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Electronic equipment insurance provides comprehensive cover to systems which typically rely on low voltage and power sources. Electronic equipment insurance policies cover equipment that runs quietly compared to machinery like boilers or compressors. Electronic Equipment Insurance policies (EEI policies) can cover anything electronic such as computers, UPS units and voltage stabilizers etc. An Electronic Equipment Insurance policy protects electronic equipment against data loss or damage by an insured peril. With nearly every business today using electronic equipment for work use, having its own policy to cover electronic assets at work becomes imperative. Electronic devices are highly vulnerable and vulnerable to power fluctuations causing physical or software damages; an EEI policy covers this possibility with both hardware and software coverage under its policies.
EEI policy comes in 3 sections of which the first section covers the loss or damage to equipment, second section covers the loss or damage to the external data media and finally the third section covers the increased cost of working resulting from the loss or damage to the equipment and or the external data media. It is important to note that the policy is an “All-risk” cover which covers all the perils except for those mentioned as exclusions under the policy. In this way all the possible means of damages to the electronic equipment would be covered under the policy up to the sum insured limit. Some insurance companies would also include a clause of warranty which goes by the name preventive maintenance agreement which states that the equipment should undergo regular maintenance checks so as to identify any potential risks that could damage the equipment. More details of the policy are discussed in subsequent sections in this article.
The coverage under this section is extended to all electronic equipment like computers, medical, biomedical, micro-processors, audio/video equipment including the value of the software may be covered under the policy. It is advisable to note that the term equipment shall include the entire computer system consisting of CPU, Keyboards, Monitor, Printers, Stabilizers, UPS, System software etc. On payment of additional premium the coverage under this section also includes dish antenna and portable items such as notebook, laptop computer and sonography.
This section covers the accidental damage to the insured equipment against “All risks” as mentioned below and excludes the following:
Coverage |
Exclusion |
|---|---|
| Fire | Deductible stated the policy schedule |
| Lightning | Faults/ defects existing at the commencement of the present insurance policy and that too with the knowledge of the insured |
| Explosion/ implosion | Loss or damage as a result of continuous usage of the equipment such as wear and tear losses |
| Aircraft damage | Cost incurred to eliminate the functional failure |
| Riot, Strike and Malicious damage | Maintenance costs of the equipment |
| Storm, typhoon, cyclone, tempest, hurricane, floods and inundation | Aesthetic defects |
| Impact damage | Loss or damage for which the manufacturer or supplier is responsible |
| Subsidence, Landslide and Rockslide | Loss or damage to the rented or hired equipment for which the insured is responsible either by law or under a lease or maintenance activity |
| Bursting and/or overflowing of water tanks, apparatus and pipes and Leakage from automatic sprinkler installations | Consequential loss or damage of any kind |
| Missile testing operations | Loss or damage to bulbs, valves, tubes etc. |
| Bush fire | |
| Electrical and Mechanical breakdowns | |
| Burglary & Theft | |
| Negligence, Lack of skill and Carelessness | |
This section covers the loss or damage to the external data media such as tapes, hard discs, magnetic drives etc., due to any of the insured peril mentioned below. This section also compensates the cost of restoration of the lost data if a backup facility is available.
Coverage |
Exclusion |
|---|---|
| Fire | Deductible stated the policy schedule |
| Lightning | Any costs arising from false programming, punching, labeling or inserting, inadvertent canceling of information or discarding of data media, and from loss of information caused by magnetic fields etc. |
| Explosion/ implosion | Consequential loss of any kind or description whatsoever |
| Aircraft damage | |
| Riot, Strike and Malicious damage | |
| Storm, typhoon, cyclone, tempest, hurricane, floods and inundation | |
| Impact damage | |
| Subsidence, Landslide and Rockslide | |
| Bursting and/or overflowing of water tanks, apparatus and pipes and Leakage from automatic sprinkler installations | |
| Missile testing operations | |
| Bush fire | |
| Electrical and Mechanical breakdowns | |
| Burglary & Theft | |
| Negligence, Lack of skill and Carelessness |
This section covers the expenses incurred by the insured for using the substitute electronic equipment for continued data processing following an indemnifiable damage to the insured electronic equipment. The increased cost of working incurred due to usage of the substitute electronic equipment would be covered under this section. The exclusions are mentioned below:
Coverage |
Exclusion |
|---|---|
| Increased cost of working due to the usage of substitute electronic equipment | Costs incurred by the insured during the usage of the equipment in the time excess as stated in the policy schedule |
| Costs of replacement of data media, data and regeneration of data | |
| Additional costs arising out of bodily injury, orders or measures imposed by public authorities, expansion or improvement of the existing equipment, lack of funds resulting in delay in repairs or replacement of damaged equipment | |
| Any other consequential loss thereof. |
Escalation Clause
The sum insured under the EEI policy can be increased each day by an amount representing 1/365th of the specified percentage increase per annum on payment of additional premium amounting up to 50% of the premium. The increased sum insured would be added to the base sum insured and would come handy in case of under insurance at the time of claim settlement.
