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Monday, March 17, 2008

Medical Insurance in Saudi Arabia

ENORMOUS growth of the insurance business over the past three centuries has led to its various classifications today, depending upon the type and nature of the risk involved. The major traditional classifications are medical, motor, property and marine. It is found that medical and motor together form almost half the total insurance business portfolio. These classes are also known as attrition class of business as losses do occur with regular frequency. Medical insurance is more prone to attrition than any other class of insurance.
In Saudi Arabia, insurance has been sold for almost half a century now. In the recent past, medical insurance was being written by medical insurance companies, general insurance companies and life insurance companies. There are international brokers, local brokers and agents also selling medical insurance. Other types of providers have emerged to manage the bulging medical portfolios: Third Party Administrators (TPA) and consultants. In Saudi Arabia we have independent TPA and in-house TPA. We also have independent consultants, and sometimes brokers take the role of a consultant. But the majority of medical insurance is being done directly by insurers.
The state-owned National Company for Cooperative Insurance (NCCI) was enjoying a monopoly as the only registered insurance company in Saudi Arabia. But Malath Cooperative Insurance and Reinsurance has broken the monopoly by becoming the first among non-NCCI companies to be registered.
However, this is a new company with very little experience in the insurance industry. There are many seasoned companies along with the new entrants awaiting clearance for registration.
The decision of the government to regularize insurance companies under the Saudi Arabian Monetary Agency (SAMA), was a major step towards regulation and development of the sector. The regulation was a comprehensive one requiring all the market players to get the necessary licence to operate with the minimum fees and deposits. Prior to the current regulation, there were more than 80 insurance companies operating in the Kingdom.
However, post licensing, these companies will be reduced to less than half. The remaining either have closed their operations, will be closing, or merged with other companies.
Motor insurance was made mandatory on Nov. 20, 2002, fuelling the growth of motor insurance.
The Council of Cooperative Health Insurance (CCHI) was formed on Aug. 11, 1999 to regulate the mandatory medical insurance.
The first phase of health insurance, which was applicable to companies employing more than 500 expatriate employees was made mandatory last year and the second phase, applicable to those having more than 100 expatriate employees, during the early part of April this year.
This has increased insurance awareness among the entire community. Even though compulsory medical insurance is for expatriates only, most companies are including their Saudi staff for coverage.
The overall Saudi insurance market is currently estimated at SR5 billion. The potential for health insurance alone is more than SR20 billion, which is expected to be achieved within the next few years.
In the past, many hospitals and clinics have suffered due to defaulting insurance providers. Very recently, we saw the closure of SACIR (Saudi Allied Company for Cooperative Insurance and Reinsurance) and Methaq, who were heavily into medical insurance.
Hospitals lost millions of riyals due to unpaid bills by these operators. The current regulation will protect the interest of all parties involved in insurance.
Many hospitals are not happy with evaluation of claims by insurance-company doctors. Their refusal of claims has become the bone of contention between hospital doctors and insurance doctors. Insurance doctors need to trust the prima facie evidence of the treating doctor.
The treating doctors sometimes end up being dictated to by the insurance doctors and end up losing their professional independence.
There are many companies specializing in Medical Health Insurance in Saudi Arabia. For groups, it is easy to get insurance. Some staff, who are on deputation basis, will have their own international insurance from the companies in their own country.
However, if an individual wants to buy medical insurance, then he will have limited choices. The cost of health insurance hovers between SR800 to SR4,500. The main factors built into rating are sum insured, room type, network of hospitals, dental, pre-existing, repatriation of mortal remains, optical, maternity, international coverage, age of the insured, deductible, claims experience and group size etc.
Current basic CCHI coverage is standardized to make the insurance uniform and it has certain inherent advantages like compulsory coverage to a limit of SR250,000, dental coverage, vaccinations as per the Ministry of Health, optical and maternity. The number of exclusions are few and well defined. The basic room requirement is semi-private room.
The difficult area is the deductible part, which is 20 percent of the claims amount subject to a maximum of SR100. In this area, customers have ended up paying up to SR300 due to lack of understanding on the part of various parties involved.
However, as the scheme progresses further, the awareness will increase and there will be fewer mistakes. Insurance companies have already found a way to beat this deductible issue by issuing policies with fixed deductible.
The basic intention of the CCHI coverage is to take care of treatment in Saudi Arabia, hence some of the areas on which a general expatriate patient relies are not covered under the current wording of CCHI - there is non-network Saudi Arabia and worldwide exclusion unless the treatment is emergency in nature.
Medical insurance is still in evolutionary process and it may take some more time till it stabilizes.
Customer should realize that everything is not insurable and there are always some gaps in the insurance. Too often it has been found that the customer either does not get the expected service, the receptionist is slow, the doctor is late or does not prescribe the medicine suggested by the patient and the blame goes to the insurance company.
In certain cases, customers face genuine problems. Certain companies try to seek approval for even a small test, which will consume the time of the patient, and even after wasting the time, the net result will be denial of that particular test.
Some insurance companies do not allow certain brands of drugs, hence they suggest to the treating doctor to provide with generic names of the drugs. These generic names of the drugs will give the pharmacist leeway to give the drug of his choice or the synonymous drug of cheaper variety, thereby causing dissatisfaction to the customer.
Apart from the factors mentioned above, the buyer should look into the strength of the company, its affiliation, flexibility and its payment record with hospitals. Buyer should also be aware of any fine prints, inner limits, geographical scope, non-network coverage, limitation of claim submission, general exclusions and practical difficulties before making any decision to go ahead with a particular policy.
A 24-hour helpline is certainly a useful aspect of service by the medical insurer and should not be overlooked. As with all the buying processes, the universal truth "Caveat Emptor" should not be ignored.


