What to expect … ?

• Introduction to INSURANCE• Various Insurance needs of Projects• Introduction to Marine Insurance• Introduction to Construction Insurance• Introduction to ALOP• Brief Analysis of Major losses in Thermal Power Plants.

What is Insurance ?

Financial Definition – Insurance is a financial arrangement that redistributes the costs of unexpected losses.– Insurance PoolInsurance Pool

It’s a Risk Management Tool– Risk TransferRisk Transfer

Legal Definition – Insurance is a contractual arrangement whereby one party agrees to compensate

another party for losses– Insurance is a branch of Contract LawInsurance is a branch of Contract Law.

Insurance ContractsDistinguishing Characteristics

Principle of Indemnity

Insurable Interest Actual Cash Value

Doctrine of Adhesion

Personal ContractUtmost Goodfaith

Entire and UndivisibleProximate Cause

Policies are not transferable automatically to new owners

The Policy and Proposal forms and other documents filed at the time of

insurance forms one single contract Exception :•Life, PA

•Reinstatement Policies•Valued Policies

More than one party may have an insurable interest in the same property

Actual Cash Value :Replacement value - Depreciation

Contra proferentum

0

5

10

15

20

25

30

1999 2001 2003 2005 2007

P rivate P layers

P ublic P layers

R s . '000 C r.s . ')))

20 %

35%

OVERVIEW OF THE INDIAN INSURANCE MARKET

Key changes in the market

1. Many products detariffed, other products to get detariffed.

2.Regulatory changes

3Segment focused players entering

4Many product innovations in the market

5. Private players taking large market.

GROWTH OF PREMIUM IN THE MARKET

911

14

18

25

PENETRATION OF FINANCIAL SERVICES AS % OF GDP

General Insurance Premium as % GDP

SITE

Operational Covers :FireFLOPMBBoilerMLOPEEI

MARINE & STORAGE CUM ERECTIONMARINE & STORAGE CUM ERECTION

CIVIL CONST.

STORAGEERECTIONTESTINGCOMMN.Foreign

Supplier

OR

IAR

IntermediateStorage

FabricatorsFabricators LocalSupplier

PortPort

TransportMarine (Imports)Marine (Indeg)Marine DSU

Intermediate StorageOffsite Storage-Additional Transit

ConstructionMCEEAR (SCE)CARTPLCPMALOP

MARINE CARGO INSURANCE

It covers…..

• The Physical Loss or Damage to property in Transit from one place to the other

• Starts from :• Suppliers Factory / warehouse• During Transit• During Transhipment, if any

• And Ends at :• Project Site

Who should take the Insurance ?

• Insurable interest depends on the Terms of Sale• C.I.F. - Responsibility of SELLER• C & F - Responsibility of BUYER• F.O.B. - Responsibility of SELLER upto placement of

Cargo on Board the mode of conveyance.

Period of Cover

• Starts • from the time goods leave suppliers factory / warehouse

• Ends• Air Shipments

• 30 days after discharge from the aircraft at the destination airport

• Sea Shipments• 60 days after discharge from the vessel at the destination port

• Rail / Road Consignments• 7 days after arrival of the goods at the carriers godown at the

final destination

• These time limits can be extended on payment of additional premium

What is Covered ? What is Not Covered ?

• I.C.C. (A)• All Risks Cover subject to the following exclusions :

• Improper Packing• Willful misconduct of the Insured• Ordinary Leakage, loss of weight/volume• Inherent Vice• Financial Insolvency or Default by the Carriers

Stranding

SITE

Operational Covers :FireFLOPMBBoilerMLOPEEI

CIVIL CONST.

STORAGEERECTIONTESTINGCOMMN.

OR

IAR

MARINE & STORAGE CUM ERECTIONMARINE & STORAGE CUM ERECTION

Foreign Supplie

r

IntermediateStorage

FabricatorsFabricators LocalSupplier

PortPort

TransportMarine (Imports)Marine (Indeg)Marine DSU

Intermediate StorageOffsite Storage-Additional Transit

ConstructionMCEEAR (SCE)CARTPLCPMALOP

Contractors All Risks Insurance (CAR)

Erection All Risks Insurance (EAR)

Insured

• Only one EAR policy • Joint insureds

• Principal• Contractors• Sub-contractors

• Manufacturers or suppliers

if they carryout the erection work or responsible for it

Policy

Two Sections

Section – I Section – II

Third Party Liability

Material Damage

Section – I Material Damage

Subject Matter Insured

Site erection and testing of :

• All kinds of individual machines

• All kinds of industrial plants

• All kinds of steel structures

• Civil engineering works• Temporary• Permanent

Scope of Cover

Any sudden and unforeseen loss or damage occurring to the property insured on the erection site during the period of insurance will be indemnified.

