Anything can go wrong while installing your business equipment or machinery. The accidents or damages caused to your machinery/equipment can incur a huge monetary loss for your business. An erection all risk insurance policy will protect you from these monetary losses. Engineering firms, construction companies, and other companies that require to install or erect plants, machinery, and equipment on a frequent basis can get the erection all risks insurance policy.
What is an erection risk insurance policy?
Erection all risk insurance plan aka EAR is a type of commercial insurance policy that covers the losses incurred during installing or erecting any equipment or machinery. It insures the machinery or equipment right from when it is loaded to be dispatched to the site till it gets completely installed. It also provides coverage for the defects or inconsistencies found while testing the machinery. If the machinery or equipment breaks down while being commissioned, the damages are also covered by this policy. If there are any free materials issued with the machinery, they are also covered by this policy if the insured has included it in the declared values.
Why is an erection all risks insurance policy required?
Industrial accidents resulting in damage to project installations and property are quite common these days. The heavy machinery or equipment stands risk of being damaged while in transit. These machines may also suffer damages due to faulty installation or improper testing. The factory installation costs often run in millions due to the frequent installation or erection of different types of production plants, projects, and machinery.
To counter the losses incurred during the erection or deployment of the machinery, most companies like to get an erection all risk policy. A comprehensive erection all risk insurance policy also includes a third-party liability cover. It provides coverage for the bodily injuries and property damages suffered by a third-party during installation. The incidents while testing or erecting the machinery can often lead to fatal injuries. To protect the employees or any other third-party from such incidents, industries can get this policy. Loss to public property while installing the machinery is also covered by an erection all risks insurance policy.
The installations can also be damaged due to natural calamities like cyclones, landslides, floods, earthquakes, etc. They are also exposed to risks due to man-made disasters like riots, strikes, thefts, etc. An erection risk policy covers all the man-made and natural disasters. It also provides protection from fire, explosion, and allied perils.
Key Features of Erection All Risk Insurance Policy
- Physical damages are covered: Machinery or equipment that are sensitive often sustain physical damages during installation. The material damages or losses caused during the installation process are covered by an erection all risks insurance policy.
- Testing & maintenance cover: The testing period refers to the period in which the installations are tested before the contractors hand them over to their respective owners. Any flaws or defects in the installation can be highlighted during this period. Therefore, it is a crucial period that determines whether the installation was successful or not. The erection all risk policy also covers the period for which the installation was under testing. It also covers the expenses caused due to maintenance works carried out to modify or repair the installed machinery or equipment.
- Comprehensive cover for erections: Companies usually erect new facilities for their ongoing or new projects. They may also dismantle the facility for creating newer ones. The expansion of projects may also need them to erect plants and facilities. All these processes involve a lot of risks as the machinery or equipment may get damaged during erecting and dismantling processes. An erection risk policy covers all these risks and protects the company owners from the potential financial burnt.
- Wide coverage for stakeholders: A comprehensive erection all risk insurance policy may include coverage for manufacturers, suppliers, contractors, subcontractors, and other stakeholders related to the installation or erection of the machinery. The cover starts from the time when the machinery is deployed to the site and ends when it is finally handed over to the owner. It includes the period during which the machinery is tested.
- Cover for human errors & disasters: Many types of man-made and natural disasters are covered under this policy. It also includes coverage for unintentional damages caused due to human errors.
Characteristics of Erection All Risk Policy
- Policy premium: The erection risk insurance policy premium calculator calculates the policy premium by considering factors like extent of coverage, sum insured, and location of the insured property. Most insurers allow you to pay the premium in instalments if the policy period is longer than 12 months.
- Add-on covers: Add-on covers can be availed along with the erection risk policy to extend the benefits of the existing cover. The add-on covers for defective designs, debris removal, extended maintenance or testing period, escalations, etc. are also available.
- Legal liability cover: The legal liability cover is included by default in an erection all risks insurance policy. For instance, if the vehicle of a passenger gets damaged due to the machinery in transit, it is covered under the legal liability coverage offered by the erection risk policy.
Types of Erection All Risks Insurance Policy
- Liability only policy: This type of erection risk policy only covers the legal liabilities claimed by the third party. It can also be included in the regular erection risk policy by paying an additional premium.
- EAR with cross liability: This type of erection all risk coverage includes material damage and third-party liability cover. The third-party liability cover is accompanied with cross liability which ensures that multiple parties are covered under the same policy. Therefore, it provides coverage to both the parties if one raises a claim against the other.