Courtesy - Mohammed Sadullah Khan, an MBA, is a Fellow of Insurance Institute of India and an Associate of Chartered Insurance Institute of the United Kingdom. He has more than 20 years of experience in the insurance industry - 12 of them in Saudi Arabia. He is experienced in all classes of general insurance with special emphasis on property, medical, motor and bank assurance. He can be contacted at mosakhan40@yahoo.com
Did his graduation from Kakatiya University, Andhra Pradesh, India and MBA from Berhampur University, Berhampur, Orissa, India.

SUMMARY OF INDIAN UNION /GENERAL BUDGET 2008-09

Rs. 60,000 crore debt relief package benefiting four crore farmers, increase in spending on social sector schemes and relief to income-tax payers are some of the highlights of the Union Budget for 2008-09.
Presenting the budget in the Lok Sabha today, Finance Minister, Shri P. Chidambaram, announced a new insurance scheme for workers in the unorganized sector, setting up of institutes of higher learning and 6000 high-quality model schools, and provision of Rs. 16,000 crore to cover all rural districts under National Rural Employment Guarantee Scheme (NREGS).
Under the debt waiver and relief package, small and marginal farmers (with holdings up to 2 hectare) there will be a complete waiver of all loans overdue on December 31, 2007 and which remained unpaid until February 29, 2008. For other farmers, there will be a one-time settlement (OTS) scheme. Under the OTS, a rebate of 25 per cent will be given against payment of the balance 75 per cent. Loans re-scheduled in 2004 and 2006 through special packages and those re-scheduled in the normal course will also be eligible for a waiver or an OTS. The debt relief scheme will be implemented by June 30, 2008 and the covered farmers will be entitled to fresh farm loans from banks in accordance with normal rules. The total value of overdue loans being waived is estimated at Rs. 50,000 crore and the OTS relief at Rs.10,000 crore. The scheme is likely to benefit about three crore small and marginal farmers and one crore other farmers.
Expressing the hope that the target of agricultural credit for 2007-08 would be exceeded, the Finance Minister has set the target of Rs. 280,000 crore farm credit in 2008-09. Short-term crop loans will continue to be disbursed at interest rate of 7 per cent per year.
More investment is flowing into the irrigation sector. Under the Accelerated Irrigation Benefit Programme, 24 major and medium irrigation projects and 753 minor projects will be completed. The outlay for this programme is being raised from Rs 11,000 crore last year to Rs. 20,000 in 2008-09. The Rain-fed Area Development Programme will be implemented, with an allocation of Rs. 348 crore. The Government will establish the Irrigation and Water Resources Finance Corporation with an initial capital of Rs. 100 crore. This Corporation will mobilize resources for major and medium irrigation projects.
Initiatives for rejuvenating the agricultural sector include setting up of 500 soil testing laboratories, introduction of crop insurance scheme for plantation crops and support to cooperative sector reforms.
The budget provides Rs. 32,667 crore for food subsidy under the Public Distribution System (PDS). As a new initiative for efficient delivery of food grains under the PDS, smart cards are being introduced in Haryana and Chandigarh, on pilot basis.
Keeping in mind the higher cost of construction of houses by the poor, the subsidy per unit for new houses sanctioned under Indira Awas Yojana after April 01, 2008 is being enhanced from Rs. 25,000 to Rs.35,000 in plain areas and from Rs.27,500 to Rs.38.500 in hilly/difficult areas. The subsidy for upgradation of houses goes up from Rs. 12,500 per unit to Rs.15,000. Loans up to Rs.20,000 per unit under the Indira Awas Yojana will be available at the interest rate of 4 per cent.
Calling the education and health sectors ‘the twin pillars on which rests the edifice of social sector reforms’, the Finance Minister announced 20 per cent increase in budget allocation for education and 15 per cent for the health sector.
In the area of school education, a model school programme with the aim of establishing 6,000 high quality model schools has been announced. Mid-day meal scheme is to be extended to upper primary classes in Government and Government-aided schools in all blocks of the country. Nehru Yuva Kendras will be opened in all the 123 districts which presently do not have an NYK. In higher education, three IITs are to be set up in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and Thiruvananthapuram; two Schools of Planning and Architecture at Bhopal and Vijayawada; and one Central University in each of the hitherto uncovered States. To encourage children to take up science and R&D, scholarships will be given to students under a new scheme, Innovation in Science Pursuit for Inspired Research (INSPIRE).
