Introduction

In the last two decades a lot of change has taken place in the project industry with the advent of
deregulation, liberalisation, private project initiatives and new forms of project financing increasing
the scope for project insurance. In today’s world, developing infrastructure projects has become
increasingly complicated and involve highly sophisticated and complex technical skills. Today’s
large projects covering construction, power and complex infrastructure development are exposed to
many risks beyond conventional physical risk exposures.
Insurance of projects have become more complicated and there is increased demand for seamless
coverage to the project from the beginning till the end including loss of profits and delay in startup.
An additional dimension of risk that looms large over the infrastructure industry is in the area of
liability which is again growing with the number of transcontinental high-value contracts, more
global consumers and higher levels of awareness.

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.

Covered area
TThe 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.

Exlcusions
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)
Terrorism 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.

Whether project insurance has also recognised like project finance

Project finance is some thing which is required to start a project. On the other hand, the
moneylenders would not invest unless the project is insured. The investors or moneylenders always
expect the project to be fully insured. Project insurance is equally important and nobody can avail
of finance without proper insurance.

That’s why we guide our customers on availing of proper insurance. There is always a long
discussion while we guide our clients to opt for any form of insurance. There is proper awareness
though it varies from one customer to another.

What is the share of private vis-à-vis public sector players in the Indian project insurance market?
Going forward, how do you see private players performing?
Public sector really dominates the market; approximately 70 per cent of insurance is done by public
sector. If have to give an example, I would speak about my company; financially we are the
strongest in the market; we also have a rating given to us by an international rating organisation.
This gives us a lot of advantages. If the financial capacity is more, then our ability to insure is also
more. This is the one big reason that a big project can be covered without any difficulty, while a
new company will not be able to do big projects and they would require reinsurance.
How different is the Indian project insurance market compared to western countries?
I wouldn’t say that there is much difference between the western world and the Indian subcontinent,
because the product offered in the Indian market is at par and in line with international market. So
in terms of product coverage the Indian market is as developed as any other western country.