PROJECT INSURANCE

INSURANCE
Insurance

in broad terms may be described as a method of sharing financial losses of few from a common fund who are equally exposed to the same loss.
An insurance policy is a contract under which an insurer agrees to pay for losses or liabilities suffered by an insured, as a result of specified causes, in return for the earlier payment of a premium, subject to stated limits, conditions, and exclusions.

IMPORTANT ELEMENTS INVOLVED IN THE CONCEPT OF INSURANCE

Subject matter of insurance Subject matter is property, human life, machinery, goods etc., The PERIL (risk) Peril is fire, storm, burglary, earth quake, injury, explosion etc., The financial loss

Financial

loss

is

normally

defined

before

the

contract is signed.

CONTRACT OF INSURANCE

INSURED:-

Party effecting insurance, (Individual, Company, Firm, Corporate body etc., with legal status) Party granting the protection under an insurance policy. Is the evidence of contract

INSURER:-

Policy:-

INSURANCE INDUSTRY IN INDIA

The Life Insurance Corporation was formed in September 1956 by the Central Govt. General Insurance Business was nationalized in 1972 and GIC commenced its operation from January 1, 1973. 1993, Govt. of India set up a committee under the chairmanship of Mr. R N Malhotra. January 1994, the committee submitted its report with two key recommendations; privatization of the insurance sector and the establishment of an insurance Regulatory Authority. December 2, 1999, the Indian Parliament passed the IRD Act with the aim to provide for the establishment of an authority to protect the interest of the policy holders, to regulate, promote and ensure orderly growth of the insurance industry and to amend the Insurance Act 1938.

INSURANCE IN CONSTRUCTION INDUSTRY

One of the most important ways to tackle risk The purchase of insurance policies depends on the project and contractual requirement The insurance company considers

The severity of potential risk The probability of occurrence of the risk The available risk mitigation measures

INSURANCE POLICIES FOR A TYPICAL CONSTRUCTION ORGANIZATION

Policy Name Brief Explanation

Fire Insurance
Workmens compensation insurance Group personal accident policy Group medi-claim policies

Policy A or B covering offices, main depots, transit houses etc. Fire policy C covering job sites
To take care of the legal liability of the employer towards the employees under W.C. act due to accident For providing compensation to the employees who meet with accident resulting in fatal or non-fatal injuries To take care of the medical expenses necessitated due to hospitalization and domiciliary hospitalization on account of accidents/sickness/disease To take care of medical expenses incurred due to sickness/accident necessitating treatment abroad

Overseas medi-claim policy

INSURANCE POLICIES FOR A TYPICAL CONSTRUCTION ORGANIZATION

Policy Name Cash insurance Brief Explanation For covering loss of cash while it is in transit or in safe

Fidelity guarantee

For loss caused to the employer due to infidelity of the employees who are responsible for dealing with cash or stores
For covering vehicles against accidental damage and third-party liability. Goods-carrying vehicles against own damage and liability For covering loss or damage to plant and machinery due to accidental failure caused by electrical or mechanical breakdown

Motor insurance

Machinery breakdown policy

Marine insurance
Contractors plant and machinery insurance (CPM)

For covering loss or damage to materials, stores and spares, plant, machinery etc during transit
For plant and machinery that are essentially used at project sites

INSURANCE POLICIES FOR A TYPICAL CONSTRUCTION ORGANIZATION

Policy Name Brief Explanation

Contractors all-risk For covering mainly civil jobs insurance (CAR) Marine-cumerection insurance Electronic equipments insurance Public liability insurance This is an all-risk policy covering civil, mechanical and electrical jobs with extension of marine/transit risk cover To have all-risk protection for loss or damage to computers For legal liability of the owner in respect of fatal/non-fatal injury caused to third-party personnel or damage to thirdparty property arising out of accident for which insured is held liable under law The policy covers materials such as temporary structures at site, stores material, spares, tools etc. located at different project sites

Burglary/theft insurance

PROJECT INSURANCE
The insurance policies may be taken by the owner as well as the contractor An owner organization may go in for policies such as

Marine-cum-erection (including third-party liability) Delayed start-up

The contracting organization may go in for policies such as

Construction plant and equipment insurance Employers liability/workmens compensation Marine vessels policy Motor vehicles policy Cash insurance and temporary properties of employers as well as of contractor

MARINE-CUM-ERECTION INSURANCE

During the construction & erection, the policy covers the following risks

Environmental perils Storm, flood, earthquake etc. Location perils fire, lightning, theft and burglary etc Handling perils collision, impact etc Negligent acts carelessness, negligence, faults in erection, etc.