Highlighting the need for launching a world class skill development programme in mission mode, the budget seeks to establish a non-profit corporation. The Government will put Rs. 1,000 crore as initial equity in the corporation. Continuing the scheme of upgradation of ITIs, the budget provides Rs.750 crore for upgrading 300 more ITIs in 2008-09.
In the Health sector two major interventions are planned. Under the Rashtriya Swasthya Bima Yojana every worker in the unorganized sector falling under the BPL category and his family will get health cover of Rs. 30,000. For the elderly a National Programme for the Elderly is to be started in 2008-09.
The budget provides for Rs. 1,000 crore for the Aam Admi Bima Yojana that provides insurance cover to poor households. This will cover one crore poor households in addition to the one crore likely to be covered by September 30 this year. Funds have also been enhanced for the Indira Gandhi National Old Age Pension Scheme. This Scheme has been expanded from November 19 last year to include all persons over 65 years falling under the BPL category.
Allocations for the Flagship Programmes have been enhanced. Provision has been made to expand the National Rural Employment Guarantee Scheme to cover all 596 rural districts. For providing potable water to schools in water deficient habitations, provision for installing stand-alone systems is being made under the Rajiv Gandhi Drinking Water Mission.
Schemes benefiting SCs and STs exclusively have been provided Rs. 3,966 crore and for schemes where at least 20 per cent of the benefits are earmarked for SCs and STs, the budget provides Rs. 18,983 crore.
The schemes announced for the welfare of the minorities include a multi sectoral development plan to be drawn for each of the minority concentration district and a scheme for modernizing Madrassa education. The allocation to the Ministry of Minority Affairs has been doubled to Rs. 1,000 crore.
The budget has a number of initiatives for women and children. The allocation to the Ministry of Women and Child Development has been enhanced by 24 per cent to Rs. 7,200 crore. For the first time, a statement on child related schemes has been introduced in the budget. The total expenditure on schemes for child welfare would be of the order of Rs. 33,434 crore. Rs.11,460 crore has been provided for 100 per cent women specific schemes and Rs. 16,202 crore for schemes where at least 30 per cent is earmarked for women-specific programmes. LIC is being asked to extend the Janashree Bima Yojana to cover all women Self Help Groups that are credit-linked to the banks.
The North-Eastern region continues to receive special attention in this year’s budget also. The total budget allocation for this region has been raised by over Rs. 2,000 crore to Rs. 16,447 crore. The government proposes to identify the urgent need of border areas in the north-east and address them through a special mechanism, and for this a Rs. 500 crore fund is being established.
The Finance Minister has raised the income tax exemption limit from Rs. 1,10,000 to Rs. 1,50,000, thus giving every assessee a relief at minimum of Rs. 4,000. The tax rate will be 10 per cent for the income slab between Rs. 1,50,001 and Rs. 3,00,000 and 20 per cent between Rs. 3,00,001 and Rs. 5,00,000. For income of Rs. 5,00,001 and above the income tax rate will be 30 per cent. The exemption limit for women assessees has been increased to Rs. 1,80,000 and in case of senior citizens to Rs. 2,25,000. The Finance Minister has not proposed any change in corporate income tax and in the rate of surcharge. A person paying medical insurance premium for his parents will be allowed an additional deduction of Rs. 15,000 under Section 80D. Justifying the changes in the slabs for personal income tax Shri Chidambaram said that moderation will beget revenues and fairness will beget compliance.
The Finance Minister has brought four more services under the service tax net. They include asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses, right to use goods in cases where VAT is not payable, and customized software. He also clarified that money changers, persons running games of chance and tour operators using contract carriage vehicles are liable to service tax. He, however, increased the threshold limit of exemption for small service providers from Rs. 8,00,000 per year to Rs. 10,00,000. He said 65,000 small service providers will go out of the tax net.
