Unexpected risks can pose significant financial challenges when managing large-scale engineering or construction projects in India. Erection All Risk (EAR) Insurance is an essential safety net that provides comprehensive protection against such uncertainties. This guide covers everything you need to know about EAR Insurance, its benefits, coverage, exclusions and factors influencing its cost.
Erection All Risks Insurance: Important Features
An EAR Insurance Policy is a specialised policy 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. It ensures smooth project completion without undue financial stress. 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. This insurance is particularly relevant for contractors, project owners and equipment suppliers involved in engineering or construction projects such as power plants, industrial facilities and heavy machinery installations.
Key Coverage Areas in Erection All Risks Insurance
Understanding the key coverage areas of an EAR policy can help assess its importance for your business.
1. Material Damage Coverage
EAR insurance covers a wide range of risks, including:
- Accidental physical loss or damage to insured property, including machinery, plant and erection work- caused by unforeseen events.
- Fire, explosion, natural calamities (like floods, earthquakes, storms, landslides, etc.).
2. 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.
3. Optional Add-Ons
Depending on your needs, you can enhance your EAR policy with optional extensions such as:
- Maintenance Period Cover: Provides protection during the maintenance phase after project completion.
- Debris Removal: Covers debris removal costs only after an insured event.
- Other add-ons such as terrorism, off-site storage and owner’s surrounding property
Exclusions in EAR Insurance Policies
While EAR Insurance provides comprehensive coverage, certain exclusions apply:
1. Faulty Design or Workmanship
- Losses due to faulty design, defective materials or poor workmanship (unless leading to further damage to insured property).
2. War and Nuclear Risks
- Loss or damage due to war, invasion or nuclear hazards.
3. Gradual Wear and Tear
- Normal wear and tear, corrosion or gradual deterioration.
4. Loss Discovered During Inventory Checks
- Losses that are found only during stock-taking.
5. Willful Acts
- Losses caused by deliberate negligence or intentional damage by the insured or their representatives.
Benefits of Erection All Risks Insurance for Businesses
EAR insurance offers several advantages, making it indispensable for businesses in construction and engineering.
1. Financial Security
Unforeseen events like equipment failure or natural disasters can lead to significant financial losses. EAR insurance mitigates these risks, ensuring project continuity.
2. Peace of Mind
With comprehensive coverage in place, project stakeholders can focus on execution without worrying about financial setbacks.
3. Tailored Policies
Many insurers offer customizable EAR insurance policies, allowing coverage adjustments based on project-specific risks.
4. Protection for All Stakeholders
EAR insurance safeguards contractors, project owners, and equipment suppliers from financial risks.
Who Needs Erection All Risks Insurance in India?
EAR insurance is essential for:
- Contractors: To protect against accidental damage during construction or erection activities.
- Project Owners: To safeguard investments and ensure timely completion.
- Subcontractors: To manage risks associated with specific tasks in a larger project.
- Equipment Suppliers: To protect machinery during transportation and installation.
Factors to Consider When Choosing an EAR Policy for Your Business
To select the right EAR policy, consider the following:
1. Assess Your Risks
Analyse project-specific risks to choose a policy with adequate coverage.
2. Compare Providers
Research multiple insurance companies to compare EAR policy offerings.
3. Evaluate Policy Terms
Check coverage limits, exclusions and optional extensions. Ensure the policy aligns with your project needs.
4. Premium Costs
Understand how premiums are calculated. Factors influencing premiums include project size, location and risk profile.
5. Claim Settlement Record
Choose an insurer with a strong reputation for hassle-free claims processing.
How to File an EAR Policy Claim?
Follow these steps in case of a loss:
- Notify the Insurer: Inform the provider immediately.
- Document the Damage: Collect photographs, videos and reports.
- Submit Required Documents: Provide policy details and claim forms.
- Insurer’s Assessment: The insurer may appoint a surveyor for inspection.
- Claim Settlement: Once approved, the insurer will reimburse the covered losses.
Cost of Erection All Risks Insurance
The premium for an EAR policy depends on several factors:
1. Nature of the Project
- Complex projects (e.g., power plants, industrial facilities) have higher premiums.
- Higher project costs increase premiums.
2. Scope of Coverage
- More comprehensive policies with higher limits cost more.
- Add-ons like third-party liability and testing coverage raise costs.
3. Duration of the Project
- Longer project timelines increase the likelihood of risks, leading to higher premiums.
4. Location of the Project
- High-risk areas (e.g., earthquake zones) attract higher premiums.
- Remote locations with poor infrastructure can increase costs.
5. Type of Equipment and Materials
- Expensive or sensitive equipment requires higher coverage.
- Poor storage conditions increase risk, affecting premiums.
6. Contractor and Subcontractor Expertise
- Experienced contractors with good safety records may get lower premiums.
- Adherence to safety standards can reduce premiums.
7. Claims History
- A history of frequent claims increases the perceived risk, raising premiums.
- Businesses with a clean claims history may receive no-claim discounts.
8. Testing and Commissioning Phase
- Testing and commissioning involve high risks, especially for machinery or electrical systems.
- Longer testing phases increase the premium.
9. Deductibles
- Higher deductibles reduce the premium but increase the policyholder’s risk.
10. Insurance Market Conditions
- Competitive markets may offer lower premiums, while high demand can increase costs.
The Bottom Line
Erection All Risks Insurance is a crucial investment for businesses involved in engineering and construction projects in India. It provides comprehensive protection against potential risks, ensuring financial security and project continuity.
To make an informed decision:
- Compare multiple insurers.
- Evaluate policy terms carefully.
- Choose a provider with a proven claims settlement track record.
With the right EAR Insurance Policy, you can focus on project success with confidence.
