Advance Loss Profit

Advance loss of profit (ALOP) insurance provides coverage for financial losses due to delays in construction and infrastructure projects. ALOP will also provide a payout if companies face higher costs or lost profits when a project takes longer than expected to complete. ALOP is often called delayed completion coverage or delay in start-up (DSU) insurance as well.

Important Points

  1. Advance loss of profit (ALOP) insurance provides coverage for financial losses due to delays in construction and infrastructure projects.
  2. ALOP will also provide a pay out if companies face higher costs or lost profits when a project takes longer than expected to complete
  3. ALOP is often called delayed completion coverage or delay in start-up (DSU) insurance as well.
  4. Advance loss of profit insurance only covers the actual loss of gross profit stemming from a delayed project.
  5. This product does not stand alone, this product must follow the CAR/EAR product

Large construction projects purchase advance loss of profit insurance because they face several risks that could result in delayed project completion. A harsh winter, for example, may delay the start of a project and, thus, the completion date, or maybe the construction site soil is more unstable than engineers originally estimated. The possible causes for delays are numerous and often unexpected.

Such delays can severely impact the finances of companies relying on a construction project’s timely completion. In addition, companies that use debt financing may find it difficult to repay debts incurred for renting or purchasing construction equipment.

Companies that plan on moving into a new building may lose money because they are not able to open for business. Delays to some projects, such as harbors, airports, bridges, and tunnels, may negatively impact many companies over a wide geographic area.

Advance loss of profit insurance provides a hedge against losses associated with these kinds of risks, and the companies that purchase ALOP coverage can play a variety of roles on a construction project. Investors in the project may purchase ALOP insurance to cover the cost of not being able to earn rents from building tenants.

Building contractors may purchase the insurance to cover the cost of having to rent construction equipment and pay employees for longer than expected. Companies that are renting out equipment used in the construction may also use the insurance to cover the costs of not being able to rent the equipment for other projects

Coverage

  1. Loss of gross profits – based on anticipated sales, cost and prices.
  2. Loss of gross earnings- sales value of production less consumed stocks, supplies and services purchased.
  3. Increased cost of working – costs involved in minimizing the effects of the delay.
  4. Principal and interests – lending institutions’ interest in the portion of gross profit.
  5. Loss of rent – as a result of premises not being ready to earn rent.
  6. Special expenses – costs involved because of delay such as advertisement campaign etc

Exclusion

  1. Loss or damage covered under Section I of CAR/EAR Policy by way of endorsement, unless it has been specifically agreed in writing.
  2. Loss of or damage to surrounding property, construction machinery, plant and equipment.
  3. Loss of or damage to operating media or feedstock, shortage, destruction, deterioration of or damage to any materials necessary for the insured business.
  4. Any restrictions imposed by a public authority.
  5. Non-availability of funds
  6. Alterations, additions, improvements, rectification of defects or faults or elimination of any deficiencies carried out after the occurrence.
  7. Any loss due to fines or damages for breach of contract, for late or non-completion of orders, or for any penalties.
  8. Loss of business due to causes such as suspension, lapse or cancellation of a lease, license or order, etc. which occurs after the date of actual commencement of the business.

Extension Coverage

  1. Earthquake
  2. Volcanic Eruption
  3. Tsunami

Sum Insured

The sum insured should be the anticipated Gross Profit (Net Profit + Standing Charges) for the Indemnity Period selected. Net Profit – Business profit before taxation. Standing Charges include fixed expenses incurred even in the absence of business activity like interest charges, salary & wages.

Premium

Premium depends upon:

  1. Nature of project
  2. Site location
  3. Gross Profit
  4. Indemnity Period opted

Minimum Data Requirement

  1. Company/ Insured’s Details
  2. Description of Construction/ Erection Works to Be Carried Out
  3. Project’s Detail
  4. Information for Intended Normal Working Hours
  5. Annual Turnover
  6. Information for Desired Time Excess
  7. Information for Maximum Indemnity Period Required to Be Insured
  8. Time-related Information
  9. Details of Any Penalty Agreements in Connection With The Contract Works
  10. Loss History

Supporting Document Claim

Claim due to Fire and/or Explosion

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Duly filled Claim Form
  3. Police Panchnama / First Information Report / Final Police Report (Forensic Deptt.)
  4. Fire Brigade Report
  5. Photographs of Damaged Property showing extent of damage &/or video film of loss

To substantiate quantum of loss, value of damaged insured property just prior to loss, & value of salvage. Please make available to surveyors/investigators fixed Asset Register, original Bills/ Invoice, Repairs/Replacement Bills/Invoices and stock Register.

