Project insurance sees lower uptick

Project insurance segment, which involves providing covers for large-scale industrial projects, is seeing a lower uptick in getting new clients, due to a slowdown-like situation in the commencement of new projects.

With a lull in industrial production, the number of new projects coming up has also seen a drop, reflecting in the insurance numbers. Industry experts said that there was atleast a 20-30% drop in the number of new projects that are covered under the policy. Meanwhile, the premium rates have also remained flat.

Sushant Sarin, Senior VP-Commercial Lines, Tata AIG General Insurance said that with the infrastructure sector seeing a slower growth since the last one year, the infrastructure projects, the market has been slow. He added that due to this, there has been no major activity in the project insurance segment as well.

Project insurance offers an insurance cover for engineering and allied sector projects. Here, the cover looks into the construction, commissioning and testing of the project. During this period, any accident, mishap or delay in operation of the project is also taken into account in the insurance policy. For projects that are large in size, with a sum assured of Rs 1000 crore or above

If there any legal liabilities that arise out of a project, the legal costs are also financed by this insurance policy. Add-on covers related to breakage of glass materials, removal of debris, plant and machinery can also be provided. The sum assured depends on the size and the location of the project, with premiums running into several crores of rupees.

Project insurance offers a cover only till a project is completed. After completion, there are policies related to industrial risks that protect these projects against physical damage, fire, business interruption or natural disasters.  

K G Krishnamoorthy Rao, MD & CEO, Future Generali India Insurance said that though the premium rates had dropped post de-tariffing of the segment, there has been a slow growth in project insurance, since there are no new projects coming up.

Industry officials expect the situation to continue till the general elections of 2014. A senior official of a private general insurance firm said that the market perception was that the momentum of project insurance would not pick up till mid-August 2014, since infrastructure and engineering companies are also waiting for the new government to be elected, before taking a decision on setting up a project.

According to data from Ministry of Statistics and Programme Implementation, the Index of Industrial Production (IIP) showed a contraction of 1.6% in May, a 11-month low, as mining output continued to fall and manufacturing failed to grow. Manufacturing, which constituted a little over 75% of the IIP, fell two%, pulled down by consumer durables and capital goods production.