Impact of environmental changes on Project Insurance
By- Arun Garg, Director , Insurance – Equirus
Climate change & rising Act of God perils
“Only One Earth” was the theme of this year’s environment day.
India in the past few years had witnessed a multitude of cyclones across both eastern and western coasts. Also, the frequency and severity of such catastrophes are on rising. Major floods across all rivers are also impacting to the damages of private and public assets. Artificial flood situations in the metros and the top city locations are very common these days and people are learning to live with these risks.
At the same time Indian Infrastructure sector, the housing sector – both public and private are getting built like never before. The general insurance industry is also poised to safeguard the risk associated with these sectors and coping up quickly with the changing times.
So, what is going to be prone to project risk due to this changing environmental condition?
As our nation is witnessing rapid development in the core sector. Some of the areas bustling with activities are road infrastructure, Rail infra & projects, Dam & irrigation, Power projects and renewable energy, Oil & Gas Projects, Airports, Railways, Metros, multimodal transport hubs & warehouses, Telcom Infra, Water supply, sewage treatment, waste management, and the list goes on.
Generally, the Project Contracts are largely valued with a clearly defined Implementation plan. It also required huge Logistic Support & Infrastructure along with Specialized Material Handling facilities & Equipment. For many of the projects, large specialized construction workforce is hired. Huge Storage and Material Preservation requirements are basic necessities in the project sites. So, any Acts of God and Nat CAT (natural catastrophe) situation can majorly impact all kinds of resources involved in such projects.
Hence a tailor-made risk transfer mechanism through insurance programs become an essential part of such project implementation and afterward to manage the operational aspect as well.
Comprehensive insurance programs are the key to safeguarding the financial losses
Traditionally the infrastructure and projects management space are cost sensitive due to the thin margin availability and long gestation period to completion of the projects. Generally, most of the projects suffer from time and cost overturns. Such situation may arise from various reasons like contractor-related, change in plan or design midways, litigations, environmental factors, and recent times natural calamity related physical loss/damage of the assets and related business interruptions leading to financial impacts on the project.
Although the risk sharing through Insurance is a critical parameter, as a practice most organizations (principals), Contractors & Subcontractors follow a bare minimum cost allocation towards the insurance risk programs. The approach is more compliance centric rather than risk-sensitive, which creates a big void between the subject of risk v/s and the insurance coverage allocation.
Sustainability is the mantra
Sustainability is the mantra for growth in the ever-competitive world. Climate change is an acceptable fact now. The warming up of oceans leading to ecological imbalances, major weather changes across geographies and leading to the rise in unprecedented natural calamities.
Organizations involved in the infrastructure space is open for qualitative discussion on the insurance risk transfer part. Thanks to digitization, nowadays a lot of digital tools are getting used to assess the risk levels basis key inputs like climate informatics, weather thematic, thermographic study, and various progressive and evolving policy wording-related changes and upgradations.
Insurance broker plays an important role in bridging the gap between the information sought by the insurance company (The Underwriter) and the key details of the subject matter of insurance (The risk) from an underwriting perspective. Right interpretation and articulation of the risk help in both optimizing the cost along with cover enhancements. Also, during the project inspection stage various risk advisory measures also adds value towards the overall risk reduction and risk prevention side.
What if there is a natural calamity and major claim situation arises for a project
Insurance is a practice, based on the principles of underwriting. Claims situation is the litmus test and moment of truth for not only the insurer but also the insurance broker involved in tailor making the insurance solution. Generally, the project insurance claims follow certain processes and documentation. A capable and knowledgeable partner can help in each stage of the claim helping the client to get out of the crisis situation by financial indemnification through insurance claim realization.
About Equirus Insurance Broking Pvt. Ltd.
Equirus Insurance Broking Pvt. Ltd. is a full-service insurance broker and part of Equirus Group. Equirus Group is a leading investment banking company and offers complete gamut of financial services catering to corporate clients and HNI customers with services covering across equity capital markets, debt capital markets, structured finance, PE, M&A, insurance broking and wealth management. Its wholly owned subsidiary Equirus Securities is member of NSE and BSE.
Equirus Insurance specialises in Project and Infrastructure Insurance due to Group’s presence in the infrastructure sector. Equirus Insurance service motto is to be the knowledge partner bringing the best insurance solutions to their clients at an optimal cost. Equirus focuses on showcasing the advantages of scientific risk management and protection from financial risk/ loss situations arising out of any uncertainty.