- CEAR: CEAR i.e. Construction and Erection All Risks Insurance Policy provides a comprehensive coverage for construction companies for the damages that are caused during an ongoing project. It also includes the benefits of an erection all risk insurance plan.
Erection All Risk Insurance Plans Available in India
| Policy Name | Sum Insured | Policy Tenure | Key Features |
| Erection All Risk Insurance by TATA AIG | As per the installation type and coverage requirements | From the commencement till the completion of the installation period as stipulated by the insured | Provides complete coverage for plant and machinery construction risks. Policy coverage can be extended to third-party by paying an additional premium. Add-on covers can be included to cover surrounding property, debris removal costs, additional custom duty, and more. Extended maintenance cover can be availed to extend the policy coverage during the maintenance period. |
| Erection All Risk Insurance Policy by Reliance General Insurance | As per the installation type and coverage requirements | From the commencement till the completion of the installation period as stipulated by the insured | Coverage for both material damage and third-party liability is offered by this comprehensive erection risk policy. Add-ons can be added to include coverage for design defects, additional custom duty, debris removal, and more. Option to pay the premium in instalments if the policy period extends 12 months. Covers the damage due to both natural and man-made disasters. |
| Erection All Risk Insurance Policy Online by ICICI Lombard | As per the installation type and coverage requirements | From the commencement till the completion of the installation period as stipulated by the insured | Location risks such as lightning, thefts, explosions, housebreaking, and burglary are included in the erection all risk coverage. Includes coverage for testing and commission risks. Provides coverage for natural disasters. Easy claim settlement process with simple documentation. |
| Erection All Risk Insurance by HDFC ERGO | As per the installation type and coverage requirements | From the commencement till the completion of the installation period as stipulated by the insured | Erection all risk coverage includes protection for storage, erection, testing and commissioning of facilities, machines, and existing projects. The policy coverage can be extended to cover the manufacturers, suppliers, contractors, and subcontractors. Extensions to cover the terrorism, cross-liability, escalation, acts of terrorism, earthquake, etc. can be availed by the policyholder. Sum insured includes the entire value of the plant and machinery erected/assembled. |
| Erection All Risks Insurance by Edelweiss Insurance | As per the installation type and coverage requirements | From the commencement till the completion of the installation period as stipulated by the insured | Erection all risk coverage includes protection against material damage, surrounding property, construction plant and machinery, third-party liability, etc. The option of extending the maintenance cover is provided by this policy. Coverage for debris removal, cross-liability, loss minimisation expenses, etc. can be availed by the insured. |
Inclusions & Exclusions for Erection Risk Policy
What’s covered?
- Protection for equipment, plant, machinery, and other onsite material work is included in erection all risk coverage.
- It covers perils like explosion, burglary, lightning, fire, and natural catastrophes like floods, earthquakes, cyclones, etc.
- Third-party liability protection provides coverage for third-party damages and bodily injuries caused due to erection of insured property.
- The losses or damage caused due to poor storage of handling of equipment is included in the cover. The damages caused during maintenance or repair work during the test period are covered under this policy.
- Material damage cover is an add-on that provides coverage for excess custom duty, freight charges, escalation, and other related expenses. A comprehensive erection all risk coverage may include a material damage cover by default.
- The damages sustained by the equipment or machinery during commission are also covered under erection all risk policy.
What’s not covered?
- Damages caused due to intentional or dishonest acts are not covered under erection all risks insurance policy.
- Losses or damages caused due to gradual wear and tear, corrosion, nuclear reactions, radioactive elements, and other nuclear perils are not covered under this policy.
- Erection all risk coverage does not include losses due to work interruption, manufacturing issues, and inadequate inventory.
- Damages caused due to poor artistry, faulty materials, and other deliberate acts during installation are also not covered.
- Some erection risk policies may not include coverage for the employees and their family members or employees of another firm. It is so because the workers are directly insured under group insurance schemes and other employees are covered by a public liability cover.
- Penalties of legal liabilities filed by a third-party due to not fulfilling contractual obligations like failing to deliver a project on date are not covered by this policy.
- Erection all risk insurance coverage does not include the damages caused due to vehicles in transit. It does not provide coverage for accidents caused by road, air, and water-borne vehicles.
- Errors resulting in damage or losses of non-physical nature are also not covered by this policy.
- Aesthetic defects in the installations like scratched paint surfaces, damage of glass materials, etc. are not covered under an erection risk insurance plan.
