The Insurance Solutions

	Contractors All Risks Insurance
	Erection All Risks Insurance
	Contractors Plant and Machinery Insurance
	Advance Loss of Profits Insurance
	Annual Policies

Contractors All Risks Insurance

A major form of contract works insurance is designed to protect the interest of different parties involved in construction activity for all types of civil engineering construction works ranging from small buildings to massive dams as they are susceptible to damage by a variety of external and internal causes during the course of construction. In the Material Damage section of the CAR policy, cover is provided for physical loss or damage to the contract works, construction plant and equipment or machinery.

The CAR policy may be effected by the interested parties in the project but primarily by Principal or by the Contractor engaged for the work and generally includes all sub-contractors. The cover begins from the start except for items of Construction Plant and the like.  These are generally only covered after they have been unloaded at the site.  The cover terminates when the completed project is handed over or any completed part is taken over or put into service.  In respect of Construction Plant and the like, cover terminates when removed from the site. CAR consists of two main types of work: building works and civil works. 

Building Works
Building works involves the construction of dwellings, office blocks, universities, stadiums, hospitals and factories.  Important features include:

	The location (Metropolitan/Country)
	Demolition
	Exposure to adjoining properties and proximity to roads and other structures
	Excavation depth and precautions taken to safeguard adjacent property
	Exposure to the public
	Use of cranes
	Type and method of construction
	Exposure to contractors/sub-contractors, their employees and all workers on site

Civil Works

Civil works involves the construction of roads, airports, railways, tunnels, bridges, viaducts, dams, pipelines and the like. This type of work generally being outdoors and thus exposed to the elements, usually attracts the most frequent and serious losses.  In general terms the premium is determined on the basis of the following factors:

	Exposure of site to the elements
	Design features and building materials
	Construction techniques
	Measures provided to ensure safe execution of project

Insured's legal liability for compensation in respect of personal injury or property damage to third parties arising from the contract works is covered under Third Party Liability Insurance. The policy can be extended to cover

	Removal of Debris
	Architects, Engineers or Surveyors Fees
	Expediting Expenses.
	Surrounding property etc.

A maintenance period is usually incorporated in most CAR policies and it is normal for the policy to cover this period in addition to the period of construction. The maintenance cover is for loss or damage to the works occurring during the maintenance period stipulated in the provisions of the maintenance clauses in the contract relating to the works.

Erection All Risks Insurance

EAR is the other branch of contract works insurance (EAR) which essentially covers all risks involved in the erection and installation of machinery, plant & equipments and steel structures of many different types. EAR insurance policy protects the project companies, suppliers, manufacturers of the machinery or plant or contractors who carry out the erection work or is responsible for it. A supply and erection contract typically requires the contractor to arrange insurance against physical damage from any cause to the items to be supplied and erected, both whilst in transit and after arrival at the erection site. The insurance usually includes the erection tools and tackle.  Erection projects are usually exposed to the following perils:

	Fire , lightning , explosion
	Earthquake
	Flood & Inundation
	Windstorm
	Subsidence or collapse
	Theft or burglary
	Faulty workmanship,
	Malicious acts
	Faults in erection
	Negligence, lack of skill, lack of experience
	Short circuiting, arcing, excess voltage
	Excess pressure or vacuum, destruction due to centrifugal force
	Any other unforeseen or sudden event such as collapse

EAR insurance cover can be extended to cover the following:

	Removal of Debris
	Surrounding property
	Errors and Omissions
	Loss minimization expenses
	Professional Fees
	Automatic Reinstatement of Sum Insured
	Expediting Expenses
	Escalation Prevention of Access
	Offsite storage and fabrication
	Removal to place of safety
	Time Adjustment (72 Hours clause)
	Waiver of subrogation
	Non-vitiation clause
	On Account Payment
	Free issue materials
	Extended Maintenance etc.

EAR insurance requires the following information

	Technical specification of the relevant project, contract price and value of items
	Experience and expertise of the erection firm
	Flow chart of the production process and a lay out plan where necessary
	Geological, hydrological and meteorological data as applicable
	Supply and erection time schedule and detail of pre storage facilities with notes on security and fire prevention in storage and on
	site
	Availability of replacement parts or machines and extra costs associated therewith e.g. imported machinery

Advance Loss of Profits Insurance

This insurance is commonly referred to as ALOP (Advance Loss of Profits) and is designed to protect the interests of the Principal.  Other terms often seen are "Loss of Profits following Delay in Completion" or "Advance Rentals" or "Delay in Start Up". The policy offers cover against loss of anticipated earnings/profits due to the delay in commissioning of the project following a loss covered under the project insurance policies. It is normally written in conjunction with CAR/EAR Insurance. The cover is designed to protect the Gross Profit or Gross Revenue that the Principal anticipates earning following the completion of the Contract.  If there is a delay in the completion of the contract, for example as a result of a major fire, the anticipated income will not be available to meet the expenses which have been, and are still being incurred, and the expected net profit will be delayed.

Large and complex installations where the investments are high are adversely affected if the projects are delayed beyond the scheduled completion date. The project continues to incur the burden of interest on term loan, interest on debentures, wages and salaries, other miscellaneous administrative standing charges and interest on outstanding working capital, in addition to the loss of expected net profit which insured business could have earned had it commenced on the scheduled date.

