Erection all risks insurance

Shortly after World War I – and mainly because of the instability of the currency resulting from the hyperinflation in the fateful crisis year of 1923 – the capital goods industry began to look for the most comprehensive insurance protection possible against risks to the calculated earnings of the contracting companies and their suppliers during the construction of technical facilities.

This demand was met by erection all risks insurance (EAR), which was launched on the market by Atlantic-Versicherung and Allianz in 1924 with the support of Munich Re. Erection all risks insurance offered the contractor the benefit of having simple, complete cover based on the all risks model, encompassing inter alia the risks of fire, explosion and natural hazards.

The advantages of the new product were so convincing that erection all risks insurance rapidly asserted itself in continental Europe, but also in the UK and the USA, either under the name construction insurance or as builders’ risk insurance. In recent years this property insurance has been supplemented by the corresponding financial loss insurance, named advance loss of profits insurance (ALoP) or delay in start-up (DSU) insurance.

The worldwide spread of risks by way of reinsurance helped this difficult class of business become a success, even though erection all risks insurance is exposed to major losses to a far greater extent than machinery insurance. As erection all risks insurance was designed to protect contractors during the erection and test testing of facilities, there was still a need for insurance to cover the risks to be borne by the contractor under his guarantee obligation after handing over the machinery to the operator.

The machinery guarantee insurance required for this purpose was introduced in 1927. This insurance covers the costs of repairing consequential damage to insured property caused by faulty design, materials, erection, etc. Machinery guarantee insurance offers a further supplement to the comprehensive range of engineering insurance products, but antiselection makes it very difficult for the insurance industry to operate profitably in this class.

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