Frequently, major projects and investments are only possible if insurance cover is available, but infrastructure project suffer from risks that are not covered. Easwara Narayanan M explains the types of general insurance available to the industry.
Over the next two decades, the global economy is expected to double; fuelling additional infra¡structure needs which are estimated around $50 trillion. Against this massive need for investment, increas¡ing societal infrastructure demands and technological advancements, it is more critical than ever for project owners and construction firms to effectively manage the business-financial, operational and event risks associated with these projects. While entrepreneurial risk itself is not insurable, protection against the consequences of property damage has long been provided by the insurance industry. Major physical infrastructure can be covered under general insurance in:
Project stakeholders & risks faced
Promoter: Timely completion, revenue generation, RoI and debt servicing (contractors fault, physical damage, liability)
Lender: Realisation of principal and Interest within time (failure to recover debt, inadequacy of earning over cost of debt, legal proceedings)
Contractors: Timely completion, cost control, profit earning, O&M obligations (other contractors fault, physical damage, liability, legal proceedings)
Construction Phase Insurance
Contract Works: This insurance is often provided as a combined material damage and legal liability policy.
Standard exclusions applicable for such covers are:
Land Risk: In the event of any loss or damage, there is no loss or damage to the land per se. The project can be started on the same land and the true indemnity would be only to reinstate the damaged property in state where it was before the loss. Hence, land is not covered under insurance.
Supplementary covers: The following additional supplementary covers under project policies:
To have a comprehensive coverage of risks associated with the projects, the following policies can be taken:
In order to have a seamless cover from materials procurement stage, the following policies can be opted:
In case of mega projects, considering the exposure and complexity, comprehensive reinsurance driven co¡vers are available to cover the risks associated with the projects. Once the project is completed and handed over or becomes operational, the insured can be go in for operational phase insurance covers.