Embarking on a construction project is a significant undertaking. From laying the foundation to the final touches, unforeseen events can disrupt progress and cause substantial financial losses. This is where Erection All Risk Insurance (EAR insurance) comes into play. This insurance policy acts as a safety net, protecting your construction project from various risks, including damage due to fire, natural disasters and accidental losses.
This blog will explore the intricacies of Erection All Risk Insurance, covering its key features, benefits and how it safeguards your investment.
What is Erection All Risk (EAR) Insurance?
EAR insurance is a specialised insurance product designed to cover the risks associated with the installation, testing and commissioning of machinery, plants and equipment. It protects businesses against losses due to accidental or physical damage and third-party liability during the erection phase of projects. This insurance covers unseen damages to machinery such as solar panels, boilers, thermal power stations, gas pipelines and fabrication. Typically, the coverage starts once the insured property is unloaded at the project site during the first consignment. The coverage continues until immediately after the first test operation or test loading is successfully completed or the readiness for work is declared by the erector/contractor- whichever is earlier.
In India, Erection All Risk Insurance is crucial for industries involved in power generation, renewable energy, construction & infrastructure, manufacturing and other large-scale engineering projects.
Scope of Coverage in Erection All Risk Insurance
EAR Insurance typically provides coverage for the following:
A. Material Damage
It covers accidental physical loss or damage to insured property, including machinery, plant and erection work- caused by unforeseen events. The following perils are covered-
- Fire
- Earthquakes ( fire & shock)
- Theft and Burglary
- Landslides & rockslides
- Collapse of structures during construction
- Riots, strikes & malicious damage
- Explosions & implosions
- Storms, floods, cyclones, tempests & inundation
- Testing & commissioning risk
B. Third-Party Liability
It provides coverage against legal liabilities for damage caused to third parties during erection or construction work. The following perils are covered-
- Accidental loss or damage to third-party property caused by construction activities of the insured.
- Third-party bodily injury or death caused by construction activities of the insured.
Exclusions in EAR Insurance Policies
While EAR Insurance provides comprehensive coverage, certain exclusions apply:
1. Gradual Wear and Tear
- Normal wear and tear, corrosion or gradual deterioration.
2. Faulty Design or Workmanship
- Losses due to faulty design, defective materials or poor workmanship (unless leading to further damage to insured property).
3. War and Nuclear Risks
- Loss or damage due to war, invasion or nuclear hazards.
4. Willful Acts
- Losses caused by deliberate negligence or intentional damage by the insured or their representatives.
5. Loss Discovered During Inventory Checks
- Losses that are found only during stock-taking.
Benefits of Erection All Risk Insurance for Businesses in India
1. Comprehensive Protection
- Covers a wide range of risks, ensuring financial security for projects.
2. Third-Party Liability Coverage
- Protects against legal liabilities for injuries or damage to third-party property.
3. Ensures Financial Stability
- Prevents major financial losses due to unforeseen damages, safeguarding cash flow.
4. Customisable Policy
- EAR policies can include optional extensions like debris removal, maintenance period cover, off-site storage, terrorism and additional testing phase protection.
5. Compliance with Project Requirements
- Many contracts may require EAR Insurance before work begins.
6. Faster Recovery and Project Continuity
- Covers repair costs, ensuring projects stay on track and on schedule.
7. Strengthens Business Reputation
- Demonstrates risk management responsibility, enhancing trust among clients and stakeholders.
Who is Covered Under Erection All Risk Insurance?
EAR Insurance is essential for businesses involved in engineering and large-scale construction projects, including:
- Contractors – To protect machinery and equipment during erection work.
- Sub-Contractors – To cover specific tasks in the erection process.
- Project Owners – To safeguard their financial investments in the project.
How to Choose the Right Erection All Risk Insurance Policy?
1. Assess Project-Specific Risks–
Identify risks such as equipment installation hazards, environmental risks and third-party liabilities.
2. Determine Adequate Coverage Amount–
The sum insured should cover total project value, including machinery, materials and labour costs.
3. Review Policy Coverage and Extensions–
Ensure coverage for material damage, fire, natural disasters and testing phase risks. Also consider optional extensions like debris removal and extended maintenance coverage.
4. Check Policy Exclusions–
Understand excluded risks like gradual wear and tear, faulty design and contractual liabilities.
5. Compare Multiple Insurers-
Evaluate insurers based on their claim settlement history, financial stability and policy features.
6. Review the Claims Process-
Choose an insurer with a quick and transparent claims settlement process.
7. Consider Cost and Premiums–
Balance premium costs with coverage benefits to ensure adequate protection.
8. Consult Insurance Brokers or Experts-
Expert advice can help in selecting the most suitable EAR Insurance Policy.
Cost Factors of Erection All Risk Insurance
The premium for EAR Insurance is determined by:
- Project Value – Higher project cost leads to higher premium.
- Project Duration – Longer duration means higher risk exposure.
- Project Location – High-risk areas may lead to higher premiums.
- Nature of Construction – Complex projects may lead to increased premium.
- Claim History – Past claims may impact the premium rates.
Final Thoughts
Erection All Risk Insurance is a crucial investment for any construction project in India. By carefully evaluating your project’s specific risks and selecting the right insurance provider, you can mitigate financial risks, ensure smooth project execution and safeguard your investment. For the best coverage, always compare policies, review exclusions and consult experts before purchasing an EAR Insurance Policy.