Air freight
Air freight is the expenses incurred in transportation of an item or the electronic equipment from one location to another location through air. This is similar to express freight but the transport mode would be through air whereas in case of express freight the transport mode could be road, rail, post or any other but not necessarily air whereas in case of air freight the mode of transport would definitely be air. Each and every claim would be subjected to a minimum excess of 5% of the admissible air freight incurred over and above the excess as applicable under the policy.
Third party liability
Third party liability section covers the property damage or bodily injury to third parties as a result of the damage to the insured property. The insurance company would indemnify the insured against legal liability arising out of accidental loss or damage to the property or others and against legal liability arising out of bodily injury to any persons other than the insured or his/her own employees or other family members.
Floater clause
This section covers more than one location of the insured under a single policy. A single sum insured policy can be taken for all the locations owned by the insured. All the addresses of the locations should be mentioned in the policy clearly by the insured and may also be required to have in place internal audit and accounting procedures. This add-on would be very much useful for the customers as they need not take one policy for one location.
Omission to insured, additions and alterations
There can be instances where the electronic equipment was purchased during the policy period and the insured may have forgotten to insure it under the policy through an endorsement and in the event of loss, the claim would not be payable as the equipment was uninsured. To prevent such issues, insured can opt for omission to insured, additions and alterations clause which covers the new additions or alterations under the policy up to a certain percentage of sum insured. The insured should notify any such addition or alteration of the property to the insurance company as soon as it comes to their notice. It is to be noted that all such new additions to the portable equipment by the insured that were not purchased or altered but not reported during the policy period should be reported at the time of policy renewal and any such difference in premium should be paid to the insurer.
Parts undamaged clause
There could be certain undamaged parts in the electronic equipment which if used could damage the new machinery and such parts would be reinstated under this add-on even though they are in working condition subject to the conditions that prior approval is taken from the insured for such reinstatement and the replacement or reinstatement does not improve the performance, capacity or output of the equipment. The recurrence of damage due to the usage of the undamaged part should be certified by the surveyor for the claim to be applicable.
Cover for mobile and portable equipment outside the premises
The add-on covers the loss or damage to the mobile and other portable equipment that are outside the insured premises, whilst stationary or in transit anywhere within the territorial limits specified in the policy. The loss or damage to these items would not be covered if they are left unattended inside a building or a vehicle, whilst they are carried in an aircraft or aerial devices or waterborne vessels or craft.
Automatic reinstatement
Automatic reinstatement up to and above 10% of the sum insured is allowed as per this add-on. The sum insured would be reinstated automatically in case of an event without the intervention of the insured under this addon.
Depreciation waiver
Depreciation waiver under the EEI policy waives off the depreciation on parts having limited life. Depreciation is usually factored in at the time of claim settlement and with this add-on the depreciation costs would not be included at the time of claim settlement.
Express freight
This add-on covers the expenses incurred by the insured customer in transporting the items required for equipment repair to the insured location. Express freight is the freight paid by the insured to get the equipment or its part in express mode i.e. faster than the usual time taken by it. Express freight includes a part that needs to be transported from one location to another on a short notice. It is important for the electronic equipment to keep up running within a few days of an accident and for this the damaged parts should be replaced with new parts as soon as possible and these new parts can arrive early through express freight.
Owners surrounding property
This add-on extends the policy to cover the loss or damage incurred to the owner’s surrounding property as a result of damage to the insured electronic equipment. This section covers the loss or damage to the property located adjacent to the site or held in care, custody, control of the principal or the contractor directly due to the damaged items. Insurer would pay the insured value of the damaged property at the time of accident at its option to reinstate or replace such damaged property.
Additional customs duty
This section covers the cost of additional customs duty incurred by the insured customer while importing the replacement of damaged parts of electronic equipment. Under this add-on each and every claim shall be subject to an excess of 5% of the admissible additional customs duty incurred.
Waiver of betterment
In case of total loss of the equipment requiring replacement which may had become obsolete at the time of replacement, then the insurer would replace the damaged electronic equipment with a followup model of similar kind provided that the cost of replacement does not exceed the sum insured mentioned under the policy for that item. This extension is only applicable if the insured is willing to go for reinstating the property. In simple words, insured would be given new equipment if the old equipment becomes total damage and the same model is not available in the market.
