The Origin and Concept of Engineering Insurance Policy
The Origin of Engineering Insurance could be dated back to the early part of the industrialisation revolution in the United Kingdom.
It comes at a time when frequent explosion of steams boilers involved loss of life and property.
In the eastern Region, the first company to introduce engineering insurance were a syndicate of five companies, some British and some middle Eastern and they were formed to transact this class of business.
Engineering insurance also involves technical expertise in the areas or risk management with special focus on the issues like risk inspection, risk improvement, rating and under writing.
Engineering insurance schemes primarily aim at producing business, houses from eventualities that could give rise to a loss and disrupt their day to day functioning.
Such losses arise due to the failure of machineries, explosions of boilers and breakdown of computers and Sophisticated electronics equipment.
A major breakdown due to mechanical failure could also result in consequential loss of profits.
All these risks can be covered under various engineering policies.
In addition to the above, engineering insurance covers are available at the time of polling up of a factory or even during an explosion.
These insurance covers are the storage containers erection policies for industrial risks, the contractors all risk policy for civil works and the contractors plant and machinery policy, which takes of the contractors insurance requirements.
The advance loss of profits policy is a sophisticated insurance cover which takes care of losses arising out of delay in completion of a project well beyond the stipulated period where the delay is caused by an insured peril.
Read more: The Evolution of Modern Insurance
Engineering insurance policies
All engineering insurance policies take into consideration all the risk exposure of industrial establishment and have suitable policies to cover these loss exposure at two stages, namely:
- Construction phase insurance policies:
- Contractors All risk policy (CAR)
- Erection All Risk insurance Policy (EAR) or (SCE)
- Marine-cum-Erection insurance Policy (MCE)
- Boiler and pressure plant insurance policy (BPP)
- Machinery loss of profit policy (MLOP)
- Contractors plant and machinery insurance policy (CPM)
- Civil engineering completed risks insurance policy (DEFINITELY)
- Electrical equipment insurance policy (EEIP)
- Detoriation of stocks insurance policy (DOS)
While the construction phase policies are issued for the period of the project i.e period or “one time policies, the operational insurance are annual policies renewable at expiry.
(Normally, one time policies of MCE/MUSCLE are converted into annual policies of fire insurance-P&M-after completion and commencement of the project)
All Engineering policies provided cover on “All risk” basis subject to general and special exclusions if any loss is the result of -wilful negligence-cessation of work – war and kindred perils and nuclear risks.
- Perils covered under construction phase include
The construction phase insurance policies cover any loss or damage to properly if covered due to the following perils namely.
- Fire lightening, explosion
- Flood, innundation
- Windstorm of any kind
- Earthquake, landslide, subsidence etc
- Theft Regulatory
- Accidental damage, bad workmanship, lack of skills, negligence, malicious damage or human error
- Collapse, impact damage
- Act of terrorism
Exclusions
However, no liability under the policy is covered in request of
- The amount of loss shown as excess
- Loss discovered at the time of inventory
- Normal wear and tear rusting
- Cost of correction of any error during construction unless resulting in physical damage
- Files, drawing, currency, cheques
- Packaging materials
- Penalties and fines
- Loss or damage due to faulty design
- Cost of repair or replacement of defective materials or workmanship
- Vehicle licensed for general use or waterborne vessels or equipment mounted on such vessels.
- Sum insured and period of cover under constructional phase. The sun insured required by the policy is to be equal to the estimated completed erected value of the contract works inclusive of landed cost of materials, wage construction cost, freight, custom duties and item supplied by the principal. The period of cover shall commence from the commencement of work or unloading of the property incurred at the site, which ever is earlier, the cover expires when the completed part is taken over or put in service.
- Operational Insurance Policies
Insurable property includes – Boiler -electrical equipment, generator, switchgears, transformers etc.
Mechanical plants, engine turbine lifting equipment-crane, conveyor, lift etc. These polices covers -unforeseen and sudden physical damage by any cause to the insured property.
- While it is at work and at rest
- While being dismantled or clearing or overhauling
- During clearing or overhauling operations
- While being shifted within the premises
- During subsequent erections- the loss events could be
- Electrical shorts circuit, failures of insulation etc
- Mechanical faculty materials, design, casting
- External -entry of foreign bodies
Exclusions
These policy do not cover any loss or damage caused due to the following perils
- Fire and special peril
- War and civil war
- Nuclear risks
- Experimental loss due to the over lacking of texts, sum insured and basis of indemnification under operational phase.
The sum insured of each item should represent it’s current new replacement value including cost to site, custom duties and all installations costs. The basis of indemnification is restoration of the costs incurred or the market value in case of total loss.
Read more: A Breakdown of The Insurance Types
The storage insurance policy
The successful commission of any project according to schedule necessary call for a sound planning on various fronts and competent execution.
A Public Authority or a private corporation commissary a project will have to reckon with various risks to which the project may be exposed and these risks have to be managed.
Broadly, these risks are either speculative or pure.
The storage insurance makes an attempt to take care or the pure or physical risk connected with such activity.
The construction of a factory involves preparation of site, laying a foundation and other incidentals civil works and erection of plant and machinery.
Erected plant and machinery have to be tested for proper mechanical functioning and later under load conditions and there after commissioned activity.
Industrial projects generally take a long time to complete extending from 2 to 5 years and throughout this period the materials connected with the project are continuously exposed to various types of risk like fire, explosion, storm, flood, earthquake subsidies etc.
The aggregate value of the plant and machinery and material at site gradually build up from the time of annual at site of the first consignment and reaches its peak when the plant is ready for its test run.
During the period of testing the value of risks is maximum and during hot food testing, the degree of exposure is the highest.
The sum insured under a storage policy should be anticipated complete value of the project.
A big project generally involves several parties, the project who conceives and ultimately owns the project, the contractor who executes the project along with the sub-contraction who assists him, the manufacturer of a machinery who might some times directly undertake to erect the machinery and the financials who exist financial aid.
Scope of cover
A cover gives a combined and continues cover which can take care of the risk, exposure of all the parties to the contract.
it eliminates gap in cover, the SCE policy is also called the All risk cover and the name suggest, it is an omnibus cover against all risks.
