7 Benefits of Erection All Risks Insurance

7 Benefits of Erection All Risks (EAR) Insurance for Engineering and Construction Projects

Large-scale engineering and construction project like power plants, factories, refineries, or telecommunication towers carry inherent risks during their erection and installation phases. Accidents, natural perils, design defects, or equipment failures can lead to costly damage, time delays, and liability exposures.

Erection All Risks (EAR) insurance is a specialized policy designed to protect contractors, project owners, and financiers against such losses during the erection, testing, and commissioning of plant, machinery, and steel structures.

Unlike conventional property insurance, EAR policies provide “all risks” coverage, meaning they protect against any sudden and unforeseen physical loss or damage unless specifically excluded. In an industry where project delays can translate into millions in losses, EAR insurance is a vital component of comprehensive project risk management.

Why Erection All Risks Insurance Is Important

1. Comprehensive Risk Protection

Engineering and construction projects involve multiple risk sources: human error, defective design, material failure, or unpredictable weather. EAR insurance covers sudden and unforeseen events that standard liability or property policies often exclude. Unlike fire or theft-only policies, EAR provides “all risks” protection from the commencement of erection until the completion and handover of the project.

Example: In 2023, a South African solar farm project suffered R40 million in losses when high winds damaged partially erected solar panels. An EAR policy absorbed most of the loss, allowing the project to resume without bankruptcy.

2. Ensures Project Continuity and Financial Stability

Without EAR insurance, a single incident could bankrupt a contractor or halt a multi-million-dollar project. The policy provides financial backing to restore damaged works promptly, ensuring minimal disruption.

3. Facilitates Compliance and Project Financing

Project financiers like banks, development agencies, or export credit institutions often require evidence of EAR insurance as part of their loan covenants or project finance agreements.

Insurance therefore acts as a risk transfer mechanism that supports the lender’s security interests. Without it, many infrastructure projects would fail to secure funding.

4. Covers Testing and Commissioning Risks

One unique advantage of EAR insurance is that it extends to the testing and commissioning phase a period often excluded under construction-only policies.

Testing involves energizing systems under pressure, temperature, or load, where mechanical or electrical failures frequently occur. For instance, If a turbine fails during a pressure test, the repair cost and resulting delay are covered under EAR protection not offered by standard construction insurance.

5. Third-Party Liability Protection

Construction and installation sites pose hazards not just to workers but to third parties, such as neighboring properties or the public. EAR policies include third-party liability sections that cover:

• Bodily injury or death of third parties.
• Damage to adjacent properties.
• Associated legal defence costs.

This protects project stakeholders from litigation risks that can otherwise cripple financial resources and reputations.

6. Protection Against Delay and Business Interruption (Add-on)

Many insurers offer Delay in Start-Up (DSU) or Advance Loss of Profits (ALOP) extensions to EAR policies. These cover financial losses due to delayed project completion following an insured event. For example,
If a fire damages equipment and delays the commissioning of a manufacturing plant by four months, DSU coverage compensates for lost income or debt-servicing costs during the delay.

This add-on is particularly valuable for revenue-dependent infrastructure projects (e.g., power generation, telecom networks, or mining operations).

7. Encourages Risk Awareness and Safety Standards

The underwriting and risk survey process of EAR insurance encourages contractors and project managers to implement better safety protocols, documentation, and quality control. Insurance surveys often identify vulnerabilities like faulty lifting procedures, inadequate fire suppression, or poor material storage and prompt immediate corrective actions.