report on different policies required for an upcoming project
TRANSCRIPT
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REPORT ON DIFFERENT
POLICIES REQUIRED FOR AN
UPCOMING PROJECT
Team Members:-
Abhishek Khandelwal
Abhishek Malik
Akash Goel
Akshay Guglani
Amit Sinha
Anish Gupta
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What exactly is a risk?
"RISKS" are simply future issues that can be avoided or mitigated, rather than present
problems that must be immediately addressed.
In risk management, the term "hazard is used to mean an event that could cause harm and
the term "risk" is used to mean simply the probability of something happening.
Insurance is a risk-reducing investment in which the buyer pays a small fixed amount to be
protected from a potential large loss.
In business
Means of assessing risk vary widely between professions. Indeed, they may define these
professions; for example, a doctor manages medical risk, while a civil engineer manages risk
of structural failure. A professional code of ethics is usually focused on risk assessment and
mitigation (by the professional on behalf of client, public, society or life in general).
In the workplace, incidental and inherent risks exist. Incidental risks are those that occur
naturally in the business but are not part of the core of the business. Inherent risks have a
negative effect on the operating profit of the business.
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Coverage which can be provided
Construction all risks
Delay in start up/ALOP Marine*
Marine delay in start up
Third party liability
Public liability
Sabotage and terrorism
Employers liability
Motor
D
irectors and officers Kidnap and ransom
Political risk
Flood, earthquake and windstorm
Mortgage
Business interruption
Legal expense
Reinsurance
Fire
Fidelity guarantee
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Political Risk
A. Foreign Contractso
Non-payment by Government buyerso Unfair calling On Demand bonds
o Non-honouring ofLetters ofCredit
o Non-delivery of pre-paid goods
o War, Civil War or Revolution (CF)
o Contract Repudiation by government buyers
o Non-performance by government buyers
B. Foreign investmentso Forced abandonment
o Confiscation, nationalisation and deprivation
o Currency Inconvertibility
o Political Violence (property damage)
o Breach of Government Undertaking
o Business Interruption
Terrorism insurance
y Property damage and business interruption
y
Delay in start-up / construction risksy Loss of rent for real estate companies
y Strike, riot, civil commotion
(Sabotage) per endorsement
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Carbon Credit
y Insurance for loss of carbon Credits
y Large Projects
y Becoming popular
CONSTRUCTION INSURANCE
y Plant and Equipment
y Professional Indemnity
y Motor
y Employers Liability
y Liquidated Damages
y Performance Guarantees
Factors affecting Rating
y Insurance market scenario
y Quality of underwriting information
y Experience of the contractors /owners
y Type of technology
y Risk retention
y Loss record
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Mistakes often committed
y Last moment rush
y Did not see the wordings we bought
y Indemnity Limits
y Insurance policy does not comply with the Lenders requirements
y Extensions of insurance covers not taken into account for project delays
y Internal communication on Insurance covers do and donts project site
not aware of conditions nor your contractors
Public liability
Industry and commerce are based on a range of processes and activities that
have the potential to affect third parties (members of the public, visitors,
trespassers, sub-contractors, etc. who may be physically injured or whose
property may be damaged or both). It varies from state to state as to whether
either or both employer's liability insurance and public liability insurance have
been made compulsory by law. Regardless of compulsion, however, most
organizations include public liability insurance in their insurance portfolio even
though the conditions, exclusions, and warranties inc luded within the standard
policies can be a burden. A company owning an industrial facility, for instance,
may buy pollution insurance to cover lawsuits resulting from environmental
accidents.
Many small businesses do not secure general or professional liability insurance
due to the high cost of premiums. However, in the event of a claim, out -of-
pocket costs for a legal defence or settlement can far exceed premium costs In
some cases, the costs of a claim could be enough to shut down a smallbusiness.
Businesses must consider all potential risk exposures when deciding whether
liability insurance is needed, and, if so, how much coverage is appropriate and
cost-effective. Those with the greatest public liability risk exposure are
occupiers of premises where large numbers of third parties frequent at l eisure
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including shopping centres, pubs, clubs, theatres, sporting venues, markets,
hotels and resorts. The risk increases dramatically when consumption of
alcohol and sporting events are included. Certain industries such as security
and cleaning are considered high risk by underwriters. In some cases
underwriters even refuse to insure the liability of these industries or choose to
apply a large deductible in order to minimize the potential compensations.
