PROJECT INSURANCE

By

Er. AMRIT LAL MEENA, SBM

NATIONAL INSURANCE COMPANY LTD

Type of Project Ins. policies

 ERECTION ALL RISK

 CONTRACTORS ALL RISK
 MARINE CUM ERECTION
 CONTRACTORS PLANT AND MACHINERY
ERECTION ALL RISK POLICY

ALSO KNOWN AS STORAGE CUM

ERECTION POLICY
Need For The Policy

 Before introduction of EAR Policy, protection against the main

risks arising during construction of a project could only be
concluded through a number of individual insurances covering
Risks of Fire, Flood, Storm, Third Party Liability, Theft, Burglary
etc.

 The protection offered by individual insurances was insufficient

since no specifically tailor made cover was available for the
hazards inherent in Engineering Projects.

 Overlapping of Coverages.

 Double Insurance.

 Prohibitive Cost.
 Insurers devised a comprehensive cover for project insurance
called Erection All Risk Policy.

 It is a combination of The German Montage Cover and The

British Contractor’s All Risk Insurance.

 Basic concept of EAR Insurance is to offer comprehensive and

adequate protection against all the site risks involved in the
erection of plant and machinery.

 It has widely gained in importance and has

become an indispensable factor for all industrial
risks in the construction phase.

 Very often, conclusions of such insurance is a

condition by the financial institutions granting
funds for the project.
Insured :

 EAR Insurance can be concluded by anybody who has an

insurable interest in the erection of a project.

 Manufacturers or suppliers of plant and

machinery if they carry out the erection work.
 The contractors or erectors or sub-contractors
of the project .
 Financial institutions who grant funds for the
project.

 Not necessary to issue separate policy to each concerned. Single

policy can be issued for the entire project in the joint names of all
the parties concerned.
 Subject Matter Of Insurance

 Storage, Erection And Testing of all kinds of :

 Individual machines such as turbines, generators, boilers,

compressors, transformers etc.

 Complete projects such as power stations, fertilizer factories,

chemical plants, paper plants, cement mills etc.
Scope Of Cover

 Any sudden and unforeseen physical loss or damage occurring to

the property insured on the erection site during the period of
insurance.

 Every hazard not excluded is covered.

Risk Covered
 Normally the insurer will be liable for loss or damage due to the following
causes:

 Fire, lightning, explosion, crashing aircraft, extinguishing, water or

other fire related hazards.
 Flood, storm, cyclone tempest, hurricane etc.
 Earthquake, landslide, rockslide, subsidence etc.
 Theft & burglary.
 Faults in erection.
 Lack of skill.
 Riot & Strike Damage.
 Short circuiting, arcing, excess voltage.
 Excess pressure or vacuum, tearing apart on account of centrifugal
forces.
 Any other sudden and unforeseen event such as loss or damage due to
collapse, falling objects, entry of foreign bodies, on site transport of
items to be erected.
Risks Not Covered

 War & War like operations.

 Nuclear reaction, nuclear radiation or radioactive contamination.
 Damages falling under manufacturers guarantee.
 Willful act or gross negligence of the insured.
 Consequential loss of any kind such as penalties, loss due to delay
etc.
 Loses discovered at the time of taking inventory.
 Gradual deterioration due to atmospheric conditions.
 Cost of rectification or error unless it results into physical damage.
 Period Of Insurance

 Cover commences from the date of arrival of the first consignment

at the site of erection and continues till the erection work and
testing operations have been completed or the expiry of the policy
period whichever is earlier.
Sum Insured

 For the purpose of EAR insurance the following values denote the sum
insured :

 Marine (Imports) - Landed cost at site.

 Marine (Indigenous) - Landed cost at site.

 Cost of Erection (including cost of visits of specialists & supervision

charges).

 Permanent /Temporary civil engineering works.

 Half the escalated value, if escalation is opted for.

