ADVANCE LOSS

OF

PROFITS INSURANCE

AN OVERVIEW
ALOP IS FOR PROTECTION
AGAINST AN UNPLANNED
TEMPORARY DELAY OF FULL OR
PARTIAL PRODUCTION ACTIVITY
DUE TO A LOSS INDEMNIFIABLE
UNDER THE UNDERLYING EAR /
CAR POLICY.
 FINANCIAL EFFECTS OF DELAY
1. LIQUIDITY i.e.SHORT-TERM CASH FLOW
2. PROFITABILITY i.e. LONG-TERM CASH FLOW
3. GROWTH

1. LIQUIDITY : SHORT TERM CASH FLOW

DELAY * DROP IN CASH RECEIVED
OUTGOING PAYMENTS
STANDING CHARGES

* INCREASE IN COST OF WORK

2. PROFITABILITY : LONG TERM CASH FLOW
DELAY NO EARNING POWER
HENCE NO PROFITS
PROJECT BECOMES
UNECONOMICAL
3. GROWTH
1. LIQUIDITY i.e.SHORT-TERM CASH FLOW
2. PROFITABILITY i.e. LONG-TERM CASH FLOW
3. GROWTH

1. LIQUIDITY : SHORT TERM CASH FLOW

DELAY DROP IN CASH RECEIVED
OUTGOING PAYMENTS
STANDING CHARGES
*
* INCREASE IN COST OF WORK

2. PROFITABILITY : LONG TERM CASH FLOW

*
DELAY NO EARNING POWER HENCE NO PROFITS

* PROJECT BECOMES UNECONOMICAL

3. GROWTH
I. LOSS OF GROSS PROFITS =
NET PROFIT + STANDING CHARGES
OR

LOSS OF GROSS EARNINGS =

TURNOVER - SPECIFIED WORKING EXPENSE
OR

FIXED OPERATION & MANAGEMENT COSTS

II. DEBT SERVICES CHARGES = DEBT SERVICE
CHARGES
* STANDARD OUTPUT - ACTUAL OUTPUT DURING THE
* STANDARD OUTPUT X DELAY PERIOD
* STANDARD OUTPUT IN MWH AT 68.5% PLANT LOAD FACTOR

III. INCREASED COST OF WORKING

IV. SPECIAL EXPENSES
– LIQUIDATED DAMAGES PAYABLE TO STATE E.B. IN TERMS OF P.P.A
– PENALTIES
 FUNDAMENTALS OF ALOP INSURANCE
¤ The insured in ALOP is the PRINCIPAL ONLY
¤ Concurrent Material Damage (MD) insurance
¤ Same insurer(s) for ALOP and MD
¤ Extremely good co-operation between all parties
¤ Insurance period identical to MD erection period
¤ Accident not immediately followed by indemnity period
¤ Only one claim per policy
¤ Only one time excess per policy
¤ Max. indemnity period sufficiently long
 CONCEPT

PRINCIPAL

ALOP -
CONTRACTOR INSURER
MD-
 DEFINITIONS
Gross Profit = Net Profit + Standing Charges
Net Profit = Net Trading profit (Business Profit)
Standing Charges = Fixed charges incurred even in absence of business
activity X
E.g.:
Interest and other financing charges
Salaries and wages
Director’s fees
Rent, Rates and taxes
Demand charges for electricity / Water / Gas
Royalty
Delay :
Period of time between the scheduled completion / Business
commencement date and the actual date of business
commencement.

Indemnity Period :
The period during which the results of the business are affected
in consequence of the delay
Begins from the scheduled date of business commencement and
ends with the actual commencement of business or period
selected by insured whichever is earlier.
 Insurance Period Max.Indemnity Period
CAR / EAR (ALOP)
ALOP

Cold to
Planning Transit On site storage-handing Pre- Commercial operation
Construction / Erection
Test

Scheduled date of
commencement of
insured business
 Scheduled
business
Gross
commencement
Profit
Actual business
$/day
commencement

Accident Delay

Original contract period Maximum Indemnity period

Original MD-, Alop - Policy Period
Final contract period
Extended MD-, Alop - Policy period
 Orig.Contract period

MD-, ALOP-policy period

RoD, Replan
Supply Erection & Test Re-Supply Erection & Test Margin

Accident
maximum indemnity period
scheduled
business
commencement
 Accident

Accident
Accident

Delay
Scheduled business commencement
 CONSIGNMENT TO BE INSURED
 MEANS OF VOYAGE
 VOYAGE