Claim due to Flood, Storm, Cyclone, Earthquake, Subsidence/ Landslide

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Duly filled Claim Form
  3. To substantiate quantum of loss, value of damaged insured property just prior to loss, & value of salvage. please make available to surveyors/investigators fixed Asset Register, original Bills/ Invoice, Repairs / Replacement Bills/Invoices and stock Register
  4. Newspaper cutting wherein the incidence of occurrence of flood / storm cyclone / earthquake / landslide has been reported
  5. Meteorological Report

Claim due to Riot, Strike, Malicious Damage and Terrorism (RSMDT)

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Duly filled Claim Form
  3. Police Panchnama/First Information Report/Final Investigation Report
  4. Newspaper cutting wherein the incidence of riots has been reported
  5. Photographs of Damaged Property showing extent of damage &/or video film of loss

Marine Inland Transit Loss of cargo/machinery

  1. Copy of Claim intimation given to Company together with xerox of policy cover note/certificate/declaration & premium receipt
  2. GR/RR
  3. Delivery Receipt with remarks
  4. Invoice & Packing list
  5. Survey Report & Duly paid Survey fee bill
  6. Loss minimisation expenses receipt
  7. Police Panchanama/First Information Report
  8. Photographs of Damaged Property showing extent of damage &/or video film of loss
  9. Duly filled Claim Form
  10. Original policy duly discharged by assured/consignee
  11. Original open delivery/non delivery/short delivery certificate of carrier duly signed & sealed
  12. Copy of Regd. A.D. letter lodging claim with carrier along with monetary claim bill
  13. A.D. card of claim lodging letter on carrier
  14. Original reply of carrier in reply to claim lodging letter
  15. Letter of subrogation cum undertaking
  16. Claim bill

Marine Loss of cargo/machinery during Import

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Invoice & Packing list
  3. Bill of lading/Airways Bill
  4. Landing Certificate with remarks for short delivery/damage
  5. Custom clearance certificate
  6. Joint Survey with shipping company/Port Trust Authority
  7. GR/RR 
  8. Delivery Receipt with remarks for short delivery/damage
  9. Survey Report & Duly paid Survey fee bill
  10. Sale Contract
  11. Photographs of Damaged Property showing extent of damage &/or video film of loss
  12. Duly filled Claim Form
  13. Original Policy/Certificate/Cover note duly discharged by Assured/Consignor
  14. Copy of Regd. A.D. letter lodging claim on Shipping Co./Air Carrier with monetary claim & reply of shipping co.
  15. Letter of subrogation cum undertaking
  16. Bill of entry
  17. Certificate of Origin

Claim due to Breakdown during Testing / Commissioning

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Duly filled Claim Form
  3. Statement of eye witness to loss about cause of loss & circumstances of loss
  4. Asset Register, log‐book, original bills/Invoices/bill of entry of damaged property & repair/replacement bills/invoices to substantiate the quantum of loss.(To be made available to surveyor).
  5. Proforma invoices of new machine
  6. Photographs of Damaged Property showing extent of damage &/or video film of loss

Claim due to Burglary

  1. Copy of Claim intimation given to Company together with xerox of policy & premium receipt
  2. Duly filled Claim Form
  3. Police Panchanama/First Information Report
  4. Police investigation report
  5. Photographs of Damaged Property showing extent of damage &/or video film of loss
  6. To substantiate quantum of loss, please make available to surveyor/investigator, your stock register, original Bills/ Invoice, cash memos, fixed asset register, bank statement, cash‐book/ledger
  7. Inventory of articles kept in bank‐locker

 

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