On the indirect taxes front, the Finance Minister has made no change in the peak rates of customs duty. The customs duty on project imports has been reduced from 7.5 per cent to 5 per cent. He has proposed to impose a 4 per cent special countervailing duty on a few specified projects in the power sector. Duty on steel melting scrap and aluminum scrap has been reduced from 5 per cent to nil. Customs duty on certain life saving drugs and on the bulk drugs used in the manufacture of such drugs has been reduced from 10 per cent to 5 per cent and also to totally exempt them from excise duty or countervailing duty. Specific parts of set top boxes and specified raw materials for use in IT and electronic hardware industry have been fully exempted from customs duty. Specific machinery for manufacturer of sports goods, vitamin pre-mixes, mineral mixtures and phosphoric acid used for manufacture of cattle and poultry fields have been given duty concession.
In order to support domestic fertilizer production, customs duty on crude and unrefined sulphur has been reduced from 5 to 2 per cent. Export duty on chrome ore has been increased from Rs. 2000 to Rs. 3000 per metric tonne to conserve chrome ore. The Finance Minister has proposed to reduce the general CENVAT on all goods from 16 per cent to 14 per cent. Excise duty on all goods produced in the pharmaceutical sector has been reduced from 16 per cent 8 per cent. Excise duty on buses and their chassis, small cars, two and three wheelers has been reduced from 16 per cent to 12 per cent. Water purification devices, flush doors, specified packaging material and breakfast cereals will attract excise duty at 8 per cent. Anti AIDS drug, Atazanavir has been totally exempted from excise duty. To encourage cold chain facilities, the Finance Minister has proposed to exempt excise duty on refrigeration equipment above two tonne refrigeration utilizing power of 50KW and above.
Bulk cement will now attract excise duty of Rs. 400 per metric tonne or 14 per cent ad valorem, whichever is higher. Cement clinkers will be liable to excise duty of Rs. 450 per metric tonne. Excise duty of packaged software has been increased from 8 to 12 per cent. An excise duty of one per cent on polyester filament yarn, called NCCD, has been removed and imposed on cellular mobile phones.
Emphasizing that there has been an unmistakable boom in investment, the Finance Minister said the Government will provide Rs. 16,436 crore as equity support and Rs. 3,003 crore has loans to Central Public Sector Enterprises. The corpus of the Rural Infrastructure Development Fund is proposed to be raised to Rs. 15,000 crore during the coming year. Shri Chidambaram said that there has been some moderation in the index of production of the six core infrastructure industries as well as in the overall index of industrial production from April to December, 2007. He said the decline has been somewhat sharp in the case of consumer goods.
The Finance Minister has provided Rs. 5,500 crore for the Rajiv Gandhi Grameen Vidyutikaran Yojana, Rs. 800 crore for the Accelerated Power Development and Reforms Project and increased the outlay on National Highway Development Programme from Rs. 10,867 crore to Rs. 12,966 crore. The outlay on Technology Upgradation Fund run by the Ministry of Textiles has been increased from Rs. 911 crore in the current year to Rs. 1090 crore. Rs. 340 crore has been allocated for the cluster approach to development of the handloom sector. In order to scale up both infrastructure and production, the Finance Minister proposes to take up six centres for development as mega clusters. They include Varanasi and Sibsagar for handlooms, Bhiwandi and Erode for powerlooms and Narsaspur and Moradabad for handicrafts. An initial provision of Rs. 100 crore has been made for the mega clusters.
Recognizing that exports have come under some pressure due to appreciation of the Rupee, the Finance Minister said the Government has given relief to exporters in three tranches of over Rs. 8000 crore and Rs. 8351 crore in the form of interest cost of market stabilization bonds. He said the Government is sensitive the needs of the exports sector and will continue to respond sympathetically as the situation demands.
On the capital market front, he announced some measures to expand the market for corporate bonds. He said, the requirement of PAN will be extended to all transactions in the financial market subject to suitable threshold exemption limit.
The Finance Minister has provided Rs. 624 crore for the commonwealth games, Rs. 75 crore to ICCR to promote India’s music literature, dance, art and films, Rs. 50 crore to the National Tiger Conservation Authority to raise and deploy a special protection force.
The allocation for the defence has been raised by 10 per cent from Rs. 96,000 crore to Rs. 105,600 crore. The total plan expenditure will be Rs. 243, 386 crore and the non-plan expenditure is estimated at Rs. 507,498 crore. The fiscal deficit for 2008-09 has been estimated at Rs. 133,287 crore which is 2.5 per cent of GDP. He said, significant liabilities of the Government on account of oil, food and fertiliser bonds are currently below the line. He said, after the obligations on account of the Sixth Central Pay Commission become clear he would request the Thirteenth Finance Commission to revisit the roadmap for fiscal adjustment.

