From d8e9813d0ea9aa23ca1f8a37b6d9c63aea685426 Mon Sep 17 00:00:00 2001 From: Ahsan Goheer <36065735+ahsanGoheer@users.noreply.github.com> Date: Sun, 28 Apr 2024 13:08:04 +0500 Subject: [PATCH] adding more context data --- Insurance-A-Layperson-s-Guide.txt | 442 ++++++++++++++++++++++++++++++ 1 file changed, 442 insertions(+) create mode 100644 Insurance-A-Layperson-s-Guide.txt diff --git a/Insurance-A-Layperson-s-Guide.txt b/Insurance-A-Layperson-s-Guide.txt new file mode 100644 index 0000000..c74a425 --- /dev/null +++ b/Insurance-A-Layperson-s-Guide.txt @@ -0,0 +1,442 @@ + INSURANCE – A LAYPERSON’S GUIDE +As a business owner, navigating the range of insurance options available to you can be daunting at +times. However, insurance is a way to protect against a variety of risks as well as increase the value of +your business. It also protects your partners and investors. It is therefore a vital component in the +success of your venture. + +To help you find your way, the Insurance Services Group of the IFC has put together the following +sample of typical insurance policies that businesses may need in the course of their operations, and +explains some common insurance terms. + + Disclaimer: + These insurance definitions are presented herein for informative purposes only. Actual insurance coverage will depend on the + specific terms and conditions of a policy, including any exclusions. It is the responsibility of each individual business to understand + such terms, conditions and exclusions, and is not the focus of these definitions. The user understands that no claims, implicit or + explicit, are made with respect to these definitions and that any conclusions or inferences drawn from them are wholly the + responsibility of the user. These definitions have been adapted from a number of sources by the Insurance Services Group in the + Transactional Risk Solutions Department of IFC, and we welcome feedback on its content and applicability. Judgments expressed + herein do not necessarily reflect the views of IFC’s Board of Directors or the governments they represent. + + +Contact Information +For further information, please contact the Insurance Services Group: +InsuranceServicesGroup@IFC.org + + + + +Construction All Risks (“CAR”) +This type of policy covers the civil works from commencement of construction to final handover +(including testing/commissioning and extended maintenance – normally 12 months). The policy also +normally includes a section covering claims arising from third parties (Third Party Liability) who are +injured, or whose property is damaged, during the construction period. + +It is recommended that this policy be procured by the principal (i.e. the project owner), making it an +‘owner-controlled’ insurance policy, as opposed to a contractor-controlled policy. There are a number of +reasons for this, including the following: + +• Contractors commonly include the cost of insurance in their contract price. When asked for a + breakdown of the contract, it is often discovered that the owner can buy the insurance at a lower + cost. +• The owner can maintain control over the extent of coverage - ensuring all necessary perils are + included and the policy remains valid at all times. +• The owner retains control of the policy at the critical time of transition from the construction to the + operational phase to ensure there is no gap in coverage. +• It avoids 'finger-pointing' when a loss occurs and contractors or sub-contractors blame each other + for the loss, often resulting in a delayed response from insurers. +• Contractors and sub-contractors are named as “additional insureds” under the policy, so that all + claims by third parties arising from the construction are covered, regardless of who is to blame. +• It enables the owner to place associated coverages, such as Advance Loss of Profits insurance + for delays in project completion due to losses suffered during construction. + + + +Insurance Layperson’s Guide 2017 Page 1 of 9 8/31/17 + Erection All Risks (“EAR”) +This type of policy insures equipment during installation and testing/commissioning, up to the point +where the equipment is operational (when it then is transferred to the Fire, Property All Risks, and/or +Machinery Breakdown insurance policy). This policy also contains coverage for an extended +maintenance period (typically 12 months) and includes a section for Third Party Liability. + +Arguments for owner-controlled policy (as under Construction All Risks) similarly apply to this policy. + + +Marine All Risks +This policy insures items such as plant and equipment, finished goods, and raw materials – among +other things, during transportation. Despite its name, the policy is not restricted to marine (ocean +transit) risks, but also covers transportation by air, road and rail. In addition to “transportation”, this +policy is generally extended to cover temporary storage. + +A 50/50 clause is important when Marine All Risks is taken in conjunction with a Construction All +Risks/Erection All Risks policy. This clause will feature in both policies with the effect that in case of +ambiguity between the cause of loss being construction/erection or transportation of cargo, each policy +will pay 50% of the loss amount. + + +Advanced Loss of Profits (“ALOP”) +This policy is particularly important for large greenfield projects where delay in project completion