Underwriting Case Study For Staged Commissioning Of Thermal Power Plant

Background:

There are two phases of construction of a 2X330 MW thermal powerplant which starts construction on 1st July 2025. The phase I BTG, the BOP for the entire project and the transmission lines for power evacuation to the Customer's grid is due to be completed and handed over after testing and commissioning on 31st December 2026. Phase I will be operational from 1st January 2027 and will cease to be covered in the Construction All Risks Insurance Policy covering the whole project. Phase I along with the BOP and other completed works will then be moved to an Operational Property All Risks or Comprehensive Mega Policy (MEGA). The Phase II BTG is due to be completed on 30th June 2027 whereafter the whole project shall be integrally tested and will include the testing of the balance of plant and other completed works that are already operational but will need to be ramped up appropriately during such testing. The operational MEGA Policy excludes property under construction or testing and commissioning. In such circumstances, how to cover the Phase I and other completed works that would be undergoing integral testing with Phase II, whereafter the entire project comprising Phase I & II along with the balance of plant and other works shall become operational?

Project Summary:

Project: 2 × 330 MW Thermal Power Plant
Construction Start: 1 July 2025
Phase I Completion: 31 Dec 2026 (BTG Phase I + Balance of Plant (BOP) + Transmission Lines)
Operational from 1 Jan 2027
Covered under a Operational All Risks (MEGA) policy post-handover
Phase II Completion: 30 Jun 2027 (BTG Phase II)
Entire project undergoes integral testing (includes BTG Phase I + BOP + completed operational assets)
Post successful testing, full project operational under Operational All Risks (MEGA) Policy.

Underwriting Problem:

Overlap of Risk:
Phase I assets (already transferred to MEGA policy and operational) will be exposed again to testing risk during Phase II’s integral testing.

Policy Gap:
The Erection All Risks (EAR) Policy covers testing risk but excludes Phase I once it has been handed over. The Operational All Risks (MEGA) Policy excludes property still under construction or undergoing testing.

Challenge: Avoid uninsured exposure to Phase I and completed works during the integral testing of Phase II.

Assumptions for the Recommended Solution Approach:

The following assumptions have been made:

1. The Contractual Conditions of handing-over specify that BTG Phase I and BOP for both Phases I & II are operational from 1 Jan 2027.

2. At the time of testing of BTG Phase II, the BOP already operational has to be ramped up appropriately. The BOP shall hence undergo an integral testing along with BTG Phase II.

3. The Solution Approach suggested below is strictly based on the contractual conditions as described in 1 & 2 above.

4. The underwriters for the Operational (MEGA) & Construction (EAR) Policy must be the same.

Solution Approach:

Extended Testing Cover under EAR Policy

Arrange for Phase I + BOP to remain under the EAR policy testing section until completion of Phase II and final integral testing.

This requires:
Agreement between all stakeholders (insured, insurers of EAR and MEGA).
Phase I is considered provisionally handed over for operational risk but still “subject to testing” under EAR during Phase II.

Proposed endorsement wording:

“Notwithstanding the operational status of Phase I and other completed works covered under MEGA policy, the integral testing of both the phases and other completed works shall be construed as covered under the EAR policy by virtue of the extension of the testing period obtained by payment of additional premium for the Phase I and other completed work until 30 Jun 2027 or completion of integral testing, whichever is earlier. During this period, operational risks not arising from testing shall be covered under the MEGA policy.”

Pros: Maintains continuity; clear testing risk protection.
Cons: Requires special endorsement and clarity in risk transfer.

Conclusion:

The underwriting solution lies in coordinated coverage with cross-endorsement between EAR and MEGA policies. Phase I and completed works must be brought back under the testing section of EAR for the period of integral testing of Phase II. Once testing concludes, the MEGA policy assumes full cover for the entire project.
This ensures there is no uninsured gap and prevents double insurance.

Disclaimer:

The proposed solution and approach contained herein are suggestive in nature and are intended solely to facilitate an understanding of possible insurance structuring for the testing period of BTG Phase II under construction and BOP of the Thermal Power Project, which is operational but proposed to be integrally tested along with Phase II at a subsequent stage.

This note does not constitute an offer of insurance, underwriting commitment, or policy interpretation. The views expressed are based on general insurance principles, indicative market practices, and the limited information currently available regarding project configuration, testing interlinkages, and operational interfaces. The final insurance terms, scope of cover, and premium implications shall be subject to detailed underwriting assessment, risk engineering review, and acceptance by the concerned insurers and reinsurers in accordance with their internal guidelines and prevailing market conditions.

We, at Salasar, shall not be responsible or liable for any direct or consequential loss, damage, or claim arising out of reliance on this suggested approach. Stakeholders are advised to obtain specific legal, technical, and insurance advice before finalizing the insurance program or associated testing coverage arrangements.