All Risks Format

“Otherwise not Excluded”

Perils Covered

• Location Risks

• FLEXA perils• STFI perils• EQ, • Subsidence, landslide, rockslide• Theft, burglary

Perils Covered

Human Risks

• Faults in erection• Negligence,• lack of skill, • lack of

experience, • Malicious acts

Perils Covered

• Operation Risks

• Short-circuiting, arcing, excess

voltage etc

• Excess pressure or vacuum, or

tearing apart on account of

centrifugal force

Perils Covered

• Handling Risks

• Any other sudden and unforeseen events : such as

• collapse, • foreign objects, • on-site transport

of items to be erected etc

Additional Covers

In addition :• Construction Plant and

Machinery• Surrounding Property –• Expenses incurred for debris

removal• Additional expenses –

overtime, holidays, • Air Freight• Additional Customs duty• TPL, Cross Liability• Escalation• Maintenance Visits Cover• Extended Maintenance Visits

Cover

EXCLUSIONS

• Loss or damage due to• faulty design• defective material or casting• bad workmanship

Consequent Physical damage is covered. Rectifying the original fault is still not covered.

Not related to erection work proper. Falls within the scope of Manufacturer’s guarantee.

“Buy-back” of this cover is possible with “Additional Premium”

• Loss or damage due to :• Willful act• Willful negligence• Of the insured or of his representatives

•Loss or damage due to :• War• Warlike operations• Civil commotion• Requisition by order of any public authority

EXCLUSIONS

• Nuclear Perils• Normal wear and tear and gradual deterioration• Inventory Losses• Consequential loss of any kind or description

Such as :• Penalties• Losses due to delay• Lack of performance• Loss of contract

EXCLUSIONS

Period of Cover

Commences immediately after the unloading of the items to be insured at the site

Continues during :• Storage• Erection• Testing and

commissioning

Duration of testing operation is usually 4 weeks

Extendable on payment of additional premium

PROJECT PERIODSPROJECT PERIODS

PLANNING

TRANSIT

ON SITE STORAGEHANDLINGCONSTRUCTIONERECTION

COMMERCIALOPERATION

COLD /PRE -TEST

HOT TEST

SCHEDULED DATE OFCOMMENCEMENT OF INSURED BUSINESS

Defects Liability Period

Extended MaitenanceCover

INSURANCE PERIOD

CAR / EAR

Provisional AcceptanceCertificate

Final AcceptanceCertificate

ReliabilityTest

Performance Test

Sum Insured

• Should be Completely Erected Value of the Project

• In accordance with the

works contract

• Includes :• Erection machinery

and equipment at new replacement

value• Freight• Customs Duties• Erection cost

Sum Insured

It is important to declare the full sum insured as indemnity is calculated to the extent items are included in the sum insured

• Average Clause

• Premium Adjustment Clause •Premium Installment Section 64 VB

Indemnity

In the event of a loss or damage the insurers will indemnify the insured for the expenses necessary to restore the damaged machinery or plant to its condition immediately before the occurrence of the loss or damage

Indemnity

Expenditure includes :• Disassembly• Freight• Reassembly costs• Specialists expenses, if necessary

Less : salvage Less : Deductible

Deductible : eliminates small losses where administrative expenses exceeds losses and helps loss minimisation

Scope of Cover [ Section-II ]

Legal Liability arising out of property damage or bodily injury suffered by third parties and occurring in connection with the erection work on or near the erection site

However, it is not a replacement for Principals or Contractors General Liability Covers.