could +have a substantial impact on the expected revenue of the Company, potentially impacting the sponsors’ +ability to service debt and other fixed expenses. + +The policy pays for Anticipated Net Profit plus Standing Charges during the period of delay, from the +scheduled date of commencement of commercial operation up to the actual date of commencement of +commercial operation, subject to a time excess and the Indemnity Period. The delay must have +occurred due to a loss during construction, and payable under the Construction/Erection All Risks +policy. Particular attention needs to be paid to the Indemnity Period, which must anticipate the +maximum time to rebuild, re-erect and retest any part of the project if damaged. + +Many sponsors choose to insure Standing Charges only, as this keeps costs down. This policy does +not cover normal project schedule slippages, and insurers require close monitoring of project activity +and coordination with the underlying Construction/Erection All Risk insurance. As such, it is +recommended that both insurances are placed via the same insurance company to ensure efficient +handling of losses. + + +Marine Delay in Start Up (“MDSU”) +This policy is particularly important for large greenfield projects where delay in project completion due to +an event insured under the Marine All Risks policy could have a substantial impact on the expected +revenue of the Company, potentially impacting the sponsors’ ability to service debt. + +The policy covers loss of Anticipated Net Profit and Standing Charges (including debt service) incurred +as a result of delay in project completion because of loss during marine transit. Most sponsors choose +to insure Standing Charges only, as this keeps the costs down. Particular attention needs to be paid to +the Indemnity Period selected, which should anticipate time to reorder, deliver and install materials +enabling completion of the project to its original specifications. + + + + +Insurance Layperson’s Guide 2017 Page 2 of 9 8/31/17 + Fire & Named Perils +A basic Fire policy insures damage to tangible property due to fire, lightning, explosion and aircraft +impact, but is normally extended to include storm (e.g. hurricane, typhoon, cyclone), water damage +(including flood), earthquake (and where relevant tsunami or volcanic eruption), strike riot and civil +commotion and vehicle impact as causes of loss. It should be noted that a Fire policy only insures +those perils specified in the policy. + +Assets should be insured for Replacement Value, not Book/Depreciated or Market Value. Assume say +a building is insured for a depreciated value of $800,000, but to replace it would cost $1,000,000. +Should that building be damaged/destroyed by an insured peril, the company would be penalized for +underinsurance, and receive only 8/10 of their claim (application of average). This also applies to other +assets, including plant and machinery. Insuring for anything less than replacement diminishes the value +of the insurance to the project. + +War on land is a standard exclusion under any policies insuring property damage. Sabotage and +Terrorism cover is normally an exclusion since 9/11, however it can be procured either as an extension +to the basic Fire policy (e.g. in India or Turkey) or as a standalone policy. + + +Property All Risks +This policy offers broader cover than that available in a basic Fire policy. It will respond to all perils +except those specifically excluded in the policy, such as war, radioactive/nuclear contamination, willful +acts, defective design, etc. + + +Business Interruption (also known as Loss of Profits) +This is as important, if not more important, than Fire or Property All Risks cover on assets, as loss of +revenue can have a serious effect on a project company. + +The Business Interruption policy can insure the project company for loss of Net Profit and Standing +Charges until such time as normal production or commercial operation is resumed. The Indemnity +Period typically ranges from 3 to 36 months depending on the nature of the operations. Insured perils +follow the Fire or Property All Risks policy, and there has to have been an accepted property damage +claim for the associated business interruption claim to be valid. + +Extensions are available to the policy, such as damage at the premises of key suppliers and/or +customers, which results in interruption to the insured’s business. The covered causes of loss are the +same as those under the insured’s Fire or Property All Risks policy. This extension is of importance +where the project relies heavily on a limited number of suppliers or customers. Other extensions include +utilities expense, and denial of access by order of civil authority. + +To keep costs down, a company can elect to insure Fixed Expenses only and also to carry time +deductibles. Alternatively, if production can be continued, but only at increased cost, the company can +elect to insure only Increased Cost of Working/Extra Expenses. Overall business loss indemnity and +recovery should be given priority over minimizing premium cost in all situations. + +Business Continuity/Disaster Recovery plans are important when assessing the level of this cover. + + +Indemnity Period +The Indemnity Period is a limit under a Business Interruption policy relating to the maximum period +over which the insurer will pay for loss of