Additional Covers
 Earthquake (Fire & Shock).
 Clearance & Removal of Debris.
 Third Party Liability.
 Cross Liability.
 Surrounding Property of the Insured.
 Escalation.
 Express freight (Air Freight Excluded), Holiday & Overtime Rates of
Wages .
 Air Freight.
 Additional Customs Duty.
 Construction Plant & Machinery.
 Maintenance visits Cover & Extended Maintenance Cover.
 Terrorism Cover.
 Dismantling Cover.
 Storage Risk at Fabricators Premises / Workshop.
 Construction Plant & Machinery.
Earthquake (Fire & Shock)

 All ‘ Act of God’ perils other than earthquake (Fire & Shock) are
taken care of in the SCE rate.
 EQ (Fire & Shock) has to be opted specifically.
 Rate applicable for EQ (F&S) is according to the EQ Zone in
which the risk is located.
 Rate to be applied on the SI as defined under EAR Policy.
 Rate to be applied on pro-rata basis for policy period either less or
more than one year.
 EQ cover cannot be opted mid term.
 EQ cover also available on first loss basis.
 Option for higher excess for EQ Cover only (2, 5, 10, 20 times)
with corresponding discount. This can be opted irrespective of the
fact whether increased excess for normal / testing period is opted
or not .
 Clearance & Removal Of Debris

 Provides cover for expenses incurred for the clearance of debris

following an indemnifiable loss.

 Separate sum insured limit to be selected.

 EAR rate to be applied on the sum insured selected.

Third Party Liability
 Provides compensation against :
 Legal liability for accidental loss or damage caused to property of
other persons including property held in trust by or under custody of
the insured for which he is responsible excluding any such property
used in connection with erection.
 Legal liability for fatal or non fatal injury to any person other than
insured’s own employees or workman or employees of the owner of
the works or premises or other firms connected with any other
erection work thereon or members of the insured’s family or of any of
the aforesaid.
 Separate sum insured limit to be selected for third party cover.
 For policies with sum insured upto Rs.10 crore. Max AOA/AOY limit
upto Rs.1 crore.
 For policies with sum insured above Rs.10 crore Max AOA/AOY upto
10% of the completely erected value of the project or Rs.10 crore
whichever is lower.
 EAR Rate to be applied on the AOY limit selected.
 The limit selected is applicable during the entire period of the policy
& cannot be reinstated.
Cross Liability Cover

 Given as an extension to Third Party Cover.

 It provides cover to insured parties named in the policy for claims
arising because of one another
 50% of the TPL premium
Surrounding Property Of The Insured

 Provides cover for loss or damage to property located on or

adjacent to the site & belonging to or held in care, custody or
control of the principals or contractors.

 Separate sum insured limit to be selected for the coverage.

 50% of the EAR rate applicable on the limit selected.

 Sum Insured can be reinstated after occurrence of the loss.

Escalation/EF/AF/ACD/CPM/MC
 Provides for escalation in SI due to inflation.
 Option available only at the inception of the policy. The selected
limit cannot be changed during the course of the policy.
 Maximum escalation limited to 50% of the SI.
 Separate SI either in % or actual value to be mentioned for this
cover.
 EAR rate applicable on 50% of the amount of escalation.

 Example:
 Project cost : Rs.4 cr.
 Escalation opted : 10% ie Rs.40 lacs.
 Additional Premium to
be charged is EAR rate
on 50% of the escalation SI : ie on Rs.20 lacs.
Express Freight (Air Freight Excluded) Holiday &
Overtime rate of wages

 Separate SI limit to be opted.

 Basic SCE rate to be applied on the limit selected.

 Reinstatement of indemnity limit allowed.

Air Freight

 Separate SI limit to be opted.

 Rate : 5% on the amount of indemnity selected.

 Reinstatement of indemnity limit allowed.

 Separate excess i.e 5% of the Air Freight incurred per claim in

addition to policy excess.
Additional Customs Duty

 Provides cover for the additional customs duty which may be

incurred by the insured over and above the customs duty amount.

