Critical insurance covers for roads and highways

Each road project is unique in terms of the risks and challenges it encompasses and thus the approach towards each project including the risk management shall also have to be equally unique in order to effectively address the risks involved. Vikash Khandelwal discusses the various types of insurance that cover for roads and highway projects.

Designing any insurance programme requires one to intrinsically understand the nature of the activity to be carried out. It is also important to understand the role, responsibilities and the scope of work of different parties involved the contractor, subcontractor and the design engineer/civil engineer, their previous experience in similar projects, the project site, project design, the time schedule, material to be used, contract conditions, works attached to the main project, past losses in such projects and in the area etc.

The underwriters should be approached for each project with some basic project related documents in order to ensure that at no point does a conflict in terms of the project work description and the project components arises.

Some critical documents which should accompany the proposal to the underwriters are:

• The technical specifications as per the contract document
• The detailed project cost break up
• Exact project location / stretch
• The site map (if available)
• The project schedule

The policy to be comprehensive in terms of coverage against interests of various parties interested in the project should take care of the following:

• The insured definition should include: Developer and contractor and subcontractors of all tier.
• The policy should carry the Loss Payee clause.
• Multiple insured clause including non-vitiation should be incorporated in order to secure rights of the financial institutions involved.
• Underwriters normally use different methods to assess the risks involved so as to arrive at the appropriate premium to be charged.

The risk matrix below attempts to illustrate the catastrophe risks and the intensity of loss that it is capable of inflicting. Flood & inundation, earthquake, windstorm, land¡slide, rockslide and subsidence risks are some of the perils classified as Natural Catastrophes & Topographical Exposures and can cause a huge damage to the project. Faulty material or workmanship: The quality of manpower, equipment specific to the project execution, expertise of manpower on handling the equipment, experience of the manpower on such projects, effective¡ness of supervision on the qualitative aspects of the project execution, adherence to design specification and controls on the overall project implementation are some areas which, if ignored/compromised, have led to major losses.

Faulty design: The designs are prepared considering the geography, the soil conditions, project specifications etc. It´ preferable that the designs should be considered while drafting an effective risk management and transfer programme.

Third-party liability: Land subsidence, landslide during excavation etc, can cause damage to water pipelines, electricity polls, transmission lines, communication networks, surrounding property and buildings etc, which may result in to third-party property damage claims or even injury to people. Roads in mountainous areas have high potential of TPL losses due to a high probability of landslides while major excavation, anchoring works, and retaining walls change soil stability. Surrounding structures adjacent to the road/bridge under construction can be severely damaged by construction activity. In rural areas, neighbouring farms and similar areas can be damaged while blasting operations or similar activities. In urban areas where the construction works is carried out simultaneously along with the normal day-to-day traffic, the risk of TPL exposure gets enhanced significantly. These incidents can cause serious bodily injuries, some of which may be fatal.

Human error: Human error can occur anywhere across the entire spectrum of the construction works which include while selection of material, following the contract specifications or the contractual duties, super¡vision of work and site, failure to maintain timeline as per bar chart, failure to comply tender conditions, government rules, principle´ interests, etc.

Theft and burglary: Thefts and burglary are common in isolated locations, roads in remote/rural areas etc. Burglary is a major clause of loss for con¡struction industry as such.

Lack of skill or negligence of workers: Lack of necessary skills among the employed people can cause the project heavily. A simple example would be where watering hasn´t been properly to a structure, thus rendering it weak or with damages and cracks despite using the right kind of material. Such incidents can lead to accidents/losses at the site.

Important Underwriting Clauses
Property put to use: Under the standard Contractor´ All Risks Policy issued for civil works any part of the project shall cease to be covered under the policy the moment it is put to commercial use. With this under¡standing, each such completed stretch ceases to be cove¡red under the policy, the moment it is opened for traffic. Property put to use clause opted with properly drafted wording shall ensure continued coverage for such stretches under the CAR Policy till project completion.

Cover for offsite storage: The project policies in India offer inbuilt coverage for onsite storage. But, in case of road projects the storage almost always would happen off site. Unless care and caution is exercised to obtain this cover with sufficient limits, the project remains exposed to sizable risks.

Temporary structures: The construction activity may require structures which are temporary in nature such as buildings, foundations, sheds, contractors supporting items, temporary access roads etc. The cover would provide indemnification against losses to these structures.

Cover for documents: The cost of rewriting document, plans, drawings, and specifications following an incident causing damage to such documents would be reimbursed.

Special conditions for open trenches
Temporary access roads: Irrespective of the period of the insurance specified in the policy, the insurer will indemnify the insured for accidental loss or damage to temporary access road insured under the policy if such loss or damage occurs prior to either the road being completed or taken into use by the contractor.

Works related to water (wet risk & works in water): Wet works to be covered need to be specifically declared though generally wet works up to 5 per cent of the sum insured can be covered under the main policy. However, for anything beyond 5 per cent of sum insured, a separate cover with specific wet works wording would be required.

Cover for bridges, culverts etc: Culverts and bridges are automatically covered under the standard CAR policy up to 20 per cent of the project cost; in case it exceeds this limit then the culverts and bridges shall be separately rated. However, it is advisable that the insurers are always approached with project cost break up. Also, worth mentioning is that any major bridge or river bridge should always be declared to the insurers to avoid conflict.

Cover for tunnelling works: If the project involves works of tunnelling or road construction under tunnelling, it has to be mentioned and insured appropriately. The works would have to comply with code of international tunnelling. Apart from the above, the regular covers required for road projects would be basic project insurance covers.