profit. The limit normally reflects the anticipated time to restore +operations to their normal pre-loss levels. + +Insurance Layperson’s Guide 2017 Page 3 of 9 8/31/17 + Machinery Breakdown and Business Interruption following Machinery +Breakdown +This policy covers mechanical and electrical breakdown of plant and machinery, and the ensuing loss of +production (cover which is often excluded from Fire and Property All Risks policies). Policies can also +cover loss to surrounding property damaged by breakdown, such as in the case of explosion of boiler +machinery. The cover is important for critical items of plant where limited back-up or standby facilities +exist or where sophisticated and expensive equipment is in place. Companies should consider +maintaining adequate back-ups, and holding spares of critical components. + + +Electronic Equipment +The policy covers losses resulting from sudden and unexpected physical loss or damage to electronic +equipment (e.g. computers) by any cause (other than the exclusions specified in the policy), in a +manner necessitating repair or replacement. The policy can often also be extended to cover +expenses incurred in reconstruction of data, and the cost to rent substitute equipment. + + +Sabotage & Terrorism +This policy responds to physical damage (and, if elected, Business Interruption) caused by acts of +Sabotage or Terrorism. A standalone Sabotage & Terrorism policy is usually sought if insurers +exclude or limit coverage via standard Fire or Property All Risks policies. + + +Political Violence +This covers property damage due to sabotage, terrorism, malicious damage, riots, strike and civil +commotions, war and civil war, coup d’etat, mutiny and insurrection, rebellion and revolution. +Business Interruption following Political Violence is an optional extension. + + +Public/General Liability +This policy protects the policyholder in respect of legal liability to third parties (not employees) for both +bodily injury and for any loss of or damage to their property. + +All businesses have a legal liability to their customers, suppliers and the general public. If a third party +suffers bodily injury or damage to their property arising out of the company’s business activities, +maintenance of business premises and the actions of its employees, it may be held liable. A court can +award significant compensation against the company, the affect of which may be compounded by the +impact on the company’s time, reputation, and defense costs. Public Liability insurance will indemnify +for compensation awarded in court and the associated costs for investigation and defense of claims. + +The policy does not cover injury to employees, which is covered under Workers Compensation (often +compulsory insurance). Third Party Liability insurance is not expensive and is readily available in all +countries, though full extent of coverage granted by individual policies may vary. + + + + +Insurance Layperson’s Guide 2017 Page 4 of 9 8/31/17 + Product Liability +This policy covers the company’s legal liabilities to third parties for bodily injury or loss of or damage +to property caused by the company’s products or goods. + +Product Liability insurance indemnifies the insured for compensation awarded in court or compensation +agreed with insurer’s consent out-of-court, as well as costs associated with defending claims, both of +which may be substantial. + +Product Liability is imposed under several different legal theories, including negligence, breach of +contract and strict liability in tort. + +Legal proceedings are generally subject to the jurisdiction of the country in which the product was +purchased. The ‘geographical scope’ under Product Liability policies insuring exports therefore needs +to include all relevant countries and the ‘jurisdiction’ should also extend to all of those countries (ideally +stated as “worldwide”). Not only will the manufacturing come under scrutiny, but labeling, packaging, +instructions, installation, service and other elements of the product can all be attributed blame. +Consequently, liability is a concern to all parties ‘within the stream of commerce’. + +When a product causes damage, the right to take action is certainly not a right limited to citizens of the +USA or other litigation-conscious countries. With growing awareness and enforcement of consumer +rights around the world, affected parties can and increasingly do take action against manufacturing +firms, including importers or distributors they believe have been negligent. + + +Medical Professional Liability (also known as Medical Malpractice) +Medical Professional Liability is important for medical service providers, such as hospitals as +companies, or individual doctors/medical staff who may be deemed liable for professional errors (e.g. +injury to a patient, failure to diagnose) or administrative errors or omissions. This coverage is commonly +triggered in claims alleging injury or death as a result of action (or inaction) by a doctor/nurse/hospital. +The policy also covers legal costs associated with defending a claim. + + +Professional Indemnity or Errors and Omissions (PI/E&O) +Professional Indemnity insurance is designed to cover businesses in the event that they are pursued by +third parties who claim that they have suffered a loss as a result of the company’s professional +negligence. Cover is normally taken