 Cover on First Loss Basis.

 Specific amount for ACD to be selected at inception.

 Cover can be reinstated.

 Rate : 2% on Additional Customs Duty amount selected.

 Separate Excess I.e 5% of the additional customs duty incurred in

addition to the excess amount applicable for the affected item
Construction Plant & Machinery

 For SI upto 5% of EAR/SCE SI or Rs.25 lacs whichever is lower

can be covered under EAR/SCE policy at rates & excess as per
CPM tariff.

 For SI exceeding 5% of EAR/SCE SI or Rs.25 lacs whichever is

lower, the same has to be separately covered under CPM policy.
Maintenance Visit Cover/ Extended Maintenance Cover
 Covers loss or damage to the contract works caused by the insured
contractors in the course of the operations carried out for the purpose of
complying with the obligation under the maintenance provisions of the
contract.
 Under extended maintenance cover besides the above even the losses
which have occurred during the construction phase earlier are covered.
 Cover can be granted only at inception of the policy.
 It cannot be granted just prior to commencement of maintenance period.
 Tariff provides for rates for 6 or 12 months period only. There is no
provision for prorata rates.
 When cover is desired beyond 12 months rates are chargeable @ 1.00 per
mille per annum.
 Cover can be deleted before attachment of the risk with 25% retention of
premium charged for the extension.
 Rates are applicable on the SI, as defined under the policy.
Second Hand Machinery

 If the project involves dismantling of machinery & subsequent re-

erection, cover can be granted by charging additional premium
equivalent to 60% of the total SCE rate.

 For risk of testing of such second hand machineries, additional

rates of Rs.0.50 per mille per month is to be charged.
Terrorism Cover

 Available as an add on cover.

 Rate to be applied on S.I as defined.

 Rate : 1-6 months - 0.115%0.

: 6-12 months – 0.23%0.

 12 months and above – prorata @ 0.23%0 p.a.

 UPTO INR 500 CR – RATE @0.23 PER MILLI

 ABOVE 500 CR AND UPTO 1500 CR- RATE @ 0.20
 ABOVE 1500 CR AND UPTO 2500 CR- RATE @ 0.15
 ABOVE 2500 CR ND UPTO 5000 CR- RATE @ 0.10
 ABOVE 5000 CR AND UPTO 10000 CR- RATE @ 0.08
 ABOVE 10000 CR – RATE @ 0.06 PER MILLI
DESIGN DEFECT CLAUSE
 Outright Defective Exclusion (DE1): nothing covered
 Extended Defective Condition exclusion (DE2): cover
only surrounding property
 Limited Defective conditions (DE3): cover surrounding
as well as relying property
 Defective part exclusion (DE4) : same as DE3 but
Applicable to EAR only
 Design Improvement Exclusion (DE5): Exclude only
defective part/betterment portion
Premium Calculation

 Tariff provides for industry wise classification of rates.

 Identify the type of industry under column 3.

 Column 4 provides rates for (1+1) month.

 Column 5 provides rates for erection risk beyond 2 months & upto
next 10 months.

 Column 6 provides rates for erection beyond 12 months.

 Column 7 provides rates for Testing Period extension beyond 1

month.
Important Issues
 EAR rate has to be calculated from the date of arrival of first
consignment at the site of erection.
 In case the insured approaches us for insurance at a much later date then
in such cases irrespective of the date of commencement of insurance, the
EAR rate has to be calculated from the date of arrival of the first
consignment. In all such cases the policy shall clearly stipulate that
damages which have occurred prior to commencement are excluded.
 If during the currency of the period the sum insured needs to be increased
then additional premium is to be calculated from the commencement of
the policy. Prorata premium cannot be charged in such cases.
 Option is available for extension of the policy for both normal period and
testing period. However the rates are very high.
 There is provision under the tariff for refund on account of early
completion of the project subject to fulfillment of certain conditions.
 For SI upto Rs.100 crs & above Rs.100 crs separate rates and covers are
applicable. For projects above Rs.100 crs and upto Rs.1500 crs reference
should be made to the TAC circular 2001/7 dated 1st Jan, 2001. Projects
beyond Rs.1500 crs go beyond the scope of the tariff and are subject to
R.I.
Important Issues

 Option for higher excess is available under section I as well as

under EQ. The option can be availed simultaneously or separately.

