ENGINEERING I NSURANCE IN INDIA

INSURANCE LAW

INTRODUCTION With a huge population base and large untapped market, insurance industry is a big opportunity area in India for national as well as foreign investors. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. This impressive growth in the market has been driven by liberalization, with new players significantly enhancing product awareness and promoting consumer education and information. The strong growth potential of the country has also made international players to look at the Indian insurance market. Moreover, saturation of insurance markets in many developed economies has made the Indian market more attractive for international insurance players, according to 'Booming Insurance Market in India (2008-2011). Insurance is a subject listed in the concurrent list in the Seventh Schedule to the Constitution of India where both centre and states can legislate. The insurance sector has gone through a number of phases by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government. Engineering insurance is growing in India due to rapid industrialisation. The machines are exposed to accidental breakdown or unforeseen damage. There are hearty costs involved and third party liability. There are two main types of engineering insurance. The origins of engineering insurance goes back to Industrial Revolution in U.K. Due to frequent explosions of boiler, heavy losses to property and life occurred. The Manchester Steam Users Association was formed in 1854 to prevent losses occurring due to explosions. Eventually, the Steam Boiler Assurance Company was formed in 1858. New India Assurance Company Ltd. started engineering insurance for the first time in India followed by other general insurance companies Engineering experts are appointed by the insurance companies for evaluating risk and rate fixing. Engineering Insurance is an insurance policy that covers a wide range of engineering related risks. It is essentially a comprehensive insurance that provides complete protection against risks associated with erection, resting and working of any machinery, plant or equipment. Engineering Insurance however has many components. The Erection Insurance covers all kinds of risks involved in the erection of machinery. It covers other risks involved in storage, installation, test runs and commencement of work of the machinery. The Insurance period in such cases starts from the moment the machinery consignment is received to the time the
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machinery is running and handed over to the right party. The sum insured in this case is the value of the machinery completely erected along with other costs that are included.

There are is a separate insurance for electronic equipments. Such insurance covers any electronic equipment against any damages. The cover can involve either the replacement cost of the machinery or the cost of restoring it. Another such insurance cover is Machinery Loss of Profits Insurance. It covers the losses incurred by machinery due to business interruption. The cover in this case is equal to an averaged out profits for a year. Another kind of insurance under Engineering Insurance is the Contractors All Risk Insurance. It covers the risk of loss during contract works in civil projects. The Machinery Breakdown insurance on the other hand insures all risks that arise in case of a machinery breakdown. This however doesn't include breakdown in case of a willful act or fire. Engineering Insurance is now a need for any manufacturer as breakdown is unpredictable and costs are always high. Engineering Insurance is now a need for any manufacturer as breakdown is unpredictable and costs are always high. Every entrepreneur should go for it to ensure that in case of an unforeseen event the financial pressure is handled well. Since the insurance covers almost any kind of loss that can arise, it is best to take up. Moreover, since all machineries include heavy costs it is always advisable to have someone ready to bear your losses when needed.

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INSURANCE LAW

ENGINEERING INSURANCE DEVELOPMENT Engineering Insurance is like all other accidental insurance and the normal rules of indemnity apply to it as well. The basic principles of utmost good faith and insurable interest equally apply to all branches of engineering insurance. The principle of subrogation, contribution and proximate clause etc are in no way different for engineering insurance. The principles of general insurance must be studied carefully before studying the specialized course of engineering insurance. The boiler insurance dates back to the middle of 19th century. Due to the occurrence of frequent explosions, involving serious loss of life and property rendered it necessary to take steps to guard against this danger. In 1854, therefore a number of persons interested in the use of steam had a meeting in Manchester (UK) to discuss the problem. The meeting resulted in forming an association named as MANCHESTER STEAM USERS ASSOCIATION. It was not an insurance company rather it rendered valuable services in preventing the explosions and this association rapidly increased its membership. The members soon found that some sort of insurance must be placed to compensate those having losses due to explosions of boilers. Although all the members did not agree, still some of the members started the first engineering insurance company and the Steam Boiler Assurance Company came in to being in 1858. Other insurance companies then came in to existence. The first insurance company started with the insurance of boilers only. Activities were gradually extended to pressure vessels and engine insurance began in 1872. Later electrical apparatus were also included in the insurance cover. In 1882 Boiler Explosions Act was passed in England and it provided for an investigation in the cause of all boiler explosions expect those in the service of the Crown. The Factory and Workshop Act passed in England in 1901 made it mandatory for all the establishments to get their boilers inspected compulsorily once in every 14 months by a competent person. In England Factories Act 1961 and the Mines and Quarries Act 1954 repealed all the previous legislations. With the passing of these two legislations the engineering insurance expanded rapidly. It is pertinent to mention here that the regulatory compulsions are only for compulsory inspection and not for compulsory insurance.

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INSURANCE LAW

DEVELOPMENT IN INDIA Development of engineering insurance is of comparatively recent origin in our country. The new India assurance company Ltd started transacting engineering Insurance on a modest scale in 1953 with the assistance of Munich Reinsurance Co of West Germany. Other insurers followed later. Engineering insurance as practiced in India differs from that of UK in one significant aspect and that is Inspection of the plant and machinery. The insurers in UK besides offering the indeminfication in case of loss or accident also render during the currency of the policy an inspection service. In India this service is provided not as a part of the policy conditions rather as a goodwill gesture and the insurers make an inspection when undertaking the risk that implies the underwriters make the inspection from their risk angle and also to make recommendations to adopt measures for loss minimization.