Monday, March 3, 2008

Motor Insurance in Saudi Arabia

By Shujaath Ahmed Khan

Type of Coverages

Comprehensive - Specified Risks, Compreshensive All Risks, Third Party fire and Theft and Third Party only. Personal Accident Benefits (unnamed Driver and Passengers – Optional covers)
Coverage Details:
(1) Damage to Vehicles:
the reasonable cost of repair, or
the reasonable market value of the vehicle at the time of loss; or
The Estimate of Value as stated in the Policy.
whichever is the least
(2) Liability to Third Parties:
In respect of Bodily Injury - SR. 5,000,000 any one claim
In respect of Property Damage- SR. 5,000,000 any one claim
(3) Towing Charges - SR. 1,000 or 500 or 250
(4) Medical Expenses - SR. 1,000 any one accident
(5) Personal Accident/Medical Benefits- ( SR. 100,000 any one Driver/Passenger)
(6) Agency Repair - In case of Agency repair the rates are higher and deductibles are also higher.
(7) Geographical Extenstion – People want to go to Egypt, Bahrain, UAE, Kuwait,Qatar, Jodran, Yemen etc. It can be done to the own damage section fot the coverage.
Authorised Driver: Any person driving on Insured's order or with their permission.
Deductible: Varies from SR. 250 to SR. 2500.
Vehicles Insured:
Commercial and Private with mild variations. There are also coverage for special type of vehicles
Important:
1) The values indicated must represent reasonable market price to ensure satisfactory settlement of claims. Under insurance could result in the vehicle being treated as a constructive total loss even where the claim is relatively small.
2) Under most of the policies legal liability of the passenger is covered under the policy upto a certain limit of passengers.
3) In case of cancellation you need to demand pro-rata refund in case you are leaving the Kingdom.
4) Normally get the quotes from atleast 2-3 reputed Insurers over the telephone or email.
5) Do not handover your keys to any person who is not reliable.
6) After accident Protect your vehicle to safety. Subsequent losses are not covered under the insurance coverage.
7) Deal with professional companies.

Insurance of Construction/Erection Projects in Saudi Arabia

By Shujaath Ahmed Khan – 03-03-2008

As lot of construction activity is taking place in the Kingdom of Saudi Arabia. The following information will be useful to the Principals, Contractors, sub-contractors and other interested parties.