 Policy affords the facility for installment premium where the

period is 13 months or more.

 The first installment is 5% higher than the other installments.

 Installments are quarterly.

 The last installment shall come at least 6 months before the expiry
of the policy period.
Thank You
Contractors All Risk Insurance
 CAR - General

 This is an Insurance Policy which we offer to clients

who are engaged in Civil Works OR where the value of
Civil Works is more than 50% of total Contract value.
 PERIOD OF COVER

 Cover starts from the time of commencement of work or

after the unloading of the property specified in the
schedule from any conveyance at the site specified in the
schedule whichever is earlier and shall expire on the date
specified in the schedule. However, the Company’s
liability expires also for parts of the insured contract works
taken over or put into service by the Principal prior to the
expiry date specified in the policy whichever shall be
earlier.
 SUM INSURED

 Sum Insured will consist of the following components

 Marine (Imports)- Landed cost at site
 Marine (Indigenous)- Landed cost at site
 Cost of Construction
 Permanent Civil Engineering Works
 Half the escalated value, if escalation is opted for.

 N.B :- Preoperative expenses should not be included in the

Sum Insured. However, visits of specialists and experts and
supervision charges may be included under the head ‘cost of
erection’
 SUB CONTRACTS

 As regards Sub-Contracts forming part of a project,

irrespective of whether the project value has been broken
into various sections and orders / contracts are placed with
different Suppliers/Contractors/Sub-Contractors OR the
Insureds carry out the work themselves departmentally, the
Insurances for all such Sub-Contracts are subject to these
General Regulations.
 INCREASE IN SI

 In cases where the Sum Insured for CAR is required to be

increased during the policy period, the premium should be
collected on the additional Sum insured at applicable
CAR rates. It is not permissible to charge pro-rata
premium on such increased sum insured.

 Mid-term increase in SI shall be affected only after the

same has been recorded in the policy by the Company
before the occurrence of any claim.
 REFUND OF PREMIUM

 Refund of premium, due to completion of project earlier than the

period mentioned in policy Schedule, whether rated by the Insurer
or TAC, can be allowed provided the following conditions are
fulfilled
  i) The period of insurance is 18 months and above;
 ii) Notice for early completion being given in advance to the insurer
before completion of the project.
 iii) Claims experience under the policy being less than 60%.
 iv) The original policy period is not exceeding the contract period as
per contractual clause. (In the absence of the existence of the
contract, the scheduled project period as per original bar chart
should be the policy period)
 The minimum period for which refund can be claimed shall be 3
months.
EXTENSIONS
 Additional Customs Duty
 Air Freight
 Express Freight
 Escalation
 Owner’s Surrounding Property
 Third Party Liability
 Clearance and Removal of Debris
 Construction Plant and Machinery
 Maintenance Cover
 Extended Maintenance Cover
 Deletion of Exclusion for Breakage of Glass
 Terrorism
RATES
 Type Of Project
 Period Of Insurance
Calculation Sheet- EAR
 Nature of Work :
 Type of Industry :
 Period of Insurance Required :
 Testing Period :
 Basic Rate (1+1) month : %0.
 For next 10 months @ p.m. : %0.
 For period exceeding 12
months @ p.m. : %0.
 Additional Testing Period
@ p.m. : %0.

TOTAL SCE RATE : %0.

Less Higher Excess Discount :

FINAL SCE RATE : %0.

