Optima Insurance Brokers Pvt. Ltd.

Archive for the ‘Knowledge Series’ Category

Mitigating The Risks Associated With Standstill Period Under Projects

Posted on: November 7th, 2019 by shiv No Comments

The aim of this article is to bring to light the ways of mitigating the risks prevalent during standstill period and whether the insurance policies cover those risks or not

It is not uncommon to find an ongoing construction project being interrupted. The reasons for the interruptions could be manifold and many a times beyond the control of the Principal or the owner of the project. It is critical for every stakeholder to understand the risk exposures which might continue to haunt them, irrespective of whether the project is running or not.

Some of the causes of interruptions are

  • Dynamic risks like the changing economic environment which might make the project unviable or might require some changes in the nature of the project
  • Temporary liquidity problems
  • Disputes between the principal and the contractor over contract conditions / payment tocontractors etc
  • Investors not able to fulfil their obligations
  • Delay on account of late delivery or shortage of construction materials / project machinery resulting in interruptions.

The effects are

  • The Principal abandons the project
  • The Contractor goes away without completing the project and the Principal has to look for another vendor to complete the unfinished job.
  • Both the Principal and contractor mutually decide that the project needs a temporary suspension.
  • The Investor decides to stop financing the project

Each of the above would leave an unfinished / partially constructed structure / works , which could be a building(s) of hospital, school, office, factory, residence or roads / bridges / flyovers / any other civil works or power plants / manufacturing risks.

How will the underwriters view the situation ?

Contractor’s All Risk as well as the Erection All Risk policy under the General Exclusion excludes any liability, loss or damage arising out of or aggravated by (directly or indirectly) cessation of work total or partial. This means that the policy ceases to cover any loss which might have arisen due to the cessation of work / work stoppage.

In addition to this condition no. 4 (b) of the policies also stipulate that any material change in the risk needs to be intimated to the insurers by the insured. No material alteration shall be made or admitted by the insured whereby the risk is increased unless the continuance of the insurance is confirmed in writing by the Insurer.

Stoppage of work / standstill period can be seen as a material alteration which increases the risk.

Thus as per the terms and conditions of the project insurance policies, the coverage gets restricted if there is a cessation of work and the continuation of the policy also depends on the underwriters.

Any Advance Loss of Profit cover ( ALOP ) if taken as an extension to the project policies also ceases to exist, if there is partial or total stoppage of work.

Identification Of Risks During The Standstill Period

PERIL RISK
Water The exposure to the water is maximum in civil constructions involving basements, particularly where
the basement constructions are partially completed. Even in case of partially constructed buildings
where the basements are completed, if the standstill period starts during monsoon, the structure
may remain under water for a long time and the water pressure may cause the sheet pile wall to get
deformed. This might eventually lead to collapse
Fire The riskof fire peril affecting the partially constructed buildings would be the highest when the
superstructure is under construction (particularly towards the end of the construction, when
interior works have started). The scaffoldings, shuttering, combustible materials like wood, varnishes,
paints increase the fire load to a great extent ( as compared to piling stage or when the basements
are under construction)
Theft, Burglary,
Malicious Acts		 A silent risk may not be as well guarded as it would have been before abandonment. It would be
extremely prone to the malicious acts of human beings.The stealing/ breaking of windows and doors,
cutting of cables/ pipes/ electric wires have high probability of occurrence.
Third Party Liability Not only the building under question is at risk, but the surroundings too. Weakening of the partially
completed structure due to flood / storm etc. posesserious threat to the surrounding buildings.
Settlement damages, collapse of the under construction structure , strong winds blowing away parts
of the unguarded building , glass panes breaking and falling on passerbys are some of the threats.
Storm, Cyclone,
Strong Winds		 Breakage of glass, blowing of not too strong roof (due to partial completion) is possible primarily
during the construction of the superstructure.

Principal / Owner of the partially constructed assets is certainly exposed to many risks during the standstill period for which his existing insurance policy may not assist. The risks require mitigation and possibly after the suitable loss prevention steps are in place the insurers may view the risk favorably and provide cover.

Hazard Possible Risk Mitigation Steps
Water Damages Sufficient pumping facilities should be available for dewatering purpose. In case of water entering thepremises, pumps should be able to remove the water

Provision of an outward slope and embankments/ barriers to prevent water entering the premise
and maintain a higher level as compared to the adjoining road

Adequate drainage facility within the premises
Fire Damages Removal of flammable and combustible substances along with the combustible wastes

Adequate fire fighting facilities (as per norm) throughout the premises need to be installed, inspected
periodically and monitored.