by professionals such as accountants, fund managers, lawyers, +architects or any professional services providers. + +General Liability and Product Liability policies generally exclude professional liability losses. Therefore, +stand-alone insurance is needed outside of these contracts for companies that have a significant, not +incidental, exposure to liability loss. + + +Directors’ & Officers’ Liability (D&O) +This policy provides protection in respect of claims from shareholders, creditors, customers, +employees and others, who can sue directors as individuals, for their negligence in the running of, and +behavior of, the Company. The policy may be in two parts:- +a) cover for individual directors/officers for loss where they are not indemnified by the insured + organization, and where the director/officer becomes legally obligated to pay on account of any + claim made against him, individually or otherwise, during the policy period; + + + + +Insurance Layperson’s Guide 2017 Page 5 of 9 8/31/17 + b) cover for an insured organization for i) losses they pay as indemnification to a director/officer who + serves in an outside directorship; ii) where the director/officer is not indemnified by the outside + entity; and iii) where the director/officer has become legally obligated to pay a claim made against + him, individually or otherwise, during the policy period. +The policy also pays for any damages and for defense costs in relation to claims. + +The policy can be extended to cover Observers in some jurisdictions. + + +Fund Management Liability +This policy is a coverage tailored to the needs of investment funds. It generally contains Directors’ & +Officers’ Liability and Professional Indemnity coverage. It is intended to respond to claims brought by +third parties against the general partnership arising from services rendered in connection with the +management and/or operation of the Fund. The policy should cover the Fund Manager and the +Funds under management and members of any fund committees such as Advisory Committee, etc. +Covers can include errors & omissions, breach of trust, breach of fiduciary duty, allegations of +negligence, negligent acts, misleading statements, crime, defense costs etc. The coverage can be +enhanced by including Employment Practices Liability (for actions brought by employees, e.g. for +discrimination or harassment), Fiduciary Liability (e.g. in connection with claims related to wrongful +handling of benefit plans) and Fidelity Guarantee (e.g. embezzlement by staff). + + +Environmental Impairment Liability (EIL) +This insurance provides cover against unexpected (and in some cases anticipated) losses from +sudden or gradual pollution conditions. Claims from third parties for resulting bodily injury or damage +to their property, associated clean-up costs, and legal defense costs, fines and penalties allowable by +law, and contractual liability are generally insurable under EIL policies. + +Some categories of EIL insurance include:- + +• First-party onsite clean-up, which covers the cost to remediate pollution on the insureds own + premises. +• Contractors pollution liability, which insures contractors against liability for bodily injury and + property damage arising out of environmental clean-up operations. +• Environmental professional liability, which provides professional liability insurance for engineers, + consultants, or other providers of services or advice involving pollution. +• Remediation cost cap, which covers cost overruns when environmental remediation projects + exceed projected costs. + + +Marine Hull and Machinery (H&M) +This policy provides coverage following damage to the hull, machinery, and equipment of a watercraft or +ship/vessel. The sum insured is typically based on Agreed Value. + + +Protection and Indemnity (P&I) +This policy provides liability protection if a ship owner or operator is sued for claims from third parties +for bodily injury or damage to their property arising out of the negligent operation of a vessel. Claims +can arise, for example, from damage to bridges, piers, wharfs or like structures along waterways, +injury to passengers, crew on board the vessel itself, or on other vessels if collision liability is covered. + + + + +Insurance Layperson’s Guide 2017 Page 6 of 9 8/31/17 + Mortgagees Interest Insurance (MII) +This policy covers the lenders interest in the mortgaged vessel. This insurance cover is secondary to +the primary insurance on the vessel, such as Hull & Machinery, P&I insurance, etc., and a claim is +valid only when the primary insurance cover does not respond. + + +Aviation Hull +This coverage provides payment to the owner of the aircraft for physical loss of or damage to the +aircraft. Coverage excludes losses arising from war, hijacking, terrorism, riot, strike, sabotage, etc. but +these risks can be insured separately under a Hull War Risks policy. The sum insured is based on +Agreed Value. + + +Hull War Risks +This insures aircraft hull damage losses excluded under the Hull All Risks policy by virtue of the war +exclusion. + + +Aviation Liability +This type of policy is designed to cover the insured’s legal liability to third parties (including passengers) +for bodily injury and property damage resulting from the ownership, maintenance or use of an aircraft +while on the ground or in flight. These policies include coverage for the defense