Private individuals also occupy land and engage in p otentially dangerous
activities. For example, a rotten branch may fall from an old tree and injure a
pedestrian, and many ride bicycles and skateboards in public places. The
majority of states require motorists to carry insurance and criminalise those
who drive without a valid policy. Many also require insurance companies to
provide a default fund to offer compensation to those physically injured in
accidents where the driver did not have a valid policy .
Employers liability
New policies have been developed to cover any liability that might be imposed
on an employer if an employee is injured in the course of his or her
employment. In many states, the insurers are prohibited from including
conditions within their policies that seek to impose any unreasonable
conditions precedent to liability, or require the insured either to take
reasonable precautions or to comply with current legislation and regulations.
In those countries where such insurance is not compulsory, smallerorganizations are often driven into bankruptcy when faced by claims not
covered by insurance.
Note that in the United KingdomEmployers Liability Insurance is compulsory,
unless the only employee is the owner of the company (who holds at least 50%
of the shares) or the business is a family business which is not incorporated as
a limited company.
Workers' compensation in the United States in most states operates through
administrative adjudication outside of the federal and state courts; in turn,workers' comp insurance is regulated and underwritten separately from
liability insurance. That is, most businesses will go to a liability insurer for a
Commercial General Liability policy, and to a specialized workers' comp insurer
for a workers' comp policy (which is usually compulsory unless the em ployer
can demonstrate the capability to self-insure for workers' comp).
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DIRECTORS AND OFFICERS LIABILITY INSURANCE (D&O)
The D&O policy provides cover for the personal liability ofDirectors and
Officers arising due to wrongful acts in their managerial capacity. Defence
costs are also covered and are payable in advance of final judgment. This policy
provides protection for claims brought against directors, officers and
employees for actual or alleged breach of duty, neglect, misstatements or
errors in their managerial capacity.
Why is a Directors and Officers liability insurance policy required?
Some of the specific exposures that make D&O insurance necessary for the
Directors and Officers are:
y Vulnerability to shareholder/stakeholder claims
y Sexual harassment, discrimination allegations and other employment practice
violations
y Regulatory investigations
y Accounting irregularities
y Exposures relating to mergers and acquisitions
y Corporate Governance requirementsy Compliance with various legal statutes
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Marine insurance
Marine Insurance covers the loss or damage of ships, cargo, terminals, and any
transport or cargo by which property is transferred, acquired, or held between
the points of origin and final destination.
Cargo insurancediscussed hereis a sub-branch of marine insurance, though
Marine also includes Onshore and Offshore exposed property (container
terminals, ports, oil platforms, pipe .
Scope of Cover:-Institute Time Clauses
These are the main clauses and most important in Marine Hull policies. TimeClauses covers for a specific period usually 12 months. As the nature and
degree of risks which the Insurer run vary according to the kind of vessel, there
exist a number of categories in the Time Clauses. They are : -
y Institute Time Clauses (Hull)
y Institute Time Clauses (FPA)
y Institute Time Clauses (Total Loss Only)
1. Institute Time Clauses (Hull)
Provides the maximum coverage offered by hull insurance.
Perils Covered
a. Perils of the sea
b. Fire & explosion
c. Violent theft
d. Piracy
e. Breakdown of accident to nuclear installations etc.
f. Contact with aircraft
g. Earthquake, volcanic eruptions or lightning
h. Accidents in loading etc.
i. Bursting of boilers
j. Breakage of shaft
k. Latent of defect
l. Negligence of masters etc.
m. Negligence of repairers etc.
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n. Negligence of charterers etc.
o. Barratry
Excluded Perils
p. Wilful misconduct of the Assured
q. Loss caused by delays
r. Wear and tear
s. Rats and/or vermin
t. Injury to machine not proximately caused by maritime peril
Paramount Exclusions In The Policy
u. Warv. Strikes
w. Malicious acts
x. Nuclear exclusion
Other Losses &Expenses Covered
y. Pollution Hazard
z. 3/4th
Collision Liability
aa. General Average and Salvage
ab. Sue and Labourac. Constructive Total Loss
2. Institute Time Clauses (FPA)
The coverage of these clauses are similar to that of Hulls Clauses but
exclude coverage on machinery damages in all respects.
It is advised that all vessels which exceed 15 years of age or older, if the
risk accepted, to give this coverage only. If machinery damage is
excluded due to limitation of this clause, there is a better chance of
making hull underwriting profit.
