Equipment cost is a major component in a construction project. Saroj Satapathy, CEO, Ideal Insurance Brokers, elaborates on equipment insurance and its importance.
What are the types of insurances you provide under the ambit of Contract Plant and Machinery (CPM)?
CPM basically includes contractor´s construction equipment such as bulldozers, cranes, excavators, compressors, etc, due to an accident arising out of external perils. During dismantling and relocation from one place to the other, there is a possibility of the machines/equipment get damaged. The cover is operative while the insured property is at work or at rest, or being dismantled for the purpose of cleaning or overhauling, or during subsequent re-erection.
Contractors look for maintenance cover for large high value machines. Do you provide such insurance cover?
Insurance doesn´t cover maintenance because any machine that you have, there is normal maintenance for wear and tear of parts and replacement of such parts. Losses natural to any trade of business are not covered thus losses due to maintenance and wear and tear are not covered.
Is it possible to have a cover for the value of the equipment fleet which keeps on changing from time to time with relevant additions and deletions of equipment duly informed?
As per the tariff plan, there are differential ratings for the type and size of equipment and machinery. Currently, we have a normal rate applicable to a particular equipment. Usually, we give a specific rate for a contractor who owns a huge number of equipment. At the same time, each machine has to be insured as per the valuation of the equipment. You cannot avail a particular amount of insurance for all the equipment together and keep on adding and deleting amount for individual equipment later. Each equipment has to be deployed separately with name and serial number of the machine, and value has to be given individually to have that cover. Then you can have addition or deletion whenever needed.
Issuance of Master Policy/Group Policy is possible for fleet. The sum insured for each item of machinery should represent the current purchase cost of a similar new machine including all incidental expenses like freight, duty, taxes. Rate can be decided on the basis of size of the fleet, type of machines, YOM and claim history.
In case a used equipment is inducted into the fleet, will you insure the equipment based on its depreciated value?
We never issue insurance on a depreciated value as per the tariff regulation. The equipment has to be insured under a new replacement value prevailing in the market at the time of taking the insurance. The sum insured of each item of machinery should represent the current purchase cost of a similar new machine including all incidental expenses like freight, duty, taxes.
In your settlement of claims criteria, what are the standard exclusions and benefits?
Right now many insurance companies are giving combo products. We can cover electrical and mechanical breakdown, and a few other inclusions like transit from one location to the other.
A contractor should know the basic exclusions which he actually faces. For example, an excavator is used for six months at a particular location, and then it is going to another location. CPM policy typically is location-specific and it does not apply as and when it goes to another location. Either you have to inform the insurance company in the beginning that you are going to use the equipment at various locations during the year, so that the insurance policy can be in the form of a floater policy. This means your equipment can transport from one location to the other under the same coverage of the policy.
Today many people are giving out the machines on rent to different locations. The problem with such equipment is that when the machine is in transit, the insurance is not covered. The insurance is covered only when the machine is working. So, sometimes you have to take the policy which covers additional benefits of insurance cover during transit. (Please refer to the box given for the list of standard exclusions) Although nowadays insurers are issuing policies combining different products like CPM+MBD+Marine Transit under Special Contingency policy. All separate policy will be issued for operational purpose, but insured will get one single policy.
What will be the difference between the actual spend and the claim settled?
It is very difficult to give an exact figure as it depends on the claims, sometimes it is the total cost and sometimes partial. So it is difficult to give a thumb rule for the percentage as well. Most of the equipment users are contractors and basically most of them try to avoid insuring on increasing value.
Is there any provision of insuring against natural calamities?
Yes, there is provision to provide insurance for the loss due to natural calamities like floods, landslide, earthquake, etc. Add-ons like STFI (Storm, Tempest, Flood and Inundation), EQ (Earthquake), Terrorism can be taken.
What are the special facilities you provide for your customers in terms of insurance payments, settlement periods, dispute settlements, etc?
We have tied up with some of the manufacturers. Whenever a manufacturer sells an equipment, we try and add the insurance there itself. For example, whenever Kobelco sells an equipment to a buyer, the insurance will start from the very first day itself and the transit is already covered. We try to give transit cover along with the coverage for normal CPM policy cover. Having a floater cover has the advantage that you can use the machine anywhere in India.
Is the same cover valid for machines in India and abroad?
If it is neighbouring countries like Nepal, Bhutan etc, the coverage is same as in the country because it is within the periphery of Indian sub-continent. For other foreign countries, you can take project insurance instead of equipment insurance. While going abroad, I don´t think anybody takes equipment along with. Usually they source equipment locally for the projects overseas.
For overseas insurance, equipment insurance is being taken with project insurance. Indian insurer can get the same done for Indian client handling project and related risk abroad.
How do you visualise the equipment insurance market in the next 3-5 years?
In the current market scenario, infrastructure development has major importance and a lot of projects are coming up. The equipment cost is very high in road construction and other similar projects. So there is a huge demand of equipment for infra projects and this is a great opportunity for the insurance companies.
Standard exclusions of the policy