Earthquake Rate : As per Zone
Less Higher Excess Discount : As applicable
Net EQ Rate :
Sr. Description S.I. Rate %0 Premium
No.
1. Imported Material – Landed 5 Cr. SCE
Cost
2. Indigenous Material 10 Cr. SCE
Landed Cost
3. Civil Engg Work 1 Cr. SCE
(Permanent/Temp)
4. Cost of Erection 0.5 Cr. SCE
5. Escalation 10% 50% of SCE
6. Air Freight .05 Cr. 5%
7. Express Freight 0.1 Cr. SCE
8. Debris Removal 0.2 Cr. SCE
9. Surrounding Property 1 Cr. 50% of SCE
10. Third Party Liability Yes, (As per SCE
Max.
Allowed)
11. Cross Liability YES 50% of SCE
Sr. Description S.I. Rate %0 Premium
No.
12. Maintenance Cover 12 Separately
Months in Tariff
13. Extended Maintenance Cover - do -
14. EQ (Fire & Shock) Yes Zone wise(I)
15. Additional Customs duty 0.1 Cr. 2%
16. Construction Plant & Machinery CPM
17. Terrorism Yes 0.05% p.a.
Calculation Sheet- CAR
 Nature of Work :
 Period of Insurance Required :
 Basic Rate (FOR 3 month ) : %0.
 For balance months @ p.m. : %0.

TOTAL CAR RATE : %0.

Less Higher Excess Discount :

FINAL CAR RATE : %0.

Earthquake Rate : As per Zone
Less Higher Excess Discount : As applicable
Net EQ Rate :
Sr. Description S.I. Rate %0 Premium
No.
1. Imported Material – Landed 5 Cr. CAR
Cost
2. Indigenous Material 10 Cr. CAR
Landed Cost
3. Civil Engg Work 1 Cr. CAR
(Permanent/Temp)
4. Cost of Erection 0.5 Cr. CAR
5. Escalation 10% 50% of CAR
6. Air Freight .05 Cr. 5%
7. Express Freight 0.1 Cr. CAR
8. Debris Removal 0.2 Cr. CAR
9. Surrounding Property 1 Cr. 50% of CAR
10. Third Party Liability Yes, (As per CAR
Max.
Allowed)
Sr. Description S.I. Rate %0 Premium
No.
12. Maintenance Cover 12 Separately
Months in Tariff
13. Extended Maintenance Cover - do -
14. EQ (Fire & Shock) Yes Zone wise(I)
15. Additional Customs duty 0.1 Cr. 2%
16. Construction Plant & Machinery CPM
17. Terrorism Yes 0.05% p.a.
CONTRACTORS PLANT AND
MACHINERY INSURANCE
Contractors Plant and Machinery Policy (
CPM)
 Items covered: Cranes, Bumpers, Excavators , Tunnel
Boring Machines etc. which are used for the
erection/construction of projects.
 This CPM Policy is issued as an extension of the
mother project policy(i.e. MCE/EAR or SCE/CAR
Policy) if S.I. of CPM items is less than 5% of the S.I. of
the mother project policy or up to the value of Rs. 25
Lacs for these machines . But if value exceeds limit of
5% of proj.pol. or Rs 25 Lacs in a particular project
site then a separate CPM Policy has to be issued.
CPM POLICY
 This Policy is given to contractors who may be using
plant and machinery at different projects during the
policy period on a separate annual policy with
appropriate earthquake loading considering the sites
falling in the earthquake zones.
 This is an all risks Policy with specified exclusions
printed on the policy.
CPM POLICY
 The cover is operative for machines when they
are at work or being dismantled or cleaning or
overhauling or reassembling thereafter.
 Rating-This is tariff business.

 Exclusions
 Loss or Damage due to
 Electrical or Mechanical Breakdown
 Consumables Parts like Knives, ropes, belts,
chains etc.
 Wear and tear
CPM POLICY

Sum Insured
 On New ( Current ) Replacement value Basis.
 Escalation maximum to the tune of 25% can be opted
by the insured.
Thank you