3. Institute Time Clauses Hulls (Total Loss Only)
As the name suggested, this clause only covers in the event of it
becoming a total loss by arrangement, actual, compromised or
constructive total loss.
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Electronic Equipment Insurance
INTRODUCTION:The term Electronic Equipment (EE), in the context of this branch of
Engineering Insurance, comprises of all electrical system which generally have
only a low current. There is a very wide range of such equipments such
Computers, Micro Processors,Word Processors, Telecommunication
Equipments, Machines meant for Medical and Ophthalmic use, Aviation
Equipments, T.V. Studio Equipments, Process Control Equipments, Equipments
for Computer/ Numerical control of machine tools and special purpose
machines, etc. The electronics first appeared in the industry in the 50s.
Transition from mechanical and electrical monitoring and contr ol to electronics
has been accelerating at a breath- taking pace. Now there is hardly any field of
technology or industry which is not touched electronics. EE insurance is
therefore, of immense importance to the users of electronic equipments, may
they be the owners, operators, maintainers.
SCOPE OF COVER:
The E.E. Insurance is a Comprehensive Accident Insurance covering
unforeseen loses which arise suddenly and cause material damage to the
equipment from any of the following perils:-
y Location perils: Fire, Lightning, Explosion, Theft, Burglary and House
Breaking.
y Operational Risks:Electrical/ Mechanical Breakdown, Faulty Design,
Faulty Material, Faults in manufacturing assembling, erection, Moisture
and humidity.
y Risks of Human Element: Faulty/ Careless/ negligent operation, Riot,
Strike and Malicious damage.
y Acts of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,
Subsidence, Landslide, Rock slide, Earthquake.
EXCLUSION:
The insurance cover is, however, subject to a few exclusions listed in the policy
which are applied internationally and are common to the insurance industry.
EXTENSIONS:
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Apart from the Material damage to the insured equipment, scope of cover
available under an EE policy may be extended to cover the following on specific
request:-
Data Media Insurance:
Cover may be obtained for financial loss that may arise from accidental loss of
information data stored on the external data media such as diskettes and
floppies. Cover is provided on a First Loss basis both for the materials value of
the data media and the cost of reprocessing and restoring lost information.
Increased Cost of Working Insurance:
In the event of a breakdown of the insured computer, the required computing
capacity may have to be hired from other sources. Cover may be obtained for
reimbursement of these additional expenses involved such as hire charges,
transportation cost etc.
Machinery Breakdown Insurance
INTRODUCTION:
This Branch ofEngineering Insurance has been developed to grant the Industry
an effective insurance cover for Plant, Machinery and other mechanical
equipment. It is an extremely useful Policy for protecting the Plant and
Machinery against operational accidental damages. It even insures the
machines against damage while these are idlin g and/ or under repairs, due to
such non-operational causes as external impact, etc. The insured is permitted
to select the machinery to be insured under the Policy, but has to offer a
complete machine for insurance and not opt only for vulnerable parts. S uch
items having a short service life listed here under compared to the entire plant
are however, normally excluded:-
y All types of interchangeable tools.
y Sieves, engraved, cylinders, stamps, dies, ropes, chains, belts.
y Parts made of glass, ceramic or wood, rubber tyres.
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y Operating media of any kind such as fuel, gas, refrigerant, catalysts,
lubricant (oil in transformers and circuit breakers is, however, included
since it is not only a coolant but also serves as an insulation agent).
It is advisable to make distinction between plant and Machinery and Electronicequipment such as computers, microprocessor based controls and large
process control instrumentation and systems which are predominantly
electronic in nature. It is more economical and beneficial for the insured to get
coverage for such equipment under Electronic Equipment policy instead of
insuring it under Machinery Insurance policy. This policy is available only after
the newly installed equipment has been successfully commissioned and has
proved its operational/ productive worthiness.
SCOPE OF COVER:
Machinery Insurance is an Accident cover for machinery supplementing the
coverage offered by a Fire Insurance Policy. It basically covers unforeseen and
sudden physical loss of or damage to the insured items.\, necessitating their
replacement or repair mainly arising from any of the following causes: -
y Faulty design, faulty workmanship, defects in casting and material
y Faulty operation, lack of skill, negligence
y Tearing apart on account of centrifugal forces.
y Short circuit and other electrical causes.
y Damage due to accident to boiler and its allied equipment due toshortage of water/ overheating and collapse of tube/ Flue gas explosion.
The insurance cover is, however subject to a few exclusions listed in the
policy which are applied internationally and are common to the
insurance industry.
