth lakhs. As we navigate the conditions of the warehouse, the loss primarily is not due to fire, but heavy floods causing electrical circuit damage.?

This is where the importance of STFI and RSMD coverage under fire insurance holds relevance. Let’s understand STFI and RSMD further.?

What is STFI?

STFI is an add-on cover under fire insurance or a part of the standard fire and special perils insurance policy, that provides additional security to businesses in the event of a fire induced by specific factors included under STFI. STFI's full form is Storm, Tempest, Flood, and Inundation, which provides comprehensive coverage with fire insurance.

Storm:

It is an extreme weather condition iterating atmospheric disturbance induced by heavy rainfall, wind flow, snow, or lightning, causing significant damage to the property contents.?

Tempest:

This is a specific type of storm caused by a violent flow of winds which leads to heavy snowfall or windfall.?

Floods and Inundation:

Extremely heavy rainfall may cause floods as a result of overflowing the water bodies in the vicinity, which causes adverse damage to the property contents. On the other hand, inundation is a particular type of flood that is caused due to overflowing water.?

What is RSMD?

Similar to STFI, RSMD is also an add-on cover of fire insurance or inclusion in the standard fire and special perils insurance policy. RSMD represents Riots, Strikes, and Malicious Damage, which secures businesses in the event of riots or strikes causing damage to the property structure and contents like furniture, stock, machinery, etc.?

Riots:

When a group of people cause damage to the property as a result of aggression and create a disturbance or ruckus due to certain reasons like communal issues, implementation of some rules, etc. making the environment extremely disruptive.?

Strikes:

Typically, a strike is an act of protest by an external crowd or employees to force the implementation of certain acts benefiting or in the interest of the crowd or employees. Strikes could cause significant damage amidst violent acts or losses, which could be covered under fire insurance.?

Malicious Damage:

This is a conscious act committed by an external party on purpose to cause damage to a specific property of a specific company. According to the insurance company, malicious damage must be due to an external party having no right to occupy the company’s premises.?

How does STFI and RSMD affect your fire insurance??

• Comprehensive protection: STFI (Storm, Tempest, Flood, and Inundation) adds extended protection and financial security from any losses due to flooding, storms, or inundation that can disrupt the electrical systems and lead to fire. RSMD (Riots, Strikes, Malicious Damage) provides protection to businesses against any damages to the property structure and inventory from civil disturbances caused by riots, vandalism, or strikes.?

• Premium price: When adding STFI and RSMD cover to fire insurance, several factors are evaluated before estimating a premium price against the required coverage limit. For STFI, the insurer will check the vulnerability of the location to heavy rainfall and the frequency of floods or storms. The premium price will be slightly higher for regions receiving maximum rain. For RSMD, insurers may assess business locations with heat maps (by the National Crime Records Bureau) for the history of riots and strikes. The premium price will be heavier for the areas which have a recent occurrence or history of riots, or strikes.?
• Effective risk management strategy: STFI and RSMD are add-on covers under standard fire insurance which help mitigate the businesses from natural calamities as well as civil disturbances. Businesses that are located in flood-prone areas or social unrest have higher risk potential, needing effective risk management strategies with STFI and RSMD cover.?

Conclusion:?

Standard fire insurance policy with add-on cover for STFI and RSMD provides comprehensive security to businesses against any losses due to natural calamities and civil disturbances. The policies may have a higher premium but the risks mitigated on property and operations bring the desired financial security that businesses need in the event of a fire caused by storms, flooding, riots, and strikes.