Engineering insurance

What is engineering insurance?

Engineering insurance is the family of general insurance policies that cover technical risks: buildings and infrastructure while they are being built, plant while it is being installed, and machinery and equipment once it is running. It pays for sudden and unforeseen physical damage, including from causes that fire policies exclude, such as mechanical or electrical breakdown, faulty erection, short circuits and operator error.

Engineering cover sits alongside fire insurance. A factory typically needs fire cover for its assets against external perils and engineering cover for internal failure of the machines themselves.

Types of engineering insurance

How engineering insurance works in India

Engineering business was de-tariffed in 2007 along with other general insurance pricing, and the IRDAI Annual Report 2024-25 records that the remaining engineering policy-wording tariffs were de-notified from 1 April 2024. Wordings are now filed by each insurer under the IRDAI (Insurance Products) Regulations, 2024, though most still follow the long-standing market structure.

Project policies (CAR and EAR) run for the construction period plus a maintenance period, and the sum insured is the completed contract value. Operational policies (machinery breakdown, electronic equipment) renew yearly, with the sum insured set on the replacement cost of new equivalent equipment. Under-insurance leads to proportionate cuts, as under fire policies.

Engineering is one of the most reinsured lines. The IRDAI Annual Report 2024-25 shows industry net retention of about 35 per cent of engineering premium, and engineering claims paid of about ₹1,556 crore in 2024-25 across public and private insurers. Large infrastructure, power and metro projects are placed with significant reinsurance support, including from GIC Re and foreign reinsurance branches.

What engineering insurance means for distribution

• Project insurance follows project finance. Lenders to roads, power plants and real estate require CAR or EAR and advance loss of profit cover as a condition of disbursement. Brokers and bank-linked intermediaries that are close to project finance teams get the first call.
• Contract terms decide who buys. Construction contracts specify whether the owner or the contractor arranges cover and on what terms. Reading the contract before quoting avoids gaps and double insurance.
• Technical underwriting needs technical selling. Underwriters ask for project schedules, soil reports, testing plans and equipment lists. Intermediaries who can collect and present this information well get better terms. Generalist sales staff struggle here.
• Machinery breakdown is underbought by SMEs. Many small manufacturers hold fire cover through their lender but no breakdown cover, so a failed motor or compressor goes uninsured. A breakdown and electronic equipment add-on conversation at fire renewal is a practical protection gap to close.
• Claims are survey-heavy. Engineering losses need specialist surveyors and often manufacturer reports. Distribution partners that help clients preserve damaged parts and records speed up settlement.
• Commission disclosure may change. IRDAI's September 2026 consultation paper on distribution economics proposes that specified commercial policies carry commission disclosures, which would make intermediary remuneration on large engineering placements visible to the buyer.