of any suit brought +against the insured. + +An extension covers the insured’s legal liability to passengers for bodily injury and property damage +resulting from war and terrorism acts, such as aircraft confiscation, sabotage, hijacking, unlawful seizure +and civil commotion. + +Companies that may charter aircraft frequently are also advised to carry insurance suitable to their +exposure. + + +Aviation Liability – War Risks +This policy covers the insured’s legal liability to others for bodily injury and property damage resulting +from war and terrorism acts, such as aircraft confiscation, sabotage, hijacking, unlawful seizure and civil +commotion. + + +Oil & Gas – Energy Package +This policy is specifically designed for the risks associated with the oil and gas sectors, and can cover +on- and off-shore risks. Coverage typically includes property damage, control of well/operator’s extra +expenses, and liability risks (including sudden and accidental pollution). + + +Key Man Insurance +This is a life insurance product procured by a company, designating itself (or a financial institution) as a +beneficiary, to compensate it for financial losses resulting from the death and/or disability of a key +member. This insurance is important where the presence of one key individual is deemed critical to the +success of a project, particularly in small, privately held organizations or family-owned businesses. + +The policy sum insured can be selected to cover the amount of the loan (or in the case of equity, the +amount that would be required to hire a replacement immediately, assuming one can be found). Proper +succession planning may mitigate the need for Key Man Insurance. +Insurance Layperson’s Guide 2017 Page 7 of 9 8/31/17 + Crop Insurance +There are various types of crop insurance depending on the country offering the cover, but generally, +it may provide coverage for yield-loss due to natural causes, including: drought, excessive rain, hail, +flood, frost, snow, wind, lightning, hurricane, tornado, accidental fire, damage caused by wildlife, +waterfowl, insects and/or plant disease. + + + +Livestock Insurance +There are various types of livestock insurance depending on the country offering the cover, but +generally it may provide coverage for loss of livestock by death due to accident and certain diseases. + + + +Bankers Blanket Bond (Financial Institution Bond) +This is a policy which provides broad protection to Financial Institutions. The policy covers a number of +guarantees relevant to the sector, and may include the following elements:- + +Fidelity Guarantee: coverage in respect of losses sustained due to the dishonest or fraudulent acts of +the Insured's employees, which are committed with the intention of a) causing the assured to sustain +such loss and/or; b) to obtain, and which result in, improper personal financial gain for said employee. + +Losses sustained under this category of coverage should not distinguish between any particular +position, level, or territory, as losses are often a result of collusion between various levels. Losses +due to such acts by employees can account for a large proportion of an institution's losses, and in +some extreme cases, can result in the institution's liquidation. + +Cash on Premises: covers loss of financial instruments of the insured while on the premises (counters, +safes, vaults), through events such as burglary, hold-up, robbery, damage, destruction, misplacement. +The sum insured is normally not the full value of all financial instruments at all times; it is based on the +maximum which could potentially be lost in any one incident. + +Cash in Transit covers loss of financial instruments during transit by the company’s own employees, or +by a company hired for the purpose. The sum insured is normally not the full value of all financial +instruments at all times, it is based on the maximum which could potentially be lost in any one incident. + +Electronic and Computer Crime: covers losses arising from fraudulent input of electronic data or +computer instructions to the insured's computer, by unauthorized access to a terminal or an +institution’s communication lines by a third party (e.g. by hackers). + +Forgery: cover against a financial loss which results from having acted in good faith upon "written +instruments" or "payment instructions", if these prove to be forged, or fraudulently altered, lost or +stolen, or forged as to signature. + +Counterfeit Currency: covers the institution for losses sustained as a result of its acting upon any +counterfeit currency, for example the encashment of counterfeit currency handled during the normal +course of business. + +These coverage elements are in most cases also available on a stand-alone basis. + + + + +Insurance Layperson’s Guide 2017 Page 8 of 9 8/31/17 + Cyber Risk +Insurance policies vary, but can include cover for a) third party risks, e.g. communications and media +liability, network and information security liability and b) first party risks e.g. material costs of a breach, +crisis management expenses, computer program and software and electronic data restoration costs, +computer fraud, e-commerce extortion, security breach remediation and notification expenses, physical +loss of systems and data and ensuing business interruption. + + + + +Insurance Layperson’s Guide 2017 Page 9 of 9 8/31/17 + \ No newline at end of file