The essential difference between a loss assessment under advance loss of profits cover and a loss assessment under business interruption cover is that there are no previous trading results with which to make comparison. 

What is covered?

	Loss of gross profits - based on anticipated sales, cost and prices.
	Loss of gross earnings- sales value of production less consumed stocks, supplies and services purchased.
	Increased cost of working - costs involved in minimizing the effects of the delay.
	Principal and interests - lending institutions’ interest in the portion of gross profit.
	Loss of rent - as a result of premises not being ready to earn rent.
	Special expenses - costs involved because of delay such as advertisement campaign etc.

Contractors Plant & Machinery

Insurance provides cover to Contractors Plant and Machinery against unforeseen and sudden physical damage whether at work or rest, while being dismantled or in the course of such operations or while being shifted, re-erected while such items are at the erection site.

Contractors’ machinery is exposed to the following hazards

	Overturning in rugged and unfamiliar terrain
	Boom collapse of cranes due to lifting problems or mechanical failure
	Exposure to the natural elements
	Security

Annual Policy (“Floater Covers”)

Annual policy is generally issued on a Contract Commenced basis. Cover will only be provided for works actually commenced during the policy period.  Another method of issuing an Annual policy is on a Turnover basis.  Under both the methods contract works that have already commenced before the inception of the policy will not be covered unless by arrangement but work commenced during the currency of the policy remains covered until completion.

Cover under "Floater Policy” is normally automatic for all work commenced by the Insured during policy period. Such policies are usually acceptable where risks are of a similar nature and as such, can be rated across the board and be clearly stated in the policy e.g. construction, alterations, additions, extensions of dwellings, flats, units, commercial buildings and industrial buildings.  However, Annual Policies for most types of operations can be considered depending upon the requirements of the contractors.  Floater covers are beneficial to the insured and the insurer for reasons like:

	Well spread risks
	Cost effectiveness
	Minimum administration.

Structuring of Floater Covers

Investigation / Clarification/ Discussion

The first step towards designing such a cover requires specific requirements of the contractor, needs assessment, careful clarification and consideration.  This is a major milestone to ensure that conceptual clarity is achieved, which is essential for smooth and economical handling of the cover.

The Form of the Cover

On a Turnover Basis?
Although used regularly for larger building contractors, this method is ideal where the Insured's contracts are of small or medium size, are usually of a similar nature with no great fluctuations in the insured periods and where, consequently, a larger number of contacts are executed during a year.

On an Individual Declaration basis?               
Individual declarations must be made before the contract works commence where such projects are of a large size. Monthly, Quarterly or annual declarations may be appropriate for CAR and EAR where a larger number of contracts are carried out.

What is the standard process for premium payments?
Except as in individual contract declaration policies, a deposit is made by the insured at the commencement of the policy.  The deposit will be adjusted on a date to be fixed, usually within 30 days of expiry of the period of insurance.

The premium must be paid against each declaration where individual contract declarations are to be made.

Why Howden?

If you are the contractor employed to build the project or the supplier installing and erecting the machinery, your contract probably requires you to arrange Contract Work insurance, naming the employer or buyer as a co-insured.  Have you or your risk manager thought of talking to "Howden"?  We think you should.

In today's market there are several major factors which risk managers and companies must weigh before choosing a service provider:

	Financial security
	International organization
	Experience, know how and professionalism
	Support in claims settlements
	First class service before, during and after the contract works
	Capacity to handle even the largest of projects

After all, you need the broad insurance protection and stability that come from partnership with a broker of repute and a services provider which understands the complexities of your trade; a partner which can help when things go wrong.

We have built for many years upon our experience and improved our expertise to the stage where we can support your requirements and develop a customized project specific insurance program to meet all the risk transfer requirements of a project from the pre-construction phase until completion and beyond. 

Features & Services

	Hazop & Risk Analysis
	Portfolio  and Risk Audit
	Safety and Health  Services
	Liability Exposure Analysis
	Business Continuity Planning and Disaster Management
	Loss Prevention Services
	Claims Services

Our engineers, risk professionals and specialists assist insurers and clients in arranging Contract Works insurance packages designed to meet the specific needs of the customers.   Our specialists have been exposed to international best practices across industry sectors. We are totally customer focused in providing leading-edge products and services. Our endeavour is to create solutions which range from standard property and casualty insurance programs, both primary and excess, to strategic risk financing and integrated programs. We can provide traditional products to insure your project or arrange tailor-made non-traditional solutions if required. We develop effective programs to minimize construction hazards and reduce our clients' exposure from loss due to careless or negligent job-site practices. Our employees are available for consultation at all times, not only when a claim arises.

For further information contact:

Amit Mannari
Howden Insurance Brokers India Private Limited
Ground Floor, Bombay Dyeing Administrative Building
Pandurang Bhudkar Marg, Worli
Mumbai - 400 025, India.
Telephone: +91 22 6655 8888; +91 22 6655 8821
Telefax: +91 22 6654 8833
Email: amit.mannari@howdenindia.com