The Risk

All major projects and investments present great opportunities, but also harbor risks. The management of risk in construction projects involves both the allocation of risk under the project contracts and the management of those risks through insurance.The ability to recognize and overcome risks is crucial to the success or failure of a project.

Many a times, it becomes a highly complex exercise in view of the large number of exposures and intricate networks and dependencies involved in such projects. Losses are often not attributed to one single cause. As a rule, there are always several combined factors that lead to a loss event. In many cases, planning errors and omissions or lack of due care and diligence during construction work / erection work is responsible for losses in difficult geological conditions.

The potential risks can be categorically divided into three groups:

  • Physical Assets Protection
  • Design Engineering Risks
  • Management Liability
  • Financial Market and Economic reforms

The Solution

Project insurance should cover ‘All risks’ of loss or damage to the permanent and temporary works comprising the contract, including the materials, and all things used for or intended for incorporation within the contract, throughout various phases of the construction / erection, including testing.

The Cover

The following points need to be considered for Project Insurance:

  • The period of cover will be from the time after the unloading of the property from any conveyance at the site and shall continue until immediately after the first test operation or test loading is concluded (whichever is earlier)
  • The policy should include cover for Design Defect. This will cover the cost of consequences of the damage, but will exclude the defective part itself and any design improvement cost.
  • There should be automatic reinstatement of cover.
  • The policy also contains other extensions (some are sub-limited) vis-à-vis 50/50 clause, a 72 hour clause, extensions of time held covered at terms to be agreed, debris removal, professional fees, plans and specifications, public authorities and expediting expenses.
  • Cost of reproducing plans, drawings and contract documents lost in a claims event, in so far as they are included in the sum insured;
  • Clean-up costs resulting from an indemnifiable loss, which would include costs of removing and disposing off debris, demolition and reinforcing the insured property;
  • Additional costs incurred for overtime, work on Sundays or public holiday etc;
  • Off-site storage upto the agreed limit of indemnity;
  • Terrorism is a standard exclusion, the project should be specifically covered for terrorism and this is available in the Indian as well as International market.

Exclusions

The standard exclusions typically include:

  • Loss or damage due to war or similar events
  • Strike or riot (this can be included in certain circumstances on a case-to-case basis)
  • errorism risk, (this can be included in certain circumstances on a case-to-case basis)
  • Damage due to wear and tear
  • Inherent defects
  • Damage due to nuclear energy, radioactive contamination
  • Willful act or gross negligence etc.

For Further Information Contact:

Debasish Mukherjee

Sr. Vice President, Corporate Business

Telephone

+91-22-6655 8868

Email

d.mukherjee@howdenindia.com