In most of the Civil Engineering or Machinery Erection Projects the Project Management faces the problem of fixing the responsibility for insuring the risks to which the project is exposed and for administering the insurance policies. The Project Manager and the Risk Manager has to assess the risks they face in the Project and shall have to make a decicion on the extent of insurance covers needed. Even when the other parties are obliged to insure various risks relating to the Project ultimately the cost will have to be borne by the Employer directly or indirectly.

2. THE EMPLOYER'S RISKS:

2.1. The Employer has the highest stake in completing the Project and hence in its insurance covers.

2.2. In most of the cases, contracts can be better dealt with by the Employer assuming the responsibility for insurance. The Employer should foresee contingencies such as insolvency of the contractor, default by the Contractors, suspension/ termination of the Contractor replacing him with another Contractor etc while providing the insurance requirements.

2.3. The factors in favour of the Employer carrying the insurable risks are:

(a) The Employer has to pay the premium either directly or indirectly (costs built in the contract price). By combining the insurance requirements of various Contractors the volume of premium will be high enough to secure better insurance terms from the market.
(b) The Employers has the highest stake in completing the project since his investment is exposed to the perils
(c) The Contractors tend to cover their exposure only
(d) Cover can be continued with the Fire Insurers for the completed sections
(e) No gaps or grey areas as in the policies procured by the Contractors
(f) Employer is protected in case of insolvency or termination of the Contractor and apponintment of another to complete the contract
(g) Employer is protected against under-insurance if the insurances are properly arranged
(h) Employer's insurance can take care of common facilities and utilities which may be used by many contractors
(i) Employer can cover the risks of price escalation and replacement escalation where as the Contractors will be unwilling to cover such escalation in price
(j) Coordination and completion of restoration works following a major loss to works carried out by different contractors will be easy if the indemnity is provided by one insurer
(k) Following major losses it may not be possible to replace a machinery with another one of the same kind due to changes in technology. Employer's policy will be able to deal with the situation better in such a contingency

(l) Employer is familiar with the local law and the import and customs law. Hence he can arrange protection needed to meet their reqirement.
(m) If the Employer purchases the materials and supplies the same to the Contractor for Erection disputes may not arise between the Marine Insurer (of the Employer) and the Construction Risk Insurer as to when the damage occurred (when the materials are not checked as soon as they land or at the site) if both risks are covered by the same insurer
(n) Administration of the insurance function will be easier and less expensive if the Employer effects policies including the interest of the Contractors and manages the risk using one centralised office for the whole project. Coordination will be easier with this type of centralised administration. This will also avoid time and effort spent on actions for recovery by different Insurers insuring different interests of the same subject matter affected.

2.4. Even if the responsibility for managing the risks is passed on to the Contractors and the Employer is named as an insured, the Employer will continue to carry the following risks:

2.4.1. MATERIAL DAMAGE AND LIABILITY:

(a) Loss, damage or liability arising out of faulty design of the works by the Engineer
(b) Loss or damage arising out of or aggrevated by the "excepted risks" such as the war, hostilities (whether war be declared or not), invasion, act of foreighn enemies, revolution, insurrection or military or usurped power,civil war, riot, commotion or disorder, ionising radiations or contaminations by radio-activity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel, radio-active toxic explosive or other hazardous properties of any explosive, nuclear assembly or nuclear component thereof, pressure waves caused by air craft or other aerial devices travelling at sonic or super sonic speeds, or any other operation of the forces of nature as an experienced contractor could not foresee, or reasonably make provision for (force majeure)
(d) Loss or damage arising out of riot, strike or civil commotion or disorder
(e) Loss or damage to the works or part of the works taken in to use or is occupied by the Employer
(f) Non disclosure or misdescription of any material fact affecting the risk or any material changes affecting the risk
(g) Loss or damage arising out of or aggrevated by wilful act or wilful negligence of the insured (Employer) or his responsible representative
(h) Loss or damage arising out of or aggrevated by cessation of work whether total or partial
(i) Loss or damge occuring after commencement of tests on the second hand machinery installed

2.4.2. MATERIAL DAMAGE SECTION:

In addition to the above risks mentioned in paragraph 2.4.1, the following risk are also to the account of the Employer even if the responsibility for insurance is passed on to the contractor:

(a) Financial, consequential and trade losses such as the loss of anticipated profits due to delayed completion of the project, additional capital to be invested due to escalationin the project cost, penalties, fines, failure to secure special priviledges from the authorities due to delays (eg. concessional customs duties available during a period), loss of the targeted market etc.
(b) Faulty design or defective material if these are supplied by the Employer
(c) Loss or damage to materials supplied by the Employer due to normal wear and tear, corrosion oxidation or other normal atmospheric conditions

2.4.3. THIRD PARTY LIABILITY:

In addition to the above risks mentioned in paragraph 2.4.1, the Employer is exposed to the following risks in case of bankruptcy or closure of the Contracting Company the following risk are also to the account of the Employer even if the responsibility for insurance is passed on to the Contractor, unless each of the following risks is adequately insured by the party directly liable for the loss under specific policies such as the Workmen Compensation Insurance Property All Risks Insurance, Aviation Liability Insurance or the Motor Vehicle Insurance.

(a) Legal liability to pay compensation for damages consequent up on accidental bodily injury to or illness of third parties not connected with the project work (whether fatal or not) and accidental loss of damage to property belonging to third parties occuring in direct connection with the erection, construction or testing on the insured project work and happening on or in the immediate vicinity of the of the site during the period of the cover
(b) Legal liability to pay similar compensation for damages to one party involved in the construction work caused by another party involved in the same contract work
(c) Liability consequent upon bodily injury to or illness of Employees or Workmen of the Principal, Contractors or any other Firm connected with the Project
(d) Liability consequent up on loss of or damage to property belonging to or held in care, custody or control of the the Principal, Contractors and any other Firm connected with the Project
(e) Liability consequent up on any accident caused by vehicles licensed for general road use or by waterborne vessel or craft
(f) Liability assumed by agreement unless such liability would have attached also in the absence of such agreement

(A) DAMAGE TO MATERIALS USED IN THE PROJECT:

Construction Projects involving Civil Engineering Works and Machinery Erection are exposed to the following risks:

1. Materials forming part of the construction work:

(a) Construction/ Erection Risks while carrying out exploratory and/ proto type testing works such as drilling of test bore holes, exploratory excavations etc

(b) Storage risks at the suppliers' and manufacturers' premises for imported and locally supplied materials which have already been sold but not delivered to the Contractor/ Principal
(c) Marine/ transit risks from the suppliers'/ manufacturers' premises to the site of erection for materials to be imported including the risks of incidental & or intermidiate storages
(d) Storages in bonded warehouses and/ or Project warehouses near the port of entry
(e) Transits to and from the fabricators premises outside the construction site (for materials procured by the Contractor/ Principal and sent for fabrication/ assembly/ further process prior to Erection at site)
(f) Risks during storage and fabrication/ assembly/ process at the intermediate fabricators premises mentioned in (d) above
(g) Off site storages and inland transit from such storage locations to the site
(h) Storage at site
(i) Storage risks of materials procured for contracted/ subcontracted work but in custody of the Principal/ Contractor waiting to be handed over to the Contractor/ Sub-Contractor
(j) Normal construction/ erection risk at site
(k) Risks due to defective material and/ or defective workmanship
(l) Risks due to faulty design
(m) Completed portion of the work handed over to the Contractor but not handed over to the Principal
(n) Completed sections taken over by the Principal but not taken in to use due to delay in completion of other sections
(o) Risks during testing of each section of the Machinery on load
(p) Integrated final testing of the complete line of Machinery on full load resulting in achievement of commercial production
(q) The period of test run on load
(r) Risks during the Period Of Maintenance
(s) Risks during the Period Of Guarantee

2. Materials used for or inconnection with the Project but not forming part of the work (temporary works not fully written of in the Project, Constructional Plant, Equipment and Machinery and Temporary Buildings such as Stores, Labour Camp etc):

(a) Risks during transit from the storage premises of the owner to the site of Erection/ Construction
(b) Risks during storage off site
(c) Transit to and from such storage location to site and back daily/ periodically
(c) Risks during storage at site.