MARINE-CUM-ERECTION INSURANCE

During the construction & erection, the policy excludes the following risks

War risks Normal wear & tear Rust, corrosion and erosion Cessation of work Willful acts or willful negligence Consequential (financial) losses

MARINE-CUM-ERECTION INSURANCE

For goods in transit, the policy covers all risks of physical loss or damage, including

War and strike Riots and civil commotion

However, the policy does not cover loss or damage due to

Insufficient or inadequate packing Inherent defects Unseaworthiness of vessels Financial default of vessel owners Radioactive contamination and consequential losses caused by delay

CONTRACTORS ALL-RISK INSURANCE (CAR INSURANCE)

The CAR policy can provide the contractor with a comprehensive insurance coverage This insurance cover is useful for
All civil engineering works including massive dams, bridges, tunnels and docks Residential and office buildings Water treatment plants, canals and roads and Airports, factories etc

CONTRACTORS ALL-RISK INSURANCE (CAR INSURANCE)

Some of the important causes of loss indemnified under a CAR policy are:

Fire, lightning, explosion, impact, aircraft damage Flood, inundation, storm, cyclone, hurricane, etc Earthquake, subsidence, rockslide and landslide Theft, burglary, riot and strike damage

Some general exclusions in this policy are

Nuclear perils War group perils Willful act or gross negligence on the part of the insured

CONTRACTORS ALL-RISK INSURANCE (CAR INSURANCE)

Specific exclusions of the CAR policy are:

Faulty design Inventory losses Defective material Bad workmanship Wear and tear Deterioration Normal atmospheric conditions Rusts and scratching of painted or polished surfaces Cost of rectification or errors unless resulting in physical damages Loss or damage to vehicles used on the road or waterborne or airborne craft/vehicles

CONTRACTORS ALL-RISK INSURANCE (CAR INSURANCE)

Third Party Liability

This policy protects the policyholder in respect of legal liability to third parties for both bodily injury and for any loss of or damage to their property Third party includes customers, suppliers and general public for any business It does not cover injury to employees as it is covered under Workers Compensation.

MARINE/TRANSIT INSURANCE

Marine insurance may be defined as an agreement whereby the insurer undertakes to indemnify the insured against marine losses, incidental to marine adventure. The common modes of marine transit are sea, rail/road, air and registered post The standard types of perils include

Inland transit (rail & road) Fire Lightning Collision Overturning Derailment Theft Non-delivery and breakage

MARINE/TRANSIT INSURANCE

The various types of policies listed under marine/transit insurance are:

Specific policies Open covers Cover note Certificate of insurance

SPECIFIC POLICIES

These are policies issued for a particular shipment. As and when a shipment is made, the insured approach insurers and take out

OPEN COVERS
These are agreements between the insured and the insurers to cover all shipments/dispatches during the agreed period of insurance, which is normally one year. Open policy is normally issued for inland transit and open cover for overseas shipments

COVER NOTE
These are issued by insurers when a policy can not be issued for want of important details like name of the vessel, bill of lading number and date, These are valid for a particular period only and should be replaced by policies when dispatch particulars are obtained

CERTIFICATE OF INSURANCE

This is normally issued when specific policies are not required to be issued under open policies, mainly to comply with bank stipulations

FIRE POLICY

Fire policy covers

Factories Depots and Stores

FIRE POLICY

Risks covered under fire policy are

Fire/lightning Explosion/implosion Aircraft damages Riot/strike/malicious and terrorism damages Impact damages Storm/cyclone/typhoon/hurricane/tornado/flood and inundation Landslide/subsidennce including rockslide Bursting and/or overflowing of water tanks apparatus and pipes Missile-testing operation Leakage from automatic sprinkler and Bushfire The policy may have an additional cover for spontaneous combustion, earthquake, debris removal etc.

