Engineering InsuranceAdvanced Loss Of Profit

Advanced Loss of Profit / Delay in Startup Policy (ALOP/DSU)

Advanced Loss of Profit / Delay in Startup Policy (ALOP/DSU)


Principals and contractors alike are being confronted with escalating financial risk exposure in the wake of the increasing industrialization. Principals now often collateralize loans with project assets and repay them purely based on the projected earnings.
The revenue-generating capability of a project has thus become a critical financing factor. Any delay in the start‐up of a project would immediately cause a loss in anticipated revenue. Therefore, stringent conditions regarding delays in scheduled project completion are now commonplace in contracts between financiers and principals, and particularly to those between principals and contractors.
Principals are, therefore, under pressure to ensure the economic viability of the projects by generating revenue immediately following the scheduled completion date. The traditional Storage Cum Erection Insurance (SCE) does not cover loss of anticipated revenue / gross profit in the event of a delay in the scheduled start update of any project, even though the same may have arisen due to a peril insured by the SCE Insurance.

ALOP / DSU covers are purchased in conjunction with:

  • Marine Cargo Insurance for critical items of the project
  • Erection All Risks Insurance / Construction All Risk Insurance

Irrespective of whether the delay results from damage covered under the marine or the erection policy, the trigger date remains the same.

Key Benefits

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


The Advance Loss of Profit is designed to cover:

  • Loss of Gross Profit = Net Profit + Standing Charges
  • Loss of Gross Earnings = Turnover - Specified Working Expenses
  • Fixed Operation & Management Costs
    • Debt Service Charges
    • Increased Cost of Working
    • Special Expenses, e.g. penalties

The policy pays for the actual loss of gross profit incurred during the period of delay, commencing from the scheduled date of commencement of commercial operation up to the actual date of commencement of commercial operation subject to a time excess and indemnity period selected. The delay, however, should have occurred due to a claim payable under marine -cum- erection policy, storage-cum -erection policy or contractor's all-risk policy.


Hence, it is recommended that a single DSU policy in conjunction with the Marine Cum Erection Insurance be purchased which would cover:

  • All (insured) physical damage
  • Loss of Gross Profit arising out of a delay in the project, due losses covered by the underlying storage cum erection insurance.


  • Loss or damage covered under Section I of CAR/EAR policy by way of endorsement, unless it has explicitly been agreed in writing
  • Loss of or damage to surrounding property, construction machinery, plant and equipment
  • Loss of or damage to operating media or feedstock, shortage, destruction, deterioration of or damage to any materials necessary for the insured business
  • Any restrictions imposed by a public authority; Cancellation of license or Govt. restrictions etc
  • Non-availability of funds for repairs/replacement to damaged items
  • Alterations, additions, improvements, the rectification of defects or faults or elimination of any deficiencies carried out after the occurrence
  • Any loss due to fines or damages for breach of contract, for late/non-completion of orders, or any penalties
  • Business loss due to causes such as suspension, lapse/cancellation of a lease, license or order, etc. which occurs after the date of the actual commencement of the business
  • Any consequence of war, invasion, the act of a foreign enemy, hostilities
  • Nuclear reactions, nuclear radiation or radioactive contamination;
  • Inventory losses
  • Delay in the shipment of supplies
  • Normal project schedule slippages

Claim Process

In the event of loss, the following are immediate actions to be taken
Intimate the insurer the occurrence of loss, submit a full statement in writing of the claim, provide the nature and extent of loss and also the estimate of loss. Any delay in intimation might jeopardize the claim as the insurer may express an inability in accepting liability of the loss/damage.

  • To take all steps to reduce and minimize the extent of loss/damage and liability.
  • The proximate cause of loss and assess the type/extent and whether it is within the scope of the policy.
  • To extend full co-operation to the insurer and the surveyor appointed for completion of the survey work and proper assessment of the loss.
  • Produce all such records and proof as may be required by the surveyor or the insurer for arriving at the extent of loss and the liability under the policy.
  • Provide documents such as claim form, claim bill, copy of policy etc.
  • Keep the damaged property under the safe custody until advised by the surveyor/insurer regarding its disposal.

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Questions You Might Have

Should all the losses that are under the deductible be reported?

If the loss is below the deductible, it is not recommended to report it to the insurance provider. If one is not sure about the final amount of loss or deductible amount, it is recommended to contact the insurer.

What is the duration of Contractors All Risk Insurance policy?

Unlike other insurance policies, the Contractors All Risk Insurance plan is issued for the period of the contract that is from the starting of work until the work completes. Even though it is possible to extend the period of the policy if the completion of the contract gets delayed, but it is always wise to choose a slightly longer insurance period initially for avoiding paying a higher premium in case of extension.

For what value of machine the insurance should be purchased?

It is a requirement of this insurance that the sum insured be equal to the cost of replacement of the machines by new machines of the same kind and same capacity, which shall mean its replacement, or reinstatement cost, including freight, custom duties, if any, and erection costs.

Can we cover loss due to design defects in the engineering policy?

Yes, you can cover the costs of project damages caused by design flaws. Damage due to design is an exclusion in a normal policy, but by paying an additional premium, you can cover the design flaw in the policy. There are other forms of design defect cover, such as design defect-3 and design defect-4, that can be added to the policy as an add-on for an additional premium. We advise all of our clients to include this coverage in their erection all risk insurance.