Professional fee
The architect, surveyor and consulting engineer fees can be availed under this add-on which might be incurred by the insured during the reinstatement of the insured property due to damage, destruction or loss. Professional fees might be high in case of complicated electronic equipment such as imported equipment which might require foreign representatives to travel to India and carry out the survey process in certain cases and such fees would be paid under this add-on.
Claims investigation cost
This add-on covers the expenses incurred by the insured related to investigation and identification of the cause of exact location of loss or damage. There could be certain situations where the exact location or loss or the exact cause of loss should be identified by the insured customer so that any future loss could be averted and such expenses would be covered under this add-on. The difference between the regular claim investigation expenses and this add-on is that the former intends to analyze the nature of loss, reasons of loss and the quantum of loss whereas the latter pinpoints the reasons of loss.
Loss Minimization expenses
Loss minimization expenses are those expenses that are incurred by the insured during the loss minimization process. Insured could have taken certain steps to reduce the losses and these steps might have incurred certain costs. These costs would be covered under this add-on up to a certain limit. For example, the insured might have engaged firefighters to combat the fire thereby preventing additional damage to the insured equipment and such loss minimization expenses would be covered under the policy.
Expediting costs
Expediting costs incurred for overtime, night work, work on public holidays and express freight (including air freight) would be payable under this add-on. It becomes utmost important to repair or reinstate the electronic equipment and this might require expediting costs which are covered under this add-on.
The sum insured under section 1 of Electronic equipment policy should be equal to the cost of replacement of the insured property with a similar one available in the market in terms of same capacity, performance, same kind. The sum insured should also account for the freight, customs duty, and any other erection costs required for erecting the equipment at the location of the insured. The sum insured should represent the replacement value of the equipment in such a way that the sum insured should suffice to purchase a similar model in case of damage to the insured property due to an insured peril. In this section the sum insured should also include the value of the “System software”.
The basis of indemnity in case of loss or damage requiring repair, the insurance company would pay the cost of repair to restore the insured equipment to its former state of serviceability including the cost of dismantling and re-erection. Other costs such as freight costs, customs duty incurred on repairing or replacing certain parts of the machinery would also be covered under this section. It is to be noted that there would not be any depreciation applied at the time of claim settlement in case of repairs where it includes replacement of certain parts, except those with limited life, but the salvage value would be taken into consideration. The parts with limited life are the ones which undergo depreciation over a period of time and accordingly the depreciation percentage would be calculated at the time of claim settlement.
If the cost of repair of the equipment exceeds the actual value of the item prior to the occurrence of the loss, including the freight costs, customs duty and the cost of dismantling and re-erection, then the insurer would provide replacement value of the equipment at the market value after factoring for depreciation. Any other extra charges such as dismantling charges, overtime, night-work, work on public holidays, express freight, air freight etc. would be covered if they are opted under the policy.
In case the item is totally destroyed beyond repair and if the same model is not available in the market or it becomes obsolete, then the insurer would compensate all costs necessary to replace the equipment with a followup model available in the market of similar structure or configuration. In any case the insurance company would only pay the maximum sum insured mentioned under the policy as claim amount. If the cost of replacement is less than the sum insured, then only the cost incurred would be paid and not the entire sum insured. Entire sum insured would be paid only if the cost of replacement is more than the sum insured under the policy.
Warranty Maintenance Agreement is to be enforced at the inception of the policy and maintained throughout the policy period without any violations of the terms and conditions to the agreement. This word maintenance shall mean safety checks, preventive maintenance and rectification of loss or damage or faults that may arise from natural functioning or operation as well as aging of the machinery.
The sum insured in this section shall be the amount that could be incurred for restoring the insured external data media by replacing the lost or damaged data media by new material and reproducing lost information. The cost incurred to replace the insured external data media by reproducing the lost information and purchase of a new material would be covered in this section.
The basis of indemnity would be the expenses incurred by the insured customer to restore the insured external media to a condition it was prior to the occurrence of the loss and this should be done within a period of 12 months from the date of occurrence of the loss. Within the 12 months time the insured should be able to replace the insured external data media by reproducing the lost information and if it's not done within 12 months, then the insurance company shall only be liable to compensate for the insured external media and would not compensate for the reproduction of lost information. The cost to reproduce the lost information should be borne by the insured if the reproduction is not affected within 12 months from the date of occurrence of loss.