Sufficient water storage exclusively for fire fighting

Contact with nearest fire brigade

Safety nets installed around semi completed superstructures protects the installations against
strong wind force
Theft, Burglary,
Malicious Act		 Fencing all around, round the clock exclusive security, patrolling of the site at regular intervals ,
adequate lighting during nightCurtain wall and safety net around the semi completed building
Third Party Liability Safety net around the building prevents falling objects injuring passer by

Entry to the premises should be restricted, so that unauthorised visitors do not enter and get
exposed to falling objects

Possible Insurance Coverage

There is a provision of “Work Stoppage” extension under the guidelines for project insurance. However the same is entirely at the discretion of the underwriters and for a maximum period of 6 months. The underwriters after satisfying themselves on the minimum safety provisions available on site can agree to at . This would be possible after a proper risk survey. The mitigating steps as mentioned above, if implemented can lead to favourable response from the insurers. Alternatively, the underwriters might also agree to restrict the cover to NAMED PERILS as against the all risk coverage available under CAR and EAR policies after incorporating suitable deductibles and pricing the risk appropriately. Certain
factors which the underwriters might consider before accepting and pricing the risk would be as under:

  • Status of completion of the basements and number of basements
  • Percentage of completion, whether interior work is in progress, quantum of combustible substances at site etc.
  • Whether the start of the standstill period is close to onset of monsoon
  • In case of completed basements, whether any storage is being done therein
  • Fire fighting installations and availability of water for fire fighting
  • Availability of round the clock security, drainage facility, level of the premises as against adjoining road, availability of
    pumping facilities at site.
  • Surroundings and exposure to third party damages
  • Wind storm exposure and precautions taken
  • Estimated value of the completed portions


Download pdf

10 Questions About Health Insurance

Posted on: November 7th, 2019 by shiv No Comments

It is the standard practice in all mediclaim policies to release the payment against the original bills only. This prevents duplicacy of payments and even frauds. However certain medical records can be returned to the claimant on request.
You Always Wanted to Ask, But Didn’t Know Whom To

1. Do we need to submit all the claim documents in original?

It is the standard practice in all mediclaim policies to release the payment against the original bills only. This prevents duplicacy of payments and even frauds. However certain medical records can be returned to the claimant on request.

2. Why pre-post hospitalization expenses are not covered for maternity?

Child birth is not a disease, illness or ailment and is therefore not covered under any standard medical insurance policy. However a maternity cover is granted in corporate policies as a value added benefit. But it is not treated at par with usual diseases treatment reimbursement parameters. Therefore insurers do not cover pre & post hospitalization expenses in the maternity cover.

3. What is the time limit for settlement of a reimbursement claim?

The standard time limit for settlement of any claim is 15 days from the date of submission of the documents to the approving authority or reply to last query raised whichever is later.

4. The insurance company deducted some amount from my reimbursement because a couple of reports
were not submitted. Can this amount be recovered by submitting the reports now?

Yes, you can submit these reports and get the reimbursement for them but if they are submitted immediately after the settlement. The insurer will not reimburse if there is a delay of more than 15 days in submitting such reports from the day of the settlement of the claim.

5. Why has the insurer not reimbursed the bills for non medical items?

They were prescribed by the doctor.

In a health insurance policy, the focus is on actual expenses made strictly towards treatment and other expenses are excluded under a written stipulation mentioned in the policy document. Expenses on non-medical items like Disposable Pads, Cotton, Baby Oil, Soap, Glucose, Foot Pad, Tissue Paper, Sanitary Paper etc. are not reimbursed by the insurers.

6. Certain tests were prescribed by the doctor before the operation. However I was not hospitalized because of favorable test reports. Why were the tests disallowed as ‘Observation & Investigation’ and not paid?

Expenses are generally made under following 3 categories:

  • OPD Expenditure
  • Tests for evaluation
  • Hospitalization

The medical policy is mainly designed to cover 24 hour hospitalization and not those covered under point 1 & 2 above. However the tests for evaluation done within 30 days prior to hospitalization and within 60 days after discharge from the hospital are paid as pre & post hospitalization part of the claim. Tests which do not lead to hospitalization are not paid. This is a universal feature of the medical policy.

7. Why has the insurer not reimbursed the bills for medical instruments? They were a part of the treatment.

To keep the premium of the policy affordable insurers do not include medical instruments like thermometers, disposable syringes, insulin pump etc. for reimbursement. Accommodation of the cost of such items will increase the cost of the policy phenomenally and will make it beyond the reach of the common man.

8. Is it possible to re-claim a rejected cashless through reimbursement?

During a cashless approval the insurance company’s (or TPA’s) doctor has to evaluate the merits of the claim within an hour and send a response to the hospital. Sometimes the doctors are not able to decide in favour of the claimant due to lack of information or clarity of information. In such cases the cashless approval is not granted. However it does not mean
a rejection of the claim. Such claims should be sent for reimbursement. When all the documents reach the insurer after hospitalization, they are able to take a well informed decision and such claims are generally paid on merits.

9. The insurer deducted some amount from the claim. The reason mentioned was ‘Limit Exhaustion’. However there was sufficient balance in my sum insured. Why was the entire amount not reimbursed?