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INSURANCE LAW

NEED FOR ENGINEERING INSURANCE IN INDIA The rapid industrialization of the country in the past few decades has lead to the increasing use of machinery in industry. Machines reduce human involvement and increase production capacity, but at the same time they are potential source of damage in the event of accidental breakdown or unforeseen damage. Chances of such accidents and breakdowns can be reduced by employing skilled operator / erectors and by introducing proper maintenance programme but in fact mo amount of care can eliminate such accidents together. Once a major breakdown takes place, it is difficult to anticipate the extent to which the property may be damaged or result in fatal or non-fatal injury. In contrast to manually operated machines the steam and electricity powered machines are more costly but capable of doing more extensive damage in case of an unfortunate accident. A prudent user of machines therefore seeks protection under insurance cover. The rapid increase in the premium portfolio of engineering insurance business in the past few years is a clear indication that more and more industrialists of today prefer to insure against the perils that can be covered under Engineering Insurance policies.

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ENGINEERING I NSURANCE IN INDIA

INSURANCE LAW

VARIOUS TYPES OF ENGINEERING INSURANCES: The general insurers in India today provide indemnity under the following types of policies: a. Boiler & Pressure Plant Insurance.

The plants for the purpose of engineering insurance can be divided in to two parts. Viz.: BOILER and MACHINERY. Boiler and other pressure vessels are insured against the basic risk of explosion and collapse and also much wider cover of sudden and unforeseen damage. The cover provided is: i. ii. iii. iv. b. The damage to the plant, The damage to the property and The damage to the third party property and The death or injury to the third party.

Machinery Insurance (Machinery Breakdown)

Machinery is insured against the breakdown and accidental damage to the surrounding property. The third party liability can also be covered. The plant and machinery may be classified as follow: i. ii. Boiler and other Pressure Plant. Electrical Plants like (Thermals based upon steam, coal, diesel, hydro, atomic) and Transmitting and receiving Electric sub stations. It also covers all the processing industries that use electricity like Cement Factory, Cold Storage, chemical works, general engineering, oil mills etc. iii. iv. v. c. Engines, Refrigerating plant and general machinery. Lifts, Cranes, Material handling Plants and equipments. Computers, Electronic Data Processing, Electro-medical equipments.

Erection All Risk Insurance / EAR Insurance (Also known as Storage-cum-erection

Insurance): This policy deals with the risks inherent in the construction of building structure and civil engineering works normally excluding the installation therein of the mechanical and electrical plant. The engineering department deals with the erection or assembly of other mechanical or electrical plant. The two departments frequently collaborate in underwriting
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the risk and the cover can be under a single policy or under separate policies. The cover under this policy starts from the date and time; the delivery of the first consignment of the plant and machinery is made at the site of erection.

d.

Marine-cum-Erection Insurance:

Normally the erection insurance starts when the marine insurance ends. But in India we are having the insurers issuing the marine insurance along with the erection insurance in one policy. Under this composite policy the cover starts from the moment the material and equipment leaves the manufacturer / supplier warehouse in foreign country or in India and remains in force during the voyage and during the inland journey to the site of erection, during storage, during assembly and erection until final completion of test run.

e.

Contractor All Risk Insurance. (CAR Insurance):

It is very good policy for all the contractors of Civil Engineering Works as they are held responsible for the loss or damage to works until they are handed over to the principal. This liability can best be insured under a CAR Insurance. Also it would be in contractors own interest to have an adequate insurance protection to meet the financial responsibilities. The CAR policy is designed to cater for such projects where the major potion of the risk pertains to civil engineering works and it is static in nature. Viz.: i. ii. iii. iv. v. vi. vii. viii. f. Erection of Building, Laying of service or pipelines, Roads and railway construction, Waterways and drainage schemes, Sewage works, Irrigation canals, Bridge construction, Erection of docks, dams and reservoirs etc.

Contractors plant and machinery insurance:

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This policy is designed to cover the losses to the contractors plant and machinery which is used in the construction of high-rise buildings and construction activities. The demand of this type of policy has increased from the last few years and will continue increasing in future due to more construction activities at higher altitudes. A standard Contractors Plant and Machinery covers damage from a variety of causes and these include: i. ii. Burglary, theft, riot and strike and malicious damage, Fire and lighting, external explosion, earthquake, flood, inundation, landslide, rockslide. iii. iv. Storm, hurricane, typhoon and tornado, Accidental damage, while at work due to faulty manhandling, dropping, falling, collapse, collision, and impact. g. h. Loss of Profits following machinery breakdown &/or Boiler Explosions Insurance. Deterioration of Stock (Potatoes) in cold storage insurance. This is a very high-risk

oriented policy so very tough underwriting procedures has been laid down. Even MHR report of the insured is called for. i. Deterioration of Stock (other than Potatoes) Insurance. Like seafood, dairy products

and fruits. j. Miscellaneous Engineering Insurance (such as Works Damage Insurance Policy,

Electronic Equipment Policy etc.)

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