Exclusions [ section-II ]

The Insurers will not indemnify any claims from :

Employees or Workmen

Of the Insured connected with the erection project

Workmen’s Compensation Policy or Personal Accident Policy takes care of this

INTERESTS INVOLVED IN A PROJECT

OBJECT OF “ ALOP ” INSURANCE

TO INDEMNIFY THE PRINCIPAL OR OWNER OF A PROJECT

FOR THE ACTUAL LOSS SUSTAINED

DUE TO A DELAY IN COMPLETION OF THE INSURED WORKS

THIS DELAY MUST BE CAUSED BY DIRECT PHYSICAL LOSS OR DAMAGE

COVERED UNDER THE MATERIAL DAMAGE SECTION OF SCE POLICY

NOT EXCLUDED BY “ ALOP ” - ENDORSEMENT

PROJECT PERIODSPROJECT PERIODS

WHAT IS CLAIMABLE ?

LOSS OF NET PROFIT

STANDING CHARGES PAYABLE DESPITE THE LACK OF INCOME

INCREASE IN EXPENDITURE TO REDUCE OR AVOID THE DELAY TO START-UP

MAXIMUM INDEMNITY PERIOD

ONLY ONE CLAIM PER POLICY

Indemnifiable Accident

Non-Indemnifiable Accident

Indemnifiable Accident

Indemnifiable AccidentBuild upBuild up

of theof the

sum insuredsum insured

Indemnifiable Delay to be adjusted for Indemnifiable Delay to be adjusted for time excess for reinstatement with same time excess for reinstatement with same

designdesign

INSURED AND UNINSURED DELAYS

SCHEDULED BUSINESS

COMMENCEMENT

FIRE, NEGLIGENCE

STRIKE, SHORTAGE OF MATERIALS

UNINSUREDDELAY

INSURED DELAY

INDEMNITY PERIOD

ALoP Insurance In a Nutshell

The Insured in ALoP is the PRINCIPAL ONLY Concurrent material damage (MD) insurance Same Insurer(s) for ALoP and MD Extremely good co-operation between all parties Insurance period identical to MD erection period Accident not immediately followed by indemnity period Only one claim per policy Only one time excess per policy Max. indemnity period sufficiently long

PROJECT RISKS RATINGPROJECT RISKS RATING

Sum InsuredAbove Rs. 100 Cr.

ButBelow Rs. 2500 Cr.

Sum InsuredBelow Rs. 100 Cr.

Sum InsuredAbove Rs. 2500 Cr.

LOSS ANALYSIS IN THERMAL POWER LOSS ANALYSIS IN THERMAL POWER PLANTSPLANTS

FIRES IN THERMAL POWER PLANTS DURING 1988 - 2004

Sl No

The Plant Location Date & time of fire

Estimated Loss in Rs. Crores

Cause of fire

1 2x60 MW & 3x110 MW, Tamilnadu

Cable gallery 10.10.98 0.62 Cable fault

2 1x210 MW & 4x110 MW, Haryana

Coal handling plant

05.06.92

01 30 hours

0.60 Spontaneous ignition of coal

3 3x200 & 2x500 MW, WB Generator transformer

21.04.1995

22.44 hours

0.65 Internal fault in transformer

4 7x210 MW, Tamilnadu Boiler house 03.10.1995 >0.50 Leaking oil from burner was ignited by hot surface

5 2x500 MW, Orissa Turbo generator 04.10.1995 >0.50 Ignition of hydrogen air mixture

6 6x110 MW, WB Coal conveyor 16.02.1996

12 50 hours

1.0 Ignition of coal dust by electrical sources

7 4x67.5 MW, MP Turbo generator 14.12.1996

12.45 hours

>0.50 Failure of insulation caused fault at generator windings leading to short circuit

FIRES IN THERMAL POWER PLANTS DURING 1988 – 2004

Sl No

The Plant Location Date & time of fire

Estimated Loss in Rs. Crores

Cause of fire

8 2x500 MW, UP Current transformer

May 9,21,25 & 27, 1997

2.5 Voltage peak generating hysteris and eddy currents led to overheating and fire

9 3x200 & 2x500 MW, WB Sulphur hexa flouride (SF6) current breaker in Switch Yard

10.12.1997

23 40 hours

>0.50 Short time contact relay failed, overheated SF6 gas under pressure ruptured the breaker

