Indemnity for CPM insurance Claims

In the construction industry, the construction machines are constantly exposed to damage during use. Companies using these machines often decide to purchase an insurance policy.

CPM Insurance can cover:

Construction machinery (including excavators, loaders, forklifts, road rollers, bulldozers, cranes and others), Construction equipment (including tools, scaffolding, safety items, containers).

It protects machinery and equipment primarily during operation, but also for downtime, repair, overhaul, assembly, disassembly, loading and unloading.

·        Theft of machinery and equipment from a construction site or staging area,

·        Damage and destruction done by third parties,

·        Errors in machine operation,

·        Damage caused by weather conditions (fi re, lightning, landslide, hail),

·        Collisions with other machines,

·        Machine rollover,

·        Other damages.

Optional policy extension (Add Ons)

• Add-ons provide extra coverage beyond the standard policy for a premium, including options like Third-Party Liability, Terrorism, Earthquake, Express Freight, and Additional Customs Duty. These additions can be tailored to specific needs, such as covering damages to surrounding property or the costs associated with dismantling and shifting machinery
• In consideration of the payment of an additional premium, Insurers offer a variety of CPM coverage, and they almost always allow comprehensive coverage extensions. It may include incidents occurring while construction machinery is being transported to the site.
• If the machine travels on public roads, you can also additionally insure it. Because regardless of whether you opt for a CPM policy, you still have to purchase third-party liability for the machines you own. If the machine travel on its own wheels on public roads, liability insurance is mandatory otherwise if used strictly inside construction yard, it is optional
• Although the range of services offered by insurers may vary, the policy generally does not cover mechanical breakdowns of vehicles, as well as defects in electrical systems. Nor will the CPM protect the owner of a construction machine from damage caused intentionally or negligently.
• There is no direct annual maintenance contract requirement for a Contractors' Plant and Machinery (CPM) policy, as it is an indemnity-based insurance product. However, insurers mandate that the policyholder perform their own proper maintenance to ensure the machinery is in working order and to prevent claims. 
• It is extremely important to note that CPM insurance is completely optional – it is a good practice and a solution that will help avoid sizable costs in the event of a breakdown, collision or theft of construction machinery, but it is not a substitute for third-party liability. 

Basis of Indemnity 

The basis of indemnity for a Contractors Plant & Machinery (CPM) policy is to restore the damaged machine to its pre-loss condition, either by repairing it or, in case of total loss, by paying its actual value just before the loss occurred. For repairs, the company covers the cost of repair, dismantling, re-erection, and ordinary freight, customs duties, and other specified costs, provided they were included in the sum insured. For a total loss, the payment is the replacement value, minus depreciation, plus applicable costs like dismantling and freight, if they are included in the sum insured

Before taking out a policy, a necessary few steps to make decision easier and avoid common pitfalls.

Step 1: Make a list of construction machinery and equipment to be insured

The list of construction machinery you intend to submit for insurance should include:

·        The identification, registration and/or inventory number of the machine,
·        Brand and model name,
·        Year of production,
·        Specifying the type of machine,
·        Value of the machine.
·        In addition, if the machine is leased, a set of documents certifying the fact of the lease agreement should be           prepared in this connection

 Step two: determine the sum insured•

The sum insured is the limit of the amount the insurance company can pay out under the contract. By setting a low sum insured, you may be able to get a benefit that does not cover all your losses if necessary – but in return you pay a lower insurance premium. A higher amount will allow you to recover a larger amount in case of damage.

To be more precise about your needs, try to prepare separate sums insured for each machine if you want to cover more than one with your policy.

 Step three: Compare insurers’ offers

Contact different companies and looking at each offer separately. Or use the services of an insurance broker/consultant, who will do this work for you – in exchange for a certain amount.

Common mistakes when declaring their insured values:

• Declaring assets’ Book Value.
• Using last year's declared values or simply increasing values by a percentage.
• Declaring assets’ Market Value.
• Relying on valuation from an in-house accountant.

Understanding Insurance Valuation

Valuation is the way an insurance company will value the worth of the damaged or stolen equipment.  The most common methods of valuation are Actual Cash Value (ACV) and Replacement Cost (RC).

Actual Cash Value (ACV) is the cost to replace the equipment with another of like kind and quality less the cost of depreciation. It is important to review equipment ACV periodically as the value will decrease when the item depreciates over time.

Replacement Cost (RC) is the cost to replace the equipment with equipment of like kind and quality at current costs.  RC does not consider depreciation and ignores factors such as age, condition, maintenance, or obsolescence. For example, a machine purchased three years ago for 30,00,000 Rs. may have an ACV of 10,00,000 Rs., but to purchase a comparable unit based on today’s market it would cost 20,00,000 Rs.  

Thus 20,00,000 would be the Replacement Cost and 10,00,000 the Actual Cash Value. For newer equipment ACV verses RC is an important consideration.