EXTENSIONS:
The Scope of cover under a Machinery Insurance Policy may be extended to
cover the following on specific request.
ADDITIONAL CUSTOM DUTY COVER:
As custom duty payable on Project Equipment import is less that the duty
applicable on replacement equipment/ Spares, it is advisable to have this
extension which takes care of additional duty payable for replacement of
equipment and/ or spares in the event of loss. The sum insured under the
policy should be taken, based on estimated extra custom spares following a
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serious breakdown. This cover is operated on First Loss basis and actual
custom duty is reimbursable subject to limits of amount.
Erection All Risks Insurance
INTRODUCTION:
In the course of execution of a project for erection of machinery, plant and
structure of any kind, certain serious mishaps could occur resulting in loss or
damage, as well as liabilities could arise in respect of Third Party claims for
property damage or bodily injuries. An Erection All Risks(EAR) insurance offers
protection to Principals and Contractors and also to manufacturers and
Suppliers erecting machinery and plant etc, against financial loss due to any
sudden unforeseen causes resulting in loss or damage to the property insured
at the project site whilst being stored, erected, rested and maintained. EAR
insurance has been designed to meet the tested and maintained. EAR
insurance has been designed to meet the needs of the market, which are fast
changing with the advancement in technology and the cover is available for
structures and projects of all sizes of Macro or Micro levels i.e. large projects
such as erection of Thermal Power Stations, Oil Refineries, Fertilizer pla nts etc,or small projects like installation ofComputers or Electrical equipment.
SCOPE OF COVER:
Ear insurance provides a very wide and comprehensive insurance cover to the
client in respect of any sort of contingency from the moment the material is
unloaded at the site of the project and continues during storage, physical
erection and till the test run is over and during maintenance, if covered. It
covers all physical losses or damages arising from:-
y Location Risks: Fire, Lightning, Theft, Burglary and House Breaking.
y Handling Risks: Impact from falling objects, Collision, Failure ofCranes,
etc.
y Testing and Commissioning Risks: Failure of Safety devices, Leakage of
Electricity, Insulation failure, Short Circuit, Explosion.
y Risks of Human Element: Carelessness, Negligence, Fault in Erection,
Strike and Riot, Malicious damage.
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y Acts of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,
Subsidence, Landslide, Rockslide, Earthquake.
The insurance cover is subject to a few exclusions listed in the Policy which are
applied internationally and are common to the insurance industry.
EXTENSIONS:
The scope of cover available under a standard EAR policy may be extended to
cover the following on specific request:-
Civil Engineering Works:
y Permanent Civil Engineering Works.
y Temporary Civil Engineering Works.
It is preferable to insure the above items under Contractors. All Risks Policy
instead of this Policy. However, machinery foundations, specific supports of
equipment etc, which must go as part of the machinery and requires to be
constructed under supervision and guidance ofEngineers of the suppliers of
equipments could be insured under the EARPolicy.
Clearance and Removal of Debris:
Major accidents or catastrophes cause devastating damages. The site maybecome unworkable and warrant clearance of area for restarting the work.
This requires considerable expenditure and at times specialized services of
experts. Under this cover, the insured is reimbursed the actual amount of
expenditure incurred towards debris removal of insured property subject to
maximum limit of 50% of the project cost.
Construction Plant and Machinery:
Every project site requires certain material handling and construction
equipments like Cranes, Hoists, Air Compressors, Welding Sets, etc. for
carrying out various erection activities. The said equipment unless alreadycovered under a separate Contractors Plant and Machinery (CPM) policy, could
be covered under this head but it is subject to terms and conditions of the CPM
Policy.
Express Freight, (other than Air Freight) Over Time, Sunday and Holiday
wages:On account of occurrence of an insured peril, some times it becomes
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necessary to undertake the repair work on war footing and also to work on
holidays. The spare parts may have to be obtained by express freight
(excluding air freight). To take care of such expenditure, an estimated amount
that would be incurred following a major accident should be taken as sum
insured. Factors to be taken into account would be the type of machinery/
plant, distance of the source of procuration, nature of transport available, type
of labor and their wage structure.
Air Freight Cover:
Specific coverage should be taken for Air Freight of items. This cover operates
on First Loss basis and actual expenses are reimbursable subject to maximum
amount chosen under this head.
