ERECTION ALL RISK INSURANCE

• Understanding what is Erection All Risks Insurance

(EAR Insurance)
• Add-On Covers Available
• Acceptance/ Claims/ Refund etc. Process
• Hazards Exposure & Preventive Risk Management
• Some Important Points to Remember
 Understanding EAR Insurance

• What is EAR Insurance

• Risks covered
• Period of insurance cover
• Perils covered
• How is sum insured arrived at?
• What is not covered- Major Exclusions
• Who can take the Erection All Risks Insurance?

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What is EAR Insurance?

The Erection All Risk Insurance is a comprehensive

insurance which provides “complete protection” against all
types of risks involved in the “installation” of machinery,
plant and structures of any kind from arrival of the material
at the project site till plant or machinery is commissioned.
Only Erection All Risks Projects in India are covered.

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Comprehensive Cover for all risks involved in…

Storage Erection

Commissioning of Plant & Machinery Testing

 Insurance Coverage
Erection All Risks- Policy issued for.....

Setting up a new Project/ Individual

Expansion of an existing project
machines

Cover Commencement:
From the time of unloading of the first consignment at the project site
Cover Terminates:
a) On completion of testing or handing over of the project to the principal
b) Or at end of the period of insurance chosen,
whichever is earlier.

Important Note:
If policy period chosen is lesser than erection period for Machinery/ Plant, cover
ceases on expiry of policy period and no cover is available for remaining project
period (unless extension sought & endorsed in policy)
If project gets completed before policy period (early completion of project), the
cover ceases on the completion of testing & handing over of project. Operational
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cover is to be taken for any cover thereafter
 Insured Period covered….

Insurance/
Project Stages Erection Testing Maintenance

Insurance
cover EAR Operational

Project Erection work Provisional Final

Progress commences Acceptance Acceptance
Certificate
 Insurance Period Covered…

Erection period Testing period Maintenance

• According to the • Normally one period
contract month but higher • Begins from the
requirement period can be day testing of the
opted with plant is declared
additional completed upto the
premium paid period max 24
depending on months- as
requirement required
 Machinery Covered

Machinery can reach project

site through
different modes of transport-
Road, Rail, Air, Sea or
Courier

Types of Machinery covered:-

-Indigenous
- Imported

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 Terrorism cover Human errors,
( Add-on cover) negligence & lack of skill

Faults in Erection Earthquake

Short circuiting, Landslide, Subsidence

arcing, excess voltage & Rockslide
Collapse, damage due Any other sudden,
to foreign objects, unforeseen damages
impact damages not explicitly excluded

Riot, Strike, Malicious act Burglary & Theft

Fire, Lightning, explosion, Flood, inundation, storm, cyclone

Aircraft damage and allied perils

EAR Insurance covers sudden & Unforeseen loss

or damage due to above
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 Perils Covered- classified into….

RISK OF
LOCATION HANDLING OPERATIONAL HUMAN ACT OF GOD
RISKS RISKS RISKS ELEMENT PERILS
Fire, Lightning, Impact from falling Failure of Safety Carelessness, Flood, Storm,
Theft & Burglary objects, Collision, Devices, Leakage Negligence, Faults Tempest,
and other risks Failure of cranes or of Electricity, in Erection, Subsidence, Rock
during storage & tackles Explosion Malicious damage, Slide / Land Slide
erection Riots or Strikes
Damage

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 Sum Insured
Completely erected value of the property inclusive of
• Cost of machinery- indigenous & imported (including invoice
cost, insurance, handling, clearing & transporting to project site)
• Freight & Customs duty in case it is imported machinery
• Cost of foundation, permanent civil, engineering & temporary
works
• Erection cost including salaries of technicians, labor- skilled &
unskilled
 What is not covered- Major Exclusions

Other Exclusions:-
General Market Risks that are the
Trade Risks
Exclusions subject matter of other
insurances
• War, Invasion, Riot, • Defective Material or • Design Defects
Strike, Civil Commotion Bad workmanship • Loss of files, drawings,
etc • Wear & Tear, Corrosion, cash, cheques etc,.
• Nuclear Reaction, Oxidation, Deterioration • Consequential Loss
Nuclear Radiation or • Disappearance or • Example: The Erection
Radioactive Shortage (Inventory site was flooded due to
Contamination Losses) rain. Work was
• Deductible - Insured‟s resumed without
Contribution waiting for the floods
• Willful Act or Willful to subside and taking
Negligence of the precautionary
Insured measures causing
• Cessation of Work further damages to
machineries
 Interest
Policy can be taken by

