PPT 1

1. Introduction to Engineering Insurance

 What is Engineering Insurance?

o It is a type of insurance that protects against risks related to construction projects, industrial
machinery, and equipment.

o If a factory's machinery breaks down or a construction site faces an accident, this insurance covers the
financial losses.

 Where does it belong in the insurance industry?

o It is a part of property insurance (which covers damage to physical assets like buildings, machinery,
etc.).

o In most insurance companies, Fire Insurance and Engineering Insurance are handled together.

o But in accounting, it is classified under Miscellaneous (Misc) Insurance.

2. Types of Engineering Insurance Policies

Engineering Insurance is divided into two main types:

 A. Project Insurance (For construction & infrastructure projects)

 B. Annual Policies (For ongoing operations like factories & industrial plants)

A. Project Insurance (For Construction & Infrastructure)

1. Erection All Risk Insurance (EAR)

o Covers risks during the installation or setup of machinery in industries like power plants, refineries, and
telecom.

o If a newly installed machine gets damaged before it starts working, EAR covers the loss.

2. Marine cum Erection Insurance

o Combines Marine Insurance (for transport) and Erection Insurance (for installation).

o Example: If a factory orders machinery from Germany, this insurance covers damage during shipping &
installation.

3. Contractor’s All Risk Insurance (CAR)

o Covers accidents, damage, or theft at construction sites.

o Example: If a bridge under construction collapses due to an accident, CAR insurance covers the damage.

4. Contractor’s Plant & Machinery Insurance

o Covers heavy machinery used in construction, like cranes, excavators, and drilling machines.

o If a crane falls and breaks at a construction site, this insurance covers the repair or replacement cost.

B. Annual Policies (For Running Factories & Industries)

1. Boiler Explosion Insurance (BE/BPP)

 o Covers damage due to boiler explosions in industries like power plants, food processing, and chemicals.

2. Machinery Breakdown Insurance (MB/MI)

o Covers unexpected breakdowns of machinery in factories.

o Example: If a textile factory’s machines stop working due to a sudden failure, this insurance pays for
repairs.

3. Refrigeration Plant Insurance & Deterioration of Stock (RP & DOS)

o Covers damage to refrigeration equipment & loss of stored goods.

o Example: If a cold storage plant’s cooling system fails, and all the frozen food spoils, this insurance
covers the loss.

4. Electronic Equipment Insurance (EEI)

o Covers damage to computers, hospital scanners, CNC machines, and telecom equipment.

o Example: If an MRI machine in a hospital gets damaged, EEI covers the repair cost.

5. Completed Civil Engineering Risks Insurance (CCER)

o Protects completed structures like bridges, tunnels, roads, and buildings against damage.

3. Risk Factors & Coverage

 What risks does Engineering Insurance cover?

o Damage to insured property (e.g., machinery, equipment).

o Owner’s property damage (e.g., a crane accident damaging a nearby building).

o Third-party liability (e.g., an accident at a site injuring a worker).

 What is NOT covered? (Common Exclusions)

o Wear and tear – Normal aging of machines is not covered.

o Pre-existing defects – If a machine had a defect before the insurance started, it's not covered.

o Negligence – If the damage was caused by poor handling or lack of maintenance.

 Loss of Profit Insurance

o If a company loses money due to project delays or machine failure, it can be covered:

1. Advance Loss of Profit (ALOP) – Covers financial loss if a project is delayed due to an
accident.

2. Delay in Start-Up (DSU) – Covers losses if a factory cannot start production on time.

3. Machinery Loss of Profit (MLOP) – Protects companies from income loss due to machine
breakdown.

4. Indian Insurance Industry – A Brief History

 Oldest Insurance Companies:

o Triton Insurance (Calcutta)

o Indian Mercantile Insurance

  1968 – Government created TAC (Tariff Advisory Committee) to regulate insurance pricing.

 1972 – Insurance sector was nationalized (private companies were banned).

 1999 – The IRDA Act allowed private insurance companies again.

 2000 – IRDA (Insurance Regulatory and Development Authority) was formed.

 Current Market Share by Type:

o Fire Insurance – 7-9%

o Marine Insurance – 2-4%

o Motor Insurance – 39-44%

o Health Insurance – 27-29%

o Miscellaneous Insurance – 15-24%

5. Special Features of Engineering Insurance

 "All Risk" Coverage – Most engineering insurance covers all risks unless specifically excluded.