Surrounding Property:
Under this extension damages caused to the surrounding property, such asproperty, such as property located on site belonging to or held in trust, care,
custody or control of the Insured, on account of accident due to erection work
is covered. Insurance of surrounding property becomes relevant when
renovation or expansion project is envisaged and the work is carried out in the
vicinity of existing assets.
Third Party Liability:
Circumstances may arise when on account of mishaps in the works, loss or
damage may be caused to third party property as well as bodily injury in which
case a liability will arise on the part of the insured to make good the loss. Such
a liability can be covered under the extension of the policy.
Escalation Clause:
It is a known fact that world economy has been experiencing upward
inflationary trend in the last four decades. This trend has jumped up
considerably during the last decade owing to various known and unknown
factors. Our country in particular has faced widespread escalation duri8ng the
last twenty years. The prices have shot up more than 3 or 4 times particularly
in respect of imported goods. Erection projects are normally for a long pe riodand it is, therefore, advisable to provide for increase in the Prime Cost of the
equipment due to escalation to ensure full protection by opting for an
Escalation Clause.
In the event of a claim arising, the Escalation Clause under the Policy provide s
indemnity to the Insured for the actual replacement cost of damaged items
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y Earthwork, Sewage, Drainage, Roads, Irrigation system, Flyovers, Canals,
Silos, Water Reservoirs and the like.
y Hazardous structures such as Tunnels, Dams, Mines, Bridges and the
like.
SCOPE OF COVER:
The Policy covers loss or damage to the subject matter from any sudden
unforeseen or accidental cause which is not specifically excluded under the
Policy. Therefore it covers all physical losses or damages occurring during the
period of insurance arising from:-
y Location Risks:Fire, Lightning, Theft, Burglary and House Breaking.
y Handling Risks: Impact from falling objects, Collision, Failure of material
handling equipments.
y Risks of Human Element:Carelessness, Negligence, Faulty material and
Construction, Riot, Strike, Malicious damage.
y Act of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,
Subsidence, Landslide, Rock slide, Earthquake.
This insurance cover is subject to a few exclusions listed in the Policy which are
applied internationally and are common to the insurance industry. The cover
attaches as from the commencement of work or after the materials required
for the project have been unloaded at the site, and terminates when thecompleted structure or one completed part thereof is taken over or put into
service. The insurers liability for construction machinery, plant and equipment
commences from their unloading at the site and expires o n their removal there
form. In addition, on specific request, it is possible to extend the period of
cover to include a maintenance period.
EXTENSIONS:
The scope of cover available under a standard CARPolicy may be extended to
cover the following on specific request:-
y Clearance and Removal ofDebris.
y Construction Plant and Machinery
y Express Freight, Over-time, Sunday and Holiday Wages
y Surrounding Property
y Third Party Liability
y Escalation
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y Maintenance Visits Cover
y Extended Maintenance Cover
y Terrorism
The coverage provided under the above extensions are similar to those underEAR insurance.
Contractor's Machinery Insurance
INTRODUCTION:
The execution of almost all projects necessarily requires use of various types of
plant and machinery. The nature and the type of equipment may differ
according to the nature, type and location of a project and may even differ at
different stages of the projects. Such equipment may comprise ofCranes,
Compressors, Road-rollers, Vibrators, Welding Sets, Hydraulic Excavators and
the like. Whilst it is possible to have the Contractors plant and Machinery
covered under an EAR or CARPolicy at specific project sites, Contractors Plant
and Machinery (CPM) Insurance has been designed to provide a cover on
annual basis to a contractor who may be using his plant and machinery at
different projects during the course of the year. The cover under a CPM Policy
is not limited to a specific project site and is operative at all the sites wherever
the plant and machinery is in use and even while the same is lying at the
contractors own premises. The insurers have, however, to be informed of the
sites where the insured items are being used.
SCOPE OF COVER:A CPM Policy covers unforeseen and sudden physical loss of or damage to the
insured plant and machinery from any cause whatsoever, occurring at work
site or at rest, other than risks specifically excluded under the Policy. The cover
is also operative whilst any equipment is being dismantled for the purpose of
cleaning or overhauling and also being reassembled thereafter. The Policy,
therefore, covers all physical losses or damages arising from:-
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y Location Risks:Fire, Lightning, Theft, Burglary and House-breaking.
y Impact from Falling Objects:Collision and the like
y Risks of Human Element:Carelessness, Negligence, Riot, Strike,
Malicious Damage.
y Acts of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,
Subsidence, Landslide, Rockslide, Earthquake.