- Modifications, repairs, and restorations conducted after raising the claim are also not covered.
Who needs an erection risk policy?
The employers or company owners who install or erect machinery/equipment on a regular basis in their factories or plants should get an erection risk policy. The suppliers and manufacturers of the machinery can also get this insurance because it protects them from the losses incurred due to damages inflicted in transit. If there is any manufacturing defect in the installed equipment, it is also covered by this policy.
Contractors who are responsible for installing the machinery may also get it to protect themselves from the expenses incurred due to faulty installation of heavy machinery or equipment. The subcontractors who are assigned with a particular task/tasks related to the installation can also get this policy.
Things to consider while getting an erection risk policy
- Scope of coverage: Ensure that the erection risk insurance policy you get comes with a wide scope of coverage. A comprehensive erection all risk insurance coverage provides protection from damage or losses resulting from acts of god, testing and commission risks, handling risks, and location risks.
- Additional coverage: It makes sense to get more coverage by paying an additional premium. The optional extensions to cover air freight damages, escalations, additional custom duty, cross liability with third-party cover, etc. can be included by paying an additional premium. An erection all risk insurance premium calculator will help you to calculate the exact premium after inclusion of add-on covers. Use this calculator and decide whether the premium you are paying is actually worth paying for.
- Online support: An erection risk insurance plan that comes with online support and complaint redressal platform can be helpful in most cases. You can seek advice from the support team immediately after an incident and proceed with the claim settlement process accordingly. It not only saves your time but also helps you to get the insurance without any hassles. Therefore, before getting the policy, ensure that the insurer provides this facility.
- Comparison: You must compare multiple erection risk policies before choosing one. It will help you get the best erection risk insurance plans in the market. It will also help you understand the different types of erection risk policies that are available in the market. By going through their details properly, you can choose the one that suits the types of projects you work on.
How to claim an erection risk policy?
The following steps will guide you while claiming for an erection all risk coverage:
Step 1: Contact the insurer immediately after an incident
You should contact the insurer immediately after an incident. The nature of the incident, the possible damages inflicted to a third-party, physical damages inflicted on the equipment or machinery, and other details should be provided to the insurer. After that, you should seek their advice regarding the claim process.
Step 2: Submit the claim form and documents
After hearing your case, the insurer will seek information about your policy such as policy holder name and policy number. After furnishing these details, the insurer will ask you to fill and submit a claim form. The details regarding the incident should be correctly filled in the form.
The supporting documents like photographs of the damage, FIR copy (in case of thefts or burglary), etc. should be submitted. It will help the insurer to verify your claim and issue reimbursements as soon as possible. Do not forget to note down the claim registration number as it will help you to track the status of the claim in the future.
Step 3: Appointment of the surveyor
Once your application is screened, the insurer will appoint a surveyor to validate your claims. The surveyor will inspect the machinery or third-party damages by visiting the on site location. After examining the evidence and site, the surveyor will create a detailed report. The report will also include the estimation of the financial losses incurred due to the incident.
Step 4: Claim settlement process
The surveyor will submit the report to the insurer. The insurer will initiate the claim settlement process shortly after this step. You should be patient and cooperate fully with the insurer during this period.
Documents to be submitted along with the claim form
The following documents can be submitted to support your erection all risk insurance claims:
- Duly filled claim form
- Photographs of the damage/incident
- Copy of the FIR in case of thefts, vandalism, riots, and burglary
- Details of the witnesses like name, address, mobile number, etc.
- Details of the property owner (in case of third-party damage)
- Information regarding the commencement date of testing (if the damage has occurred during the testing period)
FAQs
How is the erection risk premium calculated?
The following factors are considered while calculating the erection all risks insurance premium:
Location of the insured property: Locations prone to natural and man-made disasters result in a higher premium.
Project duration: If the project duration is long, the premium charged by the insurer will automatically increase. The policy premium can be usually paid in instalments if the policy tenure is greater than 12 months.
Project type: The type of project or installed equipment also determines the policy premium. For example, installing heavy machinery like boilers are exposed to higher risks than installation of computers. Therefore, the premium required to insure such heavy machinery or equipment will obviously be higher.
Sum insured: If you like to have a larger sum insured to cover all types of risks associated with your machinery installation, the insurer will charge a higher premium from you.
What is the duration of an erection all risk policy?
The erection all risks insurance tenure is calculated from the day the machinery is dispatched to the factory or any on site location. The policy tenure will end on the final date of testing. If the policyholder wants to extend the policy tenure due to maintenance works of non-completion of testing procedures, they can contact the insurer and request to extend the policy period. In this case, the insurer will demand for an additional premium required to provide coverage for the remaining days.
