Following rapid industrialization project insurance has gained a lot popularity and has become an indispensable factor for protecting the financial interests of entrepreneurs in this country. Any kind of large project involves a number of hazards both for contractors and for owners of the works and the only economical way to safeguard against all natural & human hazard is to effect MCE/SCE policy.
The time factor is important in negotiating any proposal for Marine-Cum-Erection Insurance. The right time for negotiation is as soon as the decision is taken to start a new venture or expend an existing factory complex and if proper protection is to be obtained the question of insurance must be given the same priority as all other problems associated with the new venture. To start with, whenever, it comes to our knowledge that a particular project is likely to be set up in our area, we should, immediately fix up an appointment with the person Incharge of the site. Thereafter a request for arranging a meeting with their team, comprising of officials from finance & Technical department, should be made to the authority to discuss the details about their insurance requirements of the project. When a meeting is arranged the brief but comprehensive details on the following points should be obtained to have an idea about the project being set up.
PRINCIPAL:
Name of principal, contractors and sub-contractors and their experience in the type of work of the project.
CONTRACT:
Contract conditions under which work is undertaken and responsibilities of the parties involved. In this context, a copy of extracts from contract conditions relating to risk is helpful.
Risk and Insurance responsibility of parties contributing to project.
SITE:
Full description of work to be done with supporting plans, sketches etc, alongwith methods of carrying out work.
The location of the works in relation to the exposure to natural hazard like flood, storm, landslide, earthquake, etc.
Ground condition with geological report.
Full details of testing and commissioning.
Precautions, against theft, malicious damage.
STORAGE FACILITIES:
Proposed location of temporary building and other storage area, accumulation of values per location.
Expected date of arrival of first consignment at site, period of Erection, period of testing and period of maintenance cover.
SUM INSURED:
Value of imported and indiginous plant and equipment at site, Civil works, construction plant and Machinery, other own surrounding properly.
On having these details the insured/client should be entailed that there is a cover available with us, for any sort of contingency, which may occur, during transit of material from manufactures or suppliers warehouse to site, during storage at site, Erection, Testing, Commissioning and Maintenance period. This cover is known as Marine-Cum-Erection Insurance and is tailor made to suite the needs of the insured, and is also a pre-requisite for sanction of loans from Financial Institutions.
The Marine Cum Erection policy is a comprehensive insurance cover that is available to the client in respect of any sort of contingency during transit, storage, and till the test run is over. This covers all physical losses or damages as under :
Location Risks
Fire, Lightning, Theft & Burglary.
Handling Risks
Impact from falling objects, collision,
Failure of cranes, or tackles.
Operational Risks
Failure of safety devices, leakage of
electricity, Insulation failure, explosion
etc.
Risks of Human Element
Carelessness, Negligence, Faults in
erection, Malicious Damages, Strike and
Riot and Terrorist damage.
Acts of God
Storm, Tempest, Hurricance, Flood,
Innundation, Subsidence, Land-slide,
Rock slide, Earthquake.
For arriving at sum insured, the totally erected value of the project at site, should be taken into account and hence would comprise of numerous elements besides the basic cost of materials imported and indiginously processed.
It means, the following factors are to be taken into account.
Primary cost of machinery
Freight (Inland and occean/Inland).
Duties/Excise paid at the point of origin.
Supervision cost at the point of loading & destination.
Customs/Excise duty at the point of discharge.
Warehousing charges & clearing & forwarding charges.
Fabrication charges.
Handling charges.
Erection, supervision and other incidentals and over heads.
The above does not include cost incurred for development of site, land development, technical consultation fees, designer’s, fees which are not in the form of a recurring nature and which generally form a chunk of the project.
PERIOD OF COVER:
The Marine/Transit part is governed by the Marine Policy conditions. The insurance period commences immediately after the machinery/consignment is unloaded at site and continues until testing operations are commenced and the plant/machinery is commissioned. The independent or integrated testing is covered as per the requirement of the project.
However the total policy period including testing period are limited to the period opted for in the policy. Nevertheless, in case, for any reason the plant is not commissioned within original policy period taken in policy, it is permissible to take extension in the period of cover.
EXTENSION:
Apart from the insurance of the project under erection following main extensions may also be taken in the policy.
ESCALATION:
Supply contracts are normally based on two principles:
Built in escalation provision and subsequent escalation and.
Fixed value supply contract.
It has been the experience that in either case the manufactures or industrialists have to bear the escalated cost and it is internationally known that suppliers always charge 30 to 40% higher of the original supply rate for the replacements. It is therefore necessary to provide for a certain percentage for escalation to the prime cost, to ensure full protection and avoid under insurance in event of any loss.
CIVIL WORKS:
The permanent and temporary civil works, connected with projects, such as buildings, sheds etc can be covered by declaring their value separately.
CLEARANCE AND REMOVAL OF DEBRIS:
The insured may choose the limit of indemnity desired for the purpose of meeting the expenses incurred for the clearance and removal of debris, required in event of any loss or damage to the insured properly. It is the extension on first loss basis and any amount incurrered upto he limit chosen is payable.
ADDITIONAL EXPENSES FOR AIR FREIGHT/EXPRESS FREIGHT HOLIDAYS AND OVER TIME WAGES:
While attending to loss or damage due to mishap especially when project is nearing completion a quicker mode of transit for bringing the material for replacement is necessitated and/or repairers are engaged during holidays and on overtime basis. These additional expanses, then incurred, are covered under this extension.
For this the limit of indemnity is to be chosen and any amount incurred upto the limit chosen is indemnified.
THIRD PARTY LIABILITY:
Circumstances may arise in which on account of mishap in the project/site loss or damage may be caused to third party personnel or third party property in which case there will be liability on the part of insured, to make good the losses. The same can be covered under this extension. For this a limit desired for indemnity can be chosen by the insured.
OWNER’S SURROUNDING PROPERTY:
Beside the project site, there are other properties of insured like already existing plant/godown etc and in case of certain mishap in the project/site these surrounding property also suffer a loss damage. This situation is very common in case of an expansion of the existing plant. To cover such damages/loss to surrounding property inconsequence of mishap in project/site, the insured is suggested to take this extension of owner’s surrounding property. For this a limit of indemnity is chosen and the losses/damage on this account are settled on first loss basis as done in T.P.L. Cases.
ADDITIONAL CUSTOM DUTY:
The custom duty at the time of initial import is allowed at concessional rate where as in the case of subsequent imports in the event of damages to the imported equipments the custom duty charged is twice or thrice the original duty paid. Therefore when a claim arises the insured may find that he has to bear a large portion of the custom duty. To take protection against such extra custom duties, becoming payable, in event of imports following a loss this extension of addition custom duty has been provided. This extension is given on first loss basis and for this the insured may choose a limit of indemnity.
PREMIUM INSTALLMENTS:
Premium can be collected in installments if the period of insurance is more than 12 months.
BASIS OF INDEMNITY :
In the event of loss or damage the insured will be indemnified for the expenses necessary to restore the damaged properly or the plant to its condition immediately before the occurrence of the damage. On payment of claim the insured shall reinstate the sum insured by payment of prorata premium from date of loss to expiry of policy.