 Project Testing Periods:

o Cold Testing – Checking if equipment works without running the actual process.

o Hot Testing – Running the equipment under full conditions.

o Commissioning – Final approval before starting operations.

 Policy Extensions (Add-ons)

o Third-party liability – Covers damage to nearby buildings or people.

o Escalation Clause – Covers cost increases up to 25% in case of inflation.

o Air Freight Cover – Covers extra costs for transporting replacement machinery by air.

6. Legal & Regulatory Aspects

 Insurance Act, 1938 – Regulates all insurance businesses in India.

 Section 64VB – Requires insurance premium to be paid before the policy starts.

 Tariff Advisory Committee (TAC) – Before 2007, it controlled insurance pricing and policy rules.

 IRDA (2000-Present) – Regulates private & public insurance companies.

7. Policy Document Structure

 Proposal Form – The form filled by the customer to apply for insurance.

 Policy Format:

1. Heading – Insurer’s name & address.

2. Recital Clause – Introduction of both parties (insurer & insured).

3. Operative Clause – Explanation of how the policy works.

 4. Insured Perils – Lists what risks are covered.

5. Conditions & Exclusions – Defines terms & exclusions.

8. Claims & Disputes

 Basic Principles of Insurance:

1. Utmost Good Faith – Both parties must be honest.

2. Indemnity – Insurance compensates only for the actual loss.

3. Subrogation & Contribution – If multiple insurers cover the same risk, they share the payout.

 Claim Process:

1. Notify the insurer.

2. Submit documents & proof.

3. Insurer inspects & verifies the loss.

4. Payment is made based on the claim.

 Legal Actions:

o If a claim is denied unfairly, the insured can go to court or arbitration.

Final Summary

Engineering Insurance is essential for factories, power plants, construction projects, and electronic equipment. It provides
financial protection against accidents, breakdowns, and delays.

PPT 2 Engineering Insurance – History &

Principles
1. History and Development of Engineering Insurance

The Role of Steam as a Prime Mover

 Steam was the first major source of power used in various fields:

o Locomotives – For moving passengers and goods.

o Road transport – Steam-powered vehicles were used for goods and passenger transport.

o Industries – Steam engines powered manufacturing machinery.

o Process heating – Steam was used in industries for heating through steam-jacketed vessels.

Use of Machinery in Early Industries

 When steam was the primary power source, industries used large steam engines.
  Textile Industry was the most prominent industry using steam-powered machinery.

 Impact of British Rule in India:

o The East India Company came to India for the spice trade.

o They started exporting raw cotton from India to textile mills in Manchester.

o The finished textiles were sold back in India and in other British colonies.

 Shift from Steam to Electricity:

o Initially, machines were powered by a common drive (one engine driving multiple machines).

o With electricity, individually driven machines became common.

2. History and Growth of Engineering Insurance

Early Insurance Against Steam Explosions

 Steam became a primary power source in the 19th century.

 But frequent boiler explosions led to safety concerns.

 The Manchester Steam Users Association (MSUA) was created to investigate accidents.

Major Milestones in Engineering Insurance

1. 1854 – MSUA appointed an inspector to investigate boiler explosions.

2. 1858 – The Steam Boiler Assurance Company was formed.

3. 1872 – Insurance was expanded to cover steam engines.

4. 1901 – Boiler inspection became compulsory by law.

5. Electricity replaced steam as a power source, leading to the need for Breakdown Insurance.

3. Development of Engineering Insurance in India

 1953 – The New India Assurance Company (NIA) started offering engineering insurance.

 1954 – A syndicate of 5 companies (London & Lancashire, British India General, Concord, Atlas, Yorkshire) formed
a pool for engineering insurance.

 Difference between UK and India:

o In UK, engineering insurers also provide inspection services.

o In India, engineering insurers only provide insurance, not inspection.

 1980s-1990s – A large number of projects were started, increasing the demand for engineering insurance.

4. Key Concepts: Prime Movers & Energy Evolution

 Major inventions were driven by necessity.

 The wheel was one of the most revolutionary inventions.

 Energy cannot be created but can be converted.

