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Project indemnity could boost infra investment

Project indemnity could boost infra investment

The insurance industry has various specialised policies specifically for infrastructure projects.
Emerging economies are heavily investing in infrastructure development for a positive economic growth trajectory. The current economic dynamics in India suggest that infrastructure will give a major push to the overall development of the country´s economy in the long run.

At this year´s budget announcement, the government estimated that a spending of $1 trillion will be required to develop India´s infrastructure through 2017 and it will also be dependent on private players to support this initiative. The government will be developing superior quality bridges, ports, railways, roadways etc. through public-private partnership.

Though project companies are enthusiastic about this, they understand the array of risks and uncertainties involved in the construction process, which could result in major financial losses. Hence, applying for a comprehensive insurance policy, before financing a project, is the first step towards mitigating these risk in the event of an unwanted occurrence.

The insurance Industry has devised various specialised insurance policies specifically aimed at projects and it would be worthwhile to look at the various insurance covers that are available.

Depending on the nature of the project and the owners´ needs and requirements, a suitable insurance policy should be opted. Some of the policies are listed below for your reference:

The Contractors All Risks Insurance offers comprehensive coverage for all types of civil construction risks. The coverage for physical loss or damage to property is on an ´all-risks´ basis, i.e. the policy insures against damage to property in the course of construction by all sudden, accidental and unforeseen causes other than specified excluded perils. Also, the basic policy could be endorsed for various add-on covers like Express Freight, OT charges, Escalation, Extended Maintenance Period etc. Erection All Risks (EAR) insurance offers protection to principal and contractors and also to manufacturers and suppliers erecting machinery and plant against physical loss or damage to the property insured at the project site whilst being stored, erected, tested and commissioned due to any sudden fortuitous and unforeseen causes. This policy is aimed at projects which predominantly involve plant and machinery.

This policy can be extended to include third party liability related to work conducted on the contract site. Various add-on covers are also available as per customer´s requirement. This policy provides coverage to all types of projects including large projects such as erection of thermal power stations, fertilizers plants, oil refineries or the installation of manufacturing facilities.

Advance loss of profit (ALOP) Insurance provides indemnification to the principal or owner of a project for the actual financial loss sustained due to a delay in completion of the work that is insured. This insurance covers loss of gross profit due to reduction in turnover and/or increase in cost of working due to ´delay´

caused by insured accidents. Indemnification under this policy would be made only if this delay has been caused by physical loss or damage covered under the CAR/EAR policy. This policy is available only for the principal/owners.

The contractor´s plant & machinery policy covers all the construction machinery or equipment being used at a construction site against any unforeseen and sudden physical loss of or damage to the insured items, necessitating their repair or replacement, other than specified excluded perils.

Project insurance, thus, allows contractors to protect themselves from unanticipated incidents, while also allowing them to transfer their risks to the insurance company. This kind of insurance is great for boosting investments in the infrastructure sector and thereby, maneuvering the country´s economy to greater heights.

This article has been authored by Sushant Sarin, Senior Vice President – Commercial Lines, TATA AIG General Insurance Company Limited.

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