Contractor Principal Sub Contractor

• Joint Interest
– The policy can be taken jointly by any of the above
protecting interest of other parties. Normally contractor/
sub- contractor takes it protecting also principal‟s interest
• Interest of Financial Institution
– Insured must specify clearly if interest of Financial
Institution or bank is required to be covered for the loans
advanced
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 Extensions available in EAR Insurance

Third party liability

Cross liability
Cost of removal of debris
Escalation Cover
Owner‟s surrounding property
Express freight, overtime charges
Customs Duty
Storage risk at Fabricator‟s Premises
 Important Extensions
Third Party Liability

Third-party exposure like damages to

nearby property owned by someone
other than insured parties due to
erection, excavation & foundation work
 Important Extensions
Cross Liability Cover
Cover is in connection with a claim made
against the insured persons by another
party that has an „insured status‟ under the
same policy. The Third Party Liability
Cover can be modified to offer cover to the
insured parties named in the Policy
schedule as if a separate policy has been
issued to each party.

Example: Contractors A & B are engaged

in the same project. Liability arises to B
due to an accident in the work carried out
by A. Loss is within the same project but of
different contractors. This can be covered
as an extension under „Cross Liability
Cover‟
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 Important Extensions
Escalation Cover
Escalation Cover:
As Project Cost may exceed the original
estimated project cost due to inflation, rising
costs of labor etc. - an additional Sum Insured
as a % of sum insured can be opted as
„Escalation Extension‟ in the policy at
inception itself. The premium is charged at
50% of escalation sum insured and maximum
escalation permitted is 50%

Example: Project Cost estimated is Rs. 60

crores but insured estimates that since the
erection period is 12 months there could be an
escalation in cost of 10% (Rs. 6 crores) and
opts for escalation cover. Applicable premium
rate is paid on 50% of escalation sum insured
(i.e. 50% of Rs. 6 crores or on Rs. 3 crores) 19
 Important Extensions
Removal of Debris

Coverage for the cost of removal of

debris of covered property damaged
by an insured peril can be covered as
an extension to EAR Insurance
 Important Extensions

Surrounding Property

Loss of or damage to property located on or

adjacent to the site and belonging to the
Principal(s) or the Contractor(s)/ Sub- Contractors
only shall only be covered if occurring in direct
connection with the erection, construction or
testing of the items insured and happening during
the Period of Cover
Transit Risks can be covered under a separate
Marine Insurance for transits relating to
project to provide seamless cover….
Marine Transit Insurance

Any machinery/ materials in connection with the

project can be covered from „supplier to project
site‟ along with the “EAR Insurance”. The
machinery/ materials can be either Indigenous or
Imported
All transits by road, rail, sea, air etc. can be
covered.
 Acceptance Guidelines &
Standard Operating Procedure - SOP

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 Acceptance guidelines & SOP

• Preferred/Referral/Declined Risks

• Details for an EAR quote & policy

• Claims process

• Refund of Premium for early project completion

• Insurance impact- cost & duration increase

• Policy Extension- Information required

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Some key Preferred, Referral & Declined Risks

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 Considering the complexity
of the risk proposed in an
“Erection All Risks Insurance”
a proposal form is mandatory
before a quote is provided

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 Major details required in a EAR proposal form
Name & Address of Principal, Contractor & Sub Contractor, their trade & business

Nature of the project

Details of Plant & Machinery- whether New & Second hand; Indigenous or Imported

Project Period- details of arrival date of material, commencement of erection, duration etc.

Risk location address in detail

Details of storage, precautions, security (watch & ward facilities available)

Break up of Project cost- machinery, wages, civil and other works etc.

Whether any extensions required (eg. Escalation/ Surrounding property, Third Party Cover etc.)

Whether any additional testing period required other than one month inbuilt cover?

Whether opting for any higher deductible/ excess over and above policy excess

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 Claim procedure (key steps in the process)

Claim Reported Claim registered Contact details of

by Customer & Surveyors surveyors provided
Designated

Necessary
repairs or Surveyors visits site
replacement Initial Report within 48 hours for
(where initial survey
applicable)

Claim
Submission of Negotiation &
Processing
documents Final Report

Risk Engineers assistance Claim settlement to

as and when required client
 Claims- Basis of settlement

• The cost of repairs necessary to restore the

items to their condition immediately before
Partial Loss the occurrence of the damage less salvage,
policy excess and any other deduction as per
policy conditions

• The actual value of the items immediately

before the occurrence of the loss less salvage,
Total Loss policy excess and any other deduction as per
policy conditions
 Refund of Premium

• Period of insurance >= 18 months

For early • Notice for early completion in advance
completion of • Claim experience < 60%
the project • Policy period not exceeding the contract period
• Minimum period for refund 3 months
subject to
Policy period & Sum Insured Enhancement