In addition to the overall limit of Sum Insured there are sublimits in the policy under different heads like room rent, doctor’s fees, and medicines. Sub limits on sum insured are also enforced by the insurer on treatment of certain diseases like cataract, hernia etc. The insurer will not reimburse more than the sub-limited sum insured for such treatments. This is done to control the claims and also to ensure that the balance sum insured can be utilized for another treatment if required.

10. Why acknowledgement of payment on the letter pad of the hospital is not acceptable in absence of proper numbered bills or a receipt?

All financial transactions are governed by standard accounting practices which require numbered stationary in standard format. Such procedures also help the insurers in controlling frauds.


Download pdf

Protection From Protectors

Posted on: November 7th, 2019 by shiv No Comments

Companies have shown strong predilection towards out sourcing of blue collared jobs. Peons, office boys, pantry staff, drivers, cleaning staff and guards etc. are now routinely being hired from specialized companies that provide such man power.

Dealing with Theft by Guards

Companies have shown strong predilection towards out sourcing of blue collared jobs. Peons, office boys, pantry staff, drivers, cleaning staff and guards etc. are now routinely being hired from specialized companies that provide such man power.

Although such outsourcing provides economical and administrative benefits, it also opens companies to new risks, which
insurance and risk managers many times fail to take into account.

A manufacturing company in Gurgaon had hired guards from a reputed security services company. One of the guards drugged his colleagues one night and allowed his partners in crime to come inside the company warehouse to steal goods worth Rs. 1 crore. Although the company had taken a burglary and theft policy, the insurer could not pay the claim as the loss had happened with the complicity of the guard employed by the company. A clause in the burglary policy specifically excludes losses due to connivance of the staff. The company tried to recover the loss from the security company that had provided the guard. After much acrimony and negotiation they could recover only 20% of the loss amount.

This is a very relevant risk that almost all organizations face today but unfortunately very few have taken steps to mitigate this risk. Most organizations take a Burglary and Theft insurance, however this policy covers losses due to burglary or theft done by any party not connected with the insured in any way. Loss of company property due to complicity of the insured’s employees either directly employed or hired from an outsourcing agency, are not paid under a Burglary and Theft policy.

If this is so then how can such a risk be mitigated? The subsequent paragraphs would provide an insight into the alternative solutions to the risks of employee dishonesty.

Risk Transfer in the Form of an Insurance Cover

Fidelity Insurance (more commonly known in India as “Fidelity Guarantee insurance”) is designed to provide cover to the employers against dishonesty of the employees. The policy covers theft of not only the money but also goods/ stock belonging to the insured. Both, an opportunistic theft or misappropriation of funds over a period of time, are covered under this policy. Thus a loss because of a security guard stealing stocks of garments from a retail store in connivance with outsiders,will not be covered under a Burglary policy. However a Fidelity Guarantee policy will cover this loss.

Certain Key Words Used in the Operative Clause of the Policy

  •  “Loss of money or goods” – The policy covers loss of money or goods.
  • “Belonging to or held in trust by the insured” – Goods and money belonging to insured ( employer) or which he is
    responsible for are covered under the policy e.g. if the employee runs away with the money or personal property of a visitor/ or a neighbour , for which the insured is not responsible , the loss will be not be covered under the policy.
  • Caused directly by fraudulent and dishonest act” – The policy covers only direct losses. Consequential financial losses are covered.
  • “In connection with his employment with his/ her employment with insured” – The policy will not cover theft by an employee outside the course of his/ her employment.

From the above discussion, it gets established that any direct losses of money and material due to the dishonesty of employees can be covered under Fidelity Guarantee Insurance. This will also include any thefts with the complicity of the employees.

Now the next question to be tackled is that guards provided by a manpower outsourcing organization like a security agency are not employees of a company. Therefore, will any thefts done by them or with their complicity be covered?

Insurers do not cover outsourced staff under Employee Fidelity Insurance. Hence it should not be implicitly assumed that all persons working on the premises of the insured would stand covered under the fidelity policy. However insurers have covered outsourced guards, peons, pantry boys etc. in the past, on payment of extra premium. Therefore the best course would be to specifically declare such staff and negotiate the terms of cover with the insurer.

In our next publication we will deal with another emerging risk, financial liability arising from theft of material or data by employees from a client.


Download pdf

Recent Comments

    

    Optima’s core group has more than 100 man-years of experience in insurance. Our experience has trained us in reading the fine print of insurance policies, understanding it and applying it for the benefit of our clients.

    • Follow Us:  
    •  
    •  

    Other Links

    Corporate Office

    M6, M Block Market, Greater Kailash-II, New Delhi-110 048
    +91-11-40 50 51 52, +91-11-40 50 51 53

    Registered Office

    M4, Greater Kailash-II, New Delhi-100 048
    +91-11-40505159
    info@optima.co.in

    IRDA Registration Number 326  |  CIN : U66030DL2000PTC103603  |  Category : Direct Broker (Life and Non-Life)  |  License period : 22-03-21 to 21-03-24
    © 2024 Copyrights, Optima Insurance Brokers Pvt. Ltd.