The indemnity period under this section starts immediately once the substitute equipment is put into use and continues till the original equipment is repaired or replaced. The concept of time excess would be applicable in this case, where the time of operation of the substitute equipment would be taken into consideration and excess would be applied accordingly. For example, if the time excess is mentioned as 1 day and the indemnity period is 10 days, then the insurer would pay for the 9 days after deducting the time excess period. The indemnity limit could be per hour basis or per day basis in EEI policy.
The indemnity limit per hour is the sum insured under the policy and this sum insured can be represented by stating the total number of hours which forms the total sum insured under the policy. The total sum insured should be a representation of the aggregate limit of all the claims made during the policy period.
Indemnity limit can be calculated using the formula
Indemnity Limit per "working hour" (a)
Indemnity limit of "number of hours per occurrence" (b)
Aggregate indemnity limit per occurrence = a*b
Depreciation exclusion: The depreciation element would be excluded under the policy if the damage is repairable except for those with limited life. Depreciation would also not be factored if the model becomes obsolete and the same model is not available in the market. In such cases the replacement would be done with a similar model of same capacity or performance but the salvage cost would be taken into consideration at the time of claim settlement.
Comprehensive cover for electronic equipment: Electronic equipment insurance is an All-risk cover and is a comprehensive policy designed to cover the electronic equipment. All the perils are covered under the policy except for those mentioned as exclusion under the policy. EEI policy is a combination of Standard fire and special perils policy and Burglary & Theft insurance policy. The policy also covers negligence, lack of skillfulness and carelessness of the operator of the equipment making it a comprehensive cover. EEI policy coverage can be enhanced by adding add-ons mentioned under the policy which increase the scope of the policy and help in claim settlement.
Home cover: EEI policy is extended to cover the electronic equipment at home and a special policy is designed for this purpose named “Home Shield Insurance or Home Insurance”. The main purpose of this extension is to cover the electronic equipment at home which otherwise are not covered under the regular EEI policy. EEI policy would be similar for industrial settings as well as home settings with differences in premium calculators.
Proposal form: The first and foremost thing to consider before taking an EEI policy is submitting correct details in proposal form. A proposal form is the basis of underwriting and premium calculation in any insurance policy and therefore the details mentioned in the form should be cross checked carefully. Proposal form should contain the details of all the electronic equipment that needs to be insured and the insured should submit the details of the electronic equipment such as the serial number, date of manufacturing, make and model of the machines etc. All the equipment should be insured under the policy by mentioning in the proposal form. Any equipment that does not appear on the proposal form would not appear on the final policy copy and that equipment would not be covered in case of any mishap. To prevent any rejections at the time of claim settlement, one should be careful while filling the proposal form. The sum insured details for all the sections, if opted, should be mentioned correctly, failing which may lead to underinsurance at the time of claim settlement.
Preventive Maintenance agreement: The preventive maintenance agreement should be clearly mentioned in the proposal form and this should be enforced during the policy period. Any changes to the agreement should be done only after obtaining the written consent from the insurance company. This agreement states that the insured would maintain the electronic equipment in a healthy condition by carrying out regular safety checks, preventive maintenance and rectification of any damages that might arise from the usage of the equipment at any time during the policy period. The warranty related to the preventive maintenance agreement can be waived off on payment of additional premium to the insurance company. It is important to check this with the insurance company as insureds who would not be able to carry out regular checks might benefit from this warranty. The maintenance facility can be “in-house” where the maintenance work would be carried out by the employees of the insured.
Section wise sum insured: The other important thing to consider at the time of taking the EEI policy is the section wise sum insured. If you are opting for all the 3 sections under the policy, then the sum insured should be selected for all the 3 sections as mentioned above. Mere selection of the replacement value of the machinery might not be enough as the replacement process would include other expenses such as freight costs, customs duty, over-time expenses,night time expenses etc., which are to be accounted for in the sum insured calculation. Section wise sum insured also plays an important role in premium calculation as well as underinsurance at the time of claim settlement. If the other costs as mentioned above are not taken into consideration then the claim amount received could be less than the cost of replacement or repair incurred by the insured customer.
Underinsurance: The other important thing to keep in mind before taking EEI policy is the underinsurance that could arise in the future. Underinsurance is said to occur when the insured sum insured of an item is less than the actual value of the item. Underinsurance in EEI policy can occur when the sum insured of the property in section 1 is not selected properly. As discussed above the sum insured should be inclusive of the replacement or repair cost of the item, customs duty, freight charges and other overhead charges such as over-duty, night shifts, extra duty etc. If the cost of replacement of an item is found to be less than the sum insured mentioned in the policy, then the underinsurance concept would be applied by the insurance company. Underinsurance would result in a decrease of the total claim amount payable.