FIRE POLICY

Details of Property to be disclosed:

Type of property commercial/residential If shop whether hazardous goods are stored; if so, whether the stock value exceeds 5% of the total stock value If warehouse/godown (not located in a manufacturing unit), details of the goods stored If industrial/manufacturing unit, details of goods manufactured and capacity utilization Utilities Height of building Age of building Fire protection devices Construction material details

FIRE POLICY - EXCLUSIONS

Loss destruction or damage casued by war, invasion civil war civil commotion etc. Radioactive toxic, explosives or other hazardous properties Pollution or contamination Loss due to stocks in cold storage premises caused by change of temeprature

BASIC VERIFICATION FOR FIRE CLAIMS

Whether the policy is in force The perils covered under the policy include cause of loss The property affected and location involved are both covered as per the policy schedule The interest involved is the same as referred to in the policy

ERECTION ALL RISKS (EAR)POLICY

Erection All Risks (EAR) Policy is concerned with erection of electrical plant and machinery and equipment and structures involving no or very little civil engineering work. This type of policy insures equipment during installation and testing/commissioning.

ERECTION ALL RISKS (EAR)POLICY

The plant insurable under this policy could be broadly:

Boilers Transformers Switchgear Compressor Blast furnace Structural steelwork

The policy may cover an individual machine e.g., turbine, generator, etc.

ERECTION ALL RISKS (EAR)POLICY

The Testing Period

Cold Testing It is the checking of parts and elements of insured property by mechanical, electrical, hydrostatic or other forms of testing under no load conditions. Hot Testing (operational & commissioning tests) The checking of parts, elements &/or production lines of insured property under full or partial load and normal or simulated operating conditions

BOILER AND PRESSURE PLANT INSURANCE

Boilers and pressure plant generate steam which is used for process purposes in industries e.g. paper mills, cotton mills, fertilizers, petrochemicals etc. Driving machinery e.g. thermal power plants it is mainly used to dive turbines for the generation of electricity In all these vessels explosion can occur due to various reasons resulting in damage or collapse of the vessel as also damage to surrounding property and third party property damage and / or bodily injuries

BOILER AND PRESSURE PLANT INSURANCE

The policy covers explosion or collapse of the insured Boiler or other pressure vessels resulting in
Damage to insured item itself (other than by fire) Damage to other surrounding property of the insured (other than by fire) Liability for third party property damage and / or fatal or nonfatal personal injuries

The following damages caused by explosion are covered under fire policy:
Fire resulting from explosion Damages caused by explosion of Boiler used for domestic purposes Damages caused by explosion of gas used for domestic purpose only for lighting or heating a building not forming a part of any gas work

ELECTRONIC EQUIPMENT INSURANCE

Examples electronic equipments

Electronic data processing equipments Electro-medical equipments Equipment for research and medical testing Telecommunication and navigational equipment Computer system for production plant and machinery Signal and transmitting units etc.

ELECTRONIC EQUIPMENT INSURANCE

Exclusions

Loss or damage caused by any faults or defects existing at the time of commencement of the insurance Loss or damage cause by failure or interruption of any gas, water or electricity supply Loss or damage due to wear and tear, erosion, corrosion, or gradual deterioration due to atmospheric conditions Loss or damage for which the manufacturers or suppliers arte responsible by law or under contract Loss or damage to rented or hired equipment for which the owner is responsible Loss or damage to bulbs, valves, tubes, ribbons, belts etc Consequential loss if any kind

PLANT AND MACHINERY INSURANCE

This is a comprehensive policy covering unforeseen and sudden physical damage to the property deployed/used at various locations/projects. The following are the types of cover
Material damage Third-party liability Increased cost of working Inland transit

MATERIAL DAMAGE

This covers equipments of all types, including

Earth-moving equipment All types of cranes, pumps (including concrete pumps) Concrete mixers Welding machines Compressor DG sets Batching plants Transformers Drilling rigs Piling hammer Hot mix plant Concrete pavers Truck-mounted boom placers Formwork materials and scaffolding materials

THIRD-PARTY LIABILITY

The insurance company indemnifies the insured against the legal liability for accidental loss or damage caused to the property of other persons and against the legal liability for fatal or non-fatal injury to any person other than employees

INCREASED COST OF WORKING

The insurance company indemnifies additional costs incurred by the insured to ensure continued operation with substitute equipment, subject to limit specified

INLAND TRANSIT
This insurance covers all risk of loss or damage to the subject matter. Transit insurance starts from the time the goods leave the warehouse/store until delivery to the final destination

ADVANCED LOSS OF PROFITS (ALOP)

This policy is particularly important for large Greenfield projects where delay in project completion could have a substantial impact on the expected revenue of the company, potentially impacting the sponsors ability to service debt and other fixed expenses. This policy pays for anticipated net profit plus standing charges during the period of delay, from the scheduled date of commencement of commercial operation up to the actual date of commencement of commercial operation.

Thank You