• In case the insured feels that an extension of

policy period is required and approaches before
Policy period renewal date, the policy can be extended by
collection of premium based on “Extension
extension Premium Rates”. For the extended period-
EAR policy rate will not apply, only „Extension
Rates‟

• This will happen when during policy period it

is expected by client that there could be a
Sum Insured „project cost over run‟. The insured can
increase the sum insured under such a
enhancement circumstance. Any premium applicable will be
charged right from inception of the policy and
not from the date the enhancement is required.
 Information required when seeking policy extension
• Policy number & period of insurance as per policy
• Extension period required from _______ to _______
• Type of extension required- erection or testing
• Sum insured required for extension. Written confirmation from
client & broker is mandatory
• Current status of project when seeking extension & % of project
completed
• Reason for project delay
• Claims status under the policy
• If there is a gap between policy expiry & request for extension,
reason for the same & losses in this period too

Our standard quote to client should carry also details of

period of extension, sum insured & premium for extension
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 Other Aspects...

• Physical Hazards Exposure

• Steps for Preventive Risk Management

• Facility for payment in instalments

• Some Do’s and Don’ts

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 Physical Hazards Exposure
Pre-erection and Construction & Testing &
storage erection commissioning

• Fire • Working at Heights • Failure of Controls &

• Theft • Heavy Lifts Safety Device
• Water Damage • Handling of Over • Chemical Leakages
• Act Of God Perils Dimensioned Items & • Controls & Instrument
• Material Handling Electrical Equipments Failure
Equipments • Civil Construction • Failure of Material
• Improper Storage Requirements under Pressure
• Fire & Act Of God • Human Error &
Perils (eg. Flood Negligence
damage, earthquake • Machinery Breakdown
etc.) & Explosion
• Theft • Manufacturing Faults
• Erection Errors
 Mitigation of losses- Risk Management Steps

Plan vs 4 1 Identify
Actual- risks
measure inherent to
progress the contract

Monitor the Identify the

Progress Risk

Treat the Assess the

Risk Risk

Implement Evaluate the

loss risk
prevention exposure &
& safety
3 2 probable
programs precautions
 Identification of exposure to risks- probable
causes of losses & precautions- examples…

Key Over- Sponta-

Electrical Hot
causes Smoking Friction heated
Surface
neous
of fire materials Ignition

Must be as Area to Proper Storage Away from Proper

Safety per ISI be No- lubrication away from combustible stacking
measure norms smoking to be combustible materials
zone ensured materials

Fire losses – key causes & safety measures

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Loss prevention measures for „safety‟ - Erection

Case study:
Shifting of heavy silos in progress at a project
site. Crawler crane in operation collapses.
Heavy impact damage to silos, crane &
equipment stored underneath

Cause of loss:
Uneven ground conditions
Crane encountered a quickly filled soft ground spot

Loss Prevention- Safety Measures

Check ground under the base of crane

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 Instalment Premium

Premium can be collected in instalments if the Policy

period is more than 12 months
The following rules will be taken into consideration
a. Policy should be more than 12 months
b. Quarterly instalments
c. Last instalment shall be 6 months before the policy end date
d. First instalment shall be at least 5% more than the other
instalments

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 Watch list- Some important points to remember
Do’s in Erection All Risks Insurance
Do ensure you provide all information correctly &
completely on proposal form to rate risk correctly
& provide all eligible discounts
Do insure for entire project cost as under insurance Do go through the ‘Preferred’, ‘Referral’ &
would affect the claim if a covered incident does
occur
Do decide at beginning of policy period itself on
the ‘Extensions’ required’ & cover them at
inception of insurance
Do insure for full project period as the extension
premium if any extension is required, will be a
higher rate than normal EAR rate
Do remember that all approval for rates, terms and
conditions have to be from HO
Do remember to inform if any extension of policy
period is required (whether for erection beyond
policy period or testing also above 1 month inbuilt
testing)
Do keep in touch with the clients and ensure that
any increase in project cost or project period is
informed promptly to Chola MS to cover it
‘Declined’ Risks carefully & focus on the
‘Preferred’ segment to build a healthy portfolio
Do remember to cover the interests of Principal,
Contractors and Sub Contractors in same policy
for their respective rights & interests
Do remember that in case machinery/plant is a
second hand one the terms would be stricter
than if same machinery/ plant is a new one
Do pitch for other products along with EAR
insurance. Eg. Marine for transit of materials to
site, WC cover for workers, CPM cover for
machinery used at project site etc.
Do inform immediately on occurrence of a claim
and do not make any commitments to client
without consulting Chola MS Claims team
Do take care to ensure that
Erection All Risks Insurance
is converted into the
‘Operational Insurance’-
Fire/ IAR etc. when
plant/ machinery
is commissioned
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