Which types of add-on coverage can be availed with the EAR policy?
A broad range of add on covers can be availed with the EAR policy. Some of the popular add on covers under this policy are listed below:
Loss minimisation cover
Debris removal cover
Escalation cover
Coverage for defective designs
Coverage for documents
Extended maintenance cover
Cross liability cover
Professional fees charged by the testing or maintenance team
What are the key differences between CAR and EAR?
CAR (Contractor’s All Risk) policy insures civil projects like bridges, septic tanks, buildings, etc. whereas EAR covers the installations of equipment or machinery. EAR is optimised for engineering firms whereas CAR is more suitable for construction companies.
Both these insurance policies come with third-party coverage and provide coverage for man-made and natural disasters. While CAR is only applicable for construction companies, EAR can also be availed by construction companies that require frequent installations of machinery or equipment. For instance, the erection of gas processing facilities, power plants, etc. can be covered by an EAR.
Which details are to be provided by the EAR policyholder for damages caused to a third-party?
The following details are to be provided by the EAR policyholder for damages caused to a third-party:
Extent and nature of damage inflicted to a third-person’s property
Address and name of the property owner
Details regarding whether the claimant is the sole owner or if it is jointly owned by other parties
Cause of damage
Details regarding the steps taken by the insured to minimise the losses
Did the damage occur during the testing period?
Name and address of witnesses
Other details as demanded by the insurer
What steps are to be taken if the injured third-party asks for immediate compensation?
The following steps are to be taken if the injured third-party asks for immediate compensation:
Ask the third-party to fill a claim letter with their address and contact details. Also, ask them to attach the medical receipts with the claim letter.
Forward the claim letter to the insurer and seek advice on whether you should be paying the third-party immediately or not. If they advise you to clear the bill, ensure that the insurer issues a compensation for the same by filing a claim yourself.
Are minor third-party injuries to be reported to the insurer?
The erection all risk policy covers all types of legal liabilities claimed by the third-party for bodily injuries sustained during the installation of your equipment or machinery. Even a small injury can result in a significant loss if the third-party claims for it. Therefore, you should notify the insurer about even the smallest of third-party injuries.
Should we report the losses that are less than the deductible?
A deductible is the standard amount that a policyholder requires to pay from their pocket before claiming for the insurance. It helps them to reduce the policy premium. If your losses are less than the deductible, there is no point in reporting the loss. However, if you are confused about the actual losses incurred or are not sure about the deductible, contact the insurer immediately and get further guidance from them.
Is third-party liability covered in an erection all risks insurance policy?
Yes, a third-party liability cover is available in an erection all risk policy. It covers the damages to property and bodily injuries that a third-party suffers during installation works. Some erection all risk insurance policies that cover third-party liability also come with cross-liability cover. A cross liability cover includes coverage for multiple parties involved in the incident.
What are handling risks in an erection all risk policy?
The handling risks means that damages or losses caused due to improper handling of the equipment or machinery. It includes damages caused due to falling objects, failures while operating cranes, collisions resulting in physical damage, and other incidents. A comprehensive erection all risk insurance plan includes coverage for the handling risks. However, there are some policies that do not offer coverage for the handling risks caused due to negligence and willful acts.
What does ‘Acts of God’ mean in an insurance policy?
Acts of God refers to the natural disasters that may damage an insured’s property. It includes disasters like earthquakes, floods, lightning, landslides, hurricane, tempest, storm, and more. Most of these natural disasters are covered in an extensive erection all risk insurance policy. It also provides coverage for man-made disasters like strikes, riots, vandalism, thefts, burglary, and housebreaking. However, damages caused due to terrorism activities may need you to get an add-on cover.
What are the general exclusions in an erection all risk policy?
The general exclusions in an erection all risk insurance policy are highlighted below:
Partial or total cessation of work
Negligence or willful acts from the insured
Nuclear radiation and related perils
Damages caused due to government order, municipality, or any other local authority
Damages or losses caused due to war, civil commotion, mutiny, invasion, and such other activities
What is an extended maintenance cover?
Extended maintenance cover provides protection from the losses caused during the maintenance work. The type of work must be mentioned in the maintenance contract and the damage/losses should be inflicted during erection or assembly of the machinery/equipment. It can be availed as an add-on coverage to extend the benefits of your existing erection all risk insurance plan.