3. Unless specifically insured a normal Contractors/ Erection All Risks Policy will indemnify the Insured the cost of rectifying or replacing the item affected to the extent insured provided the loss did not occur due to any excepted peril. Such cover is provided for items 1(g) and 1(i) above if only the total contract value is declared for insurance. Even for these the following losses and/ or costs are not covered unless specifically agreed at the inception of the policy:

(a) Architects, Surveyors and Consulting Engineers Fees to be incurred for reinstating the damaged property
(b) Riot, strike and civil commotion risks
(c) Cost of removal of debris following an indemnifiable damage to the contract work
(d) Express freight (other than air freight) for replacements/ spares following an occurrence
(e) Overtime, night work and holiday wages for repairs/ replacements following an occurrence
(f) Air freight for replacements and spare parts to be procured following an occurrence
(g) Additional customs duties for replacements/ spares to be procured following an occurrence
(h) Escalation in prices of replacements/ spares to be procured following an occurrence (escalation may be due to inflation, incresed demand, reduced supply, increased cost of production, exchange rate fluctuation, original discounts not available for replacements etc; estimation of this should be based on the replacement cost of the project following a major catastrophic loss at the end of the construction period)
(i) Escalation in the cost of the project due to the reasons stated in (h) above (limit of indemnity being the Escalated Project Value)
(j) Cost of new parts for repairing second hand machinery and equipments
(k) Loss of or damage to existing or surrounding property (not forming part of the contract work) caused by the construction work
(l) Cost of removal of debris following land slides/ erosions and the cost of repairing the erroded slopes
(m) Cost of replacement with newer/ improved model of the machine in the place of the destroyed (total loss) machine when the same model or its equivalent is not produced any more
(n) Financial losses such as the loss of expected profits to be generated caused by the delay in completion of the project on account of an indemnifiable material loss or damage
(o) Guarantee for the works following the maintenance period (5 years or 10 years guarantee for Buildings and Civil Engineering Works and additional 1 or 2 years guarantee for Machinery)
(p) Loss of or damage to the Material Handling Equipments and other Machinery when they are being used for the Construction/ Erection activity after such equipments have been installed unless such equipments are insured as "Construction Plant and Machinery" for the period they will be used for the erection work by the Contractor or the Principal. Such equipments should also be insured as part of the Contract Work (the Contract Work sum insured also should include the value of such equipments) if such equipments will be taken over by the Principal as a part of the Main Project). An example is a gantry crane installed in a production bay and used for lifting the production machinery during installation.


(B) LIABILITY TO THIRD PARTIES ARISING OUT OF THE WORK:

Third party liability risks to which the Principal is exposed to are:

Liability for accidental bodily injury or illness and for accidental loss of or damage to property caused by

(a) The Principal or his representatives and employees to Third Parties and the Property of Third Parties not connected with the Project
(b) The Principal or his representatives and employees to other Parties engaged in the Contract Work and to their Property

Liability for accidental bodily injury or illness and for accidental loss of damage to property caused by

(a) The Contractors and other parties employed by the Principal in connection with the Construction/ Erection Work to third parties not connected with the project
(b) Any of the Contractor or the other parties employed by the Contractor in connection with the Contract Work caused to another party or another Contractor employed for the same project

Liability for loss of or damage to property in care, custody or control of the Principal

CHECKLIST FOR RISK MANAGERS OF CONSTRUCTION/ ERECTION PROJECTS:

DESIGN & CONSULT:

Insurance cover for Architects, Design Engineers and Consulting Engineers:

(a) Professional Indemnity cover to be producured by the Architects, Design Engineers and Consulting Engineers: limit of indemnity to be specified by the Principal depending on the exposure

Name of the specialist Period of cover Limit of indemnity


(b) Personal insurances for these officials and their assistants:

Cover Period of Limit of Schedule of
required insurance indemnity items

Motor vehicle insurance
Workmen Compensation insurance
General liability insurance

Insurance covers for the employer/ principal:

(a) Contactors all risks and third party liability covers including the following extensions:

Risks to be covered:


Insurance covers for the contractors and the sub contractors:

(a) Marine/ inland transit cover for materials supplied
(a) Contractors all risks and third party liability covers including the following extensions
(b) Plant all risks cover
(c) Motor vehicle insurance
Cover to include:
(d) Workmen compensation insurance
(e) Medicare and personal accident covers
(f) Bonds
(g) Fire and perils covers for off site accommodation, offices, warehouse buildings etc (permanent buildings taken on lease and the contents not absorbed in the contract price)
(h) General liability cover