In a slowing economy, it's important that the industry reengages itself in an optimal risk management exercise to provide adequate protection to an already strained balance sheet, says Vikash Khandelwal. In the second episode of our insurance insight series, he writes about marine insurance.
Project risks can be broadly summarised as planning, movement of resources, execution, and commissioning. Movement of cargo in an efficient manner has been the key to a successful and timely execution of projects. The two major risks associated are actual physical damage to cargo during transit and the resultant delay in start-up. This specifically assumes importance due to the costs involved in procuring high-end infrastructure equipment and the just in time policies followed by the companies.
Marine insurance cover commences at the time of the goods being loaded on to the carrying vehicle or vessel (loading) and terminates at either of the following:/p>
There may be occasions where the ownership of the cargo changes hands while in transit. Hence, under Marine Insurance, the insurable interest need not be present at the time of buying the policy. For a claim being payable, the insurable interest should exist at the time of the claim.
There are three broad classifications of marine insurance policies:
An Open Marine Policy is normally preferred over the others, the advantages being:
Being an agreed value policy, it is essential to address the following for the marine insurance to be effective:
In case of an accident involving ODC the actual loss may be more than the cost of equipment. In the event of such an incident the insured may need to bring in specialised equipment/cranes to move the cargo from one carrying vehicle to other and may also have to take up a storage near the site of accident till the time an appropriate carrying vehicle is available. A cover canbe obtained for such expenses as well.
Underwriters often prefer a survey done for ODC:
The insured should always check with their insurer for a list of preferred surveyors who may specialise in particular kinds of equipment.
During the project, another critical aspect is of concealed damages. It's always advisable to get themcovered depending upon the nature of cargo. Incidents beyond control: Delay in start-ups has been an area of concern for all stakeholders. Increasing complexity of projects, and the development of large pre-assembled modules offshore for many critical equipment have only brought more focus on DSU.
Heavy lift project cargo often consists of machinery or equipment that is critical components needed for the construction and subsequent operation of various industrial infrastructure projects. Despite best efforts, an unexpected or unavoidable event can severely interrupt these plans.
Marine DSU arising out of below mentioned events can be covered:
Arriving at the appropriate sum insured for marine DSU loss can be simplified in the construction risk by making a worst-case scenario assumption of a total loss on the last day before hand-over of the project.
The range of interests has also evolved further as project owners and financiers have gained a greater understanding of the precise needs of a specific project.
The range of DSU interests can now include items such as:
Most businesses today regularly ship/transport goods. Hence it's imperative that the marine policy and its terms are structured appropriately to suit the nuances of the business, the kind of cargo being shipped and the mode of transport used. It is only then that the policy will respond in the event of the goods being lost or damaged.