10 7x210 MW, Tamilnadu Boiler house 03.10.1997

21 30 hours

0.80 Leaking oil from burner was ignited by hot surface

11 4x210 & 3x500 MW, Maharashtra

Coal crusher house

28.12.1997

05 30 hours

>0.50 Conveyor belt was ignited by a faulty electrical equipment

12 4x210 MW, Karnataka Warehouse 03.03.1997 >0.50 Failure of thermal relay in air conditioner ignited rubber goods stored below it

FIRES IN THERMAL POWER PLANTS DURING 1988 - 2004

Sl No

The Plant Location Date & time of fire

Estimated Loss in Rs. Crores

Cause of fire

13 4x60 MW, AP Bucket elevator of air heater hopper

14.07.1997

18 05 hours

0.65 Oil coating on plates during boiler start up ignited and was aggravated by fresh combustible air stream

14 7x210 MW, Tamilnadu Current transformer in 230 KV switchyard

15.09.1997

18 02 hours

0.23 Failure of paper insulation of “R” phase due to ageing or overheating

15 6x50 & 3x100 MW, Tamilnadu

Turbo generator 28.05.1998

19 00 & 22 05 hours

3.0 Spillage of lube oil ignited by hot surface

16 2x7.5 & 1x4 MW, Rajasthan

Coal yard 03.06.1998

14 30 hours

1.0 Spontaneous combustion

17 6x210 MW, Punjab 250 MVA Generator transformer

29.04.1998

20 20 hours

>0.50 Internal fault

FIRES IN THERMAL POWER PLANTS DURING 1988 - 2004

Sl No

The Plant Location Date & time of fire

Estimated Loss in Rs. Crores

Cause of fire

6x210 MW, VTPS, AP 240 MVA Generator Transformer

31.07.1998 0.47 High pressure pushed out one of the three ``bushings'' with a great force causing a blast and ignited subsequently.

18 4x60 MW, AP 65 MVA Generator Transformer

21.08.1998

06 00 hours

0.70 Insulation failure

19 6x110 MW, KTPS, AP Turbine hall 11.12.1998 >1.0 Lube oil ignited on contact with hot surface

19 6x210 MW, Karnataka 250 MVA Generator Transformer

10.03.2001 6.5 Fault at transformer bushing

20 6x20 MW, Karnataka Generator Transformer

18.06.2001 >0.50 Fault at transformer bushing

21 2x60 & 3x110 MW, MP Turbine building 28.06.2001 5.0 Lube oil ignited on contact with hot surface

Sl No

The Plant Location Date & time of fire

Estimated Loss in Rs. Crores

Cause of fire

22 Captive power plant, Jharkhand

Steam Turbo Generator

11.3.2002 14.0 Short circuit in cables at cellar. Fire spread to generator and caused fault at generator winding

23 7x210 MW, Tamilnadu Boiler house 04.09.2002

16 45 hours

1.0 Conveyor belt ignited by a faulty electrical equipment

24 60 MW, Captive power plant, Gujarat

Turbo generator 02.03.2001

10 00 hours

75.0 Lube oil ignited on contact with hot surface

25 180 MW, Mumbai Fire gas desulphuriser

11.02.2002

09 32 hours

5.0 Sparks from gas cutting ignited polypropylene packing material in desulphurisation tower

26 6x210 MW, APGENCO, AP

Furnace oil tank 29.07.2003 0.75 Hot work

27 3x210 MW, North Chennai Thermal Power Station, Chennai

Cable cellar 05.12.2004

03.00 hours

1.0 Short circuit

FIRES IN THERMAL POWER PLANTS DURING 1988 - 2004

Sl No

The Plant Location Date & time of loss

Estimated Loss in Rs. Crores

Cause of Loss

27 2x100 MW, APGPCL, AP

Turbine Hall 11.03.2007 >15.0 Steam turbine break down

28 368 MW, LANCO, AP Plant entrance 15.09.2003 0.25 Heavy winds caused collapse of ornamental concrete structure at the entrance

OTHER LOSSES IN THERMAL POWER PLANTS

Area / equipment % of fire incidents

1 Transformers/Switching equipments

30

2 Generator area 15

3 Coal handling/conveyor 22

4 Boiler area 7

5 Lubricating oil system 7

6 Cable gallery 3

7 Turbine 3

8 Others 13

Total 100

Questions??