13 Insurance Products Developed For Construction Sector

The Construction Industry Development Council (CIDC) has developed 13 insurance products for the construction sector in association with the Acturial Society of India (ASI) to increase the flow of funds for the cash-strapped construction industry.

"The financial institutions wanted comfort-giving products in order to ensure recovery from the sector. The insurance products that we have developed in association with ASI are not a panacea for everything but will surely spread the effect of the risk of the Fis and would thus, help increase funding in the sector," CIDC deputy director general PR Swarup said.

A working group of the Indian Bank Association (IBA) has recommended that there is an urgent need to increase the total bank credit to the construction industry from the present 1.37 per cent to more than 10 per cent. CIDC, however, feels that the credit should be increased to about 15 per cent.

 

Elaborating further, he said that the average insurance premium at 1 per cent would generate a total business of about Rs 2,100 crore through these insurance products.

Explaining the demand-supply gap of funds in the sector, Swarup said that while the total bank credit amounted to about Rs 3,57,000 crore, the funds required for additional construction in the economy were to the tune of Rs 3,00,000 crore.

CIDC intends to distribute these products through selective general insurance players preferably in the public sector. CIDC is, at present, in talks with a few players and the decision is likely to be taken within the next few months.

The existing players in the general insurance category include United India Assurance, Oriental Insurance, National Insurance, New India Assurance, Royal Sundaram Alliance, Reliance, Tata AIG General Insurance and Bajaj Allianz.

Sample some products:

Bidding Indemnity policy (BIP) which covers the success or failure of bids by the contractor. The target clients include corporatised bodies with a turnover of over Rs 10 crore and has a potential to generate business worth Rs 1,000 crore per annum.

Delay in Meeting Obligation by Client policy (Dimo policy) which covers the risks associated with non-payment of dues on time, non-refund of indemnities furnished by the contractor to the bank and failure to meet contractual obligations. This particular policy is expected to fetch a business of Rs 1,500 crore.

Loss of Profit policy where profits of a construction company can be insured depending upon its cash flows and profits on the basis of assessment of risks and other factors. Appropriate premium designed on statistical data can fetch a business of around Rs 2,500 crore.

Transit Insurance policy which besides covering the damage of the equipment risks, also covers the productivity losses. It can generate a business of Rs 500 crore per annum.

Casual Workmen Compensation policy will cover liabilities of contractors on account of any injury, death or loss to the casual workers working at site.

Financial Risk Coverage policy will cover the risks undertaken by the financiers for extending assistance to the construction industry-related borrowers and will thus enable them to participate in construction industry business. It will also cover the risk for delay or non-payment of agreed dues and failure to meet contractual obligations by the contractors.

Life of Buildings policy will ensure that the modern buildings last for at least 50 years and will thus ensure confidence of flat purchasers on builders.

CIDC has also suggested a Lenders