The construction all risk insurance policy plays an important role in the economy by providing stability to the functioning of the process. Following is the economic importance of contractor’s all risk insurance policy:
Construction projects are massive, and they include big numbers. Hence, any loss or damage to the property may result in some enormous losses. Having a construction all risk insurance policy helps in providing the financial supports and reducing uncertainties in business and human life.
Reduces construction risks
At the construction site, huge processes are employed, and even a slight act of negligence can bring down the entire project to a standstill. With the help of the constructions all risk insurance policy, the contractor and the employees are saved by the surety of the earnings, as the insurance company pays them at the time of any loss or damage due to fire, theft, accident and other perils.
Generates financial resources
With the huge amounts of sum insured for large construction projects, the premium amount also increases. The insurance companies generate funds with the help of these premiums. Consequently, these funds are in turn invested in government securities and stocks. Thus, the funds are employed for the industrial and economic development of the country.
Generates a sound economic growth
Imagine the kind of money that goes into building a flyover or a roadway or a commercial complex. Just as the investment increases, the insurance for that construction type also increases. The accumulated capital in converted in to productive investments. Thus, constructions all risk insurance generates a significant impact on the economy by mobilizing savings. This initiates a sound economic growth.
Spreading the risk
This insurance helps to spread the risk from the insured to the insurer. With the large number of the constructions all risk insurance policies in the picture, the number of contractors insured by the same is also huge. Thus, the amount of premium that comes in the funds is massive. In case of any loss, the insurers compensate the insured from these funds and thus help in spreading the risk.
The funds which are collected by way of the premium are utilized for the industrial development. Increase in the economic growth eventually drives the employment opportunities due to such big construction projects. This paves the way for capital formation and employment opportunities.
Helps in recovery
The constructions all risk insurance policy helps the builders and the contractors to replace their buildings and inventories in the event of some major catastrophes like earthquake or hurricane.
Smooth working of the business transactions
This policy helps the smooth working of the construction business. Without this policy, the construction business would face significant liability with respect to financing operations and construction processes.
R.V Contractions had bagged a project to construct a dam in Pune. The project was huge and hence the construction company got the construction site insured for any damage or third-party liability.
One day, a massive earthquake occurred in the area. As a result of which the construction site was damaged. During the same time, two government officials had come to inspect the site area of the dam. The government officials were killed during the earthquake as it was of very high intensity.
The construction company had to contact its insurance company to take care of the scenario. The insurers investigated the matter and successfully settled the claim. The damage to the construction site was covered by the material damage section of the policy. Insurers also paid the expense of the third-party liability arising due to the death of the two government officials.
Thus, the constructions all risk insurance policy helped the R.V constructions in the recovery of expenses, spreading of the risk and smooth functioning of the construction operations.