 Transportation Evolution:
 o Bicycles were the first widely used vehicles and are still common in Japan, Europe, and Africa.

o Animal-drawn vehicles were used for goods and passenger transport.

o Steam-powered engines triggered the Industrial Revolution.

o Electricity replaced steam, leading to the next wave of industrialization.

o Electronics further transformed industries, enabling automation.

5. Special Features of Engineering Insurance

Sum Insured (How Insurance Amount is Calculated)

 PDRV (Present Day Replacement Value) – The insured amount should be based on the cost of replacing the
equipment with a new one.

 Selection of insured items – Both the insurer and the insured decide what should be covered.

 Need for surveys:

o A pre-acceptance survey is needed before issuing the policy.

o Regular upkeep and maintenance must be ensured.

Policy Conditions & Claim Settlements

 Types of Deductibles (Excess) in Policies:

o Flat excess – A fixed amount is deducted in case of a claim.

o Percentage of claim amount (with minimum limit).

o Percentage of sum insured (with minimum limit).

 Claims Process:

1. If there is damage, a partial loss or total loss claim is made.

2. The insurer settles the claim after verifying the expenses incurred.

3. The sum insured is reinstated (reset to its original amount).

4. The condition of average and salvage value adjustment applies if the claim is lower than the insured
value.

6. Special Types of Engineering Insurance

Annual Policies (For Running Factories & Equipment)

1. Material Damage Policies – Covers physical damage to machinery.

2. Boiler & Pressure Plant Insurance (BE) – Covers boiler explosions.

3. Boiler Explosion Loss of Profit (BELOP) – Covers loss of business due to boiler failures.

4. Machinery Breakdown Insurance (MBI) – Covers unexpected machine failures.

5. Machinery Loss of Profit (MLOP) – Covers financial losses due to machine breakdowns.

6. Refrigeration Plant Insurance – Covers refrigeration units.

7. Deterioration of Stock (DOS) – Covers loss of perishable goods due to cooling failure.
 8. Electronic Equipment Insurance (EEI) – Covers computers, medical equipment, and automated machines.

9. Construction Plant & Machinery Insurance (CPM) – Covers heavy construction equipment like cranes,
excavators, etc..

10. Completed Civil Works Insurance – Covers completed buildings, bridges, and tunnels.

7. Key Historical Events in Engineering Insurance

Year Event

1854 MSUA started investigating boiler accidents.

1872 Insurance expanded to steam engines.

1877 Insurance for electrical machinery introduced.

1882 Boiler Explosion Act (UK) passed for safety.

1901 Factory & Workshop Act (UK) made boiler inspection compulsory.

1911 Coal Mines Act included boiler regulations.

1953 Engineering Insurance started in India (New India Assurance).

1954 Five UK insurance companies formed a syndicate for engineering insurance.

8. Impact of Electronics on Engineering Insurance

 Electronics led to new types of insurance:

o Early computers were large, expensive, and prone to loss.

o Bill Gates revolutionized computing with user-friendly desktop computers.

o Electronics in medicine, industrial automation, and data processing required new insurance coverage
(EEI).

9. Growth of Engineering Insurance in Modern Times

 Heavy machinery used in factories and construction sites created the need for Construction Plant & Machinery
Insurance (CPM).

 Cold storage insurance (DOS) became necessary due to the increasing demand for perishable goods and
medicines.

 Completed projects (buildings, roads, and factories) also needed protection, leading to Completed Civil Works
Insurance.

 Infrastructure projects (housing, shopping malls, transportation) required specialized insurance solutions.

 Loss control and safety measures became more important.

10. Additional Considerations for Underwriting (Risk Assessment)

 Repair capabilities of the insured company.

 Availability of skilled personnel for maintenance.

  Inventory of spare parts and critical components.

 Routine maintenance & preventive maintenance schedules.

 Use of Non-Destructive Testing (NDT) methods to check for defects.

 Lessons from past claims & claim history of the insured company.

Conclusion

Engineering Insurance has evolved from boiler explosion coverage in the 19th century to complex policies covering
modern industrial risks. It plays a crucial role in protecting industries, infrastructure, and electronic equipment from
damage and financial loss.

PPT 3 Boiler and Pressure Plant

Insurance
1. Introduction

 What is Boiler and Pressure Plant Insurance?

o This type of insurance protects industries that use boilers or pressure vessels from financial losses if
the equipment explodes or collapses.

o Boilers operate under high pressure and temperature, so any failure can cause significant damage and
even injuries.

 Why is this Insurance Important?

o Boiler failures can shut down production, leading to huge financial losses.

o They can damage nearby equipment, property, and even harm people.

o Having insurance ensures that companies don’t suffer major losses and can recover quickly after an
accident.

2. Scope of Coverage

 What does the Insurance Cover?

o Physical Damage – If a boiler explodes, bursts, or collapses, the insurance pays for repairs or
replacement.

o Damage to Surrounding Property – If an explosion damages other equipment, factory buildings, or

machinery, the policy covers those costs too.

o Third-Party Liability – If an explosion or accident injures workers or damages a neighbor’s property,

the company will be legally responsible. Insurance helps cover compensation and legal expenses.

 Example:

o Suppose a textile factory has a steam boiler. One day, due to excessive pressure, the boiler explodes,
damaging nearby machinery and injuring two workers.
 o The insurance company pays for:

 The boiler’s repair/replacement cost.

 The damaged machinery and building repairs.

 Medical expenses and legal compensation for the injured workers.

3. Key Features of Boiler Insurance

 Protection Against Unexpected Breakdowns

o Boilers are expensive and operate in tough conditions. Even with good maintenance, failures can
happen unexpectedly.

o This insurance ensures that businesses don’t bear the full cost of such failures.

 Coverage for Repair and Replacement

o Boilers are costly to replace. If a breakdown occurs, insurance pays for repairs or provides a
replacement cost.

 Third-Party Liability Protection

o If the boiler accident causes damage to someone else's property or injures people, the insurance helps
cover compensation costs and legal fees.

 Compensation for Bodily Injuries

o If a boiler explosion hurts employees or visitors, the insurance covers medical expenses and
compensation for lost income.

4. Exclusions (What is Not Covered?)

 Regular Wear and Tear

o Every machine ages over time, leading to rust, corrosion, and weakening. Insurance does not cover
gradual deterioration.

 Improper Maintenance or Operation

o If the company fails to maintain the boiler properly, and it causes an accident, the insurance will not
pay.

o Example: If an operator ignores warning signs of excessive pressure, leading to an explosion, the
insurer may reject the claim.

 War, Nuclear Risks, or Willful Negligence

o If a boiler is damaged due to war, terrorism, or nuclear accidents, the insurance won’t cover it.

o If the company deliberately ignores safety measures, the claim can also be denied.

5. Benefits of Boiler Insurance

 Prevents Huge Financial Losses

o Boiler explosions can cause millions of rupees in damage. Insurance ensures that the company does
not have to pay these costs from its pocket.
  Ensures Legal and Safety Compliance

o Many governments require factories to have insurance before using boilers. Having this policy ensures
compliance with industrial safety laws.

 Reduces Liability Risks

o If an accident affects workers, customers, or nearby properties, the company could face lawsuits.
Insurance helps cover these legal risks.

 Protects Business Continuity

o If a major accident stops production, insurance provides funds for quick recovery, reducing downtime
and keeping the business running.

6. Claim Process (How to Get Compensation After an Accident?)

1. Notify the Insurance Company Immediately

o The company must inform the insurer as soon as an accident happens.

o Delays in reporting might cause the claim to be rejected.

2. Submit Required Documents

o The company must provide:

 A detailed report of the accident (what happened and why).

 Photographs or video evidence of the damage.

 Repair cost estimates.

3. Inspection and Survey

o The insurance company will send surveyors and engineers to inspect the damage.

o They verify whether the accident was genuine and check if any safety violations occurred.

4. Claim Settlement

o After verification, the insurance company will approve the claim and provide compensation.

o The amount paid will depend on policy limits and deductibles.

7. Conclusion

 Boiler and Pressure Plant Insurance is essential for industries using high-pressure equipment.

 It protects businesses from financial losses, legal liabilities, and production delays.

 Having this insurance ensures safety, compliance with industrial laws, and business continuity.

Example for Better Understanding:

Imagine a food processing plant that uses steam boilers for cooking and packaging. One day, a boiler suffers an explosion
due to high pressure. The blast destroys part of the factory, injures workers, and halts production.

Without insurance:

 The company must pay for all repairs and medical expenses from its pocket.
  They might not be able to restart operations quickly, leading to huge financial losses.

With insurance:

 The costs of repairs, replacements, and medical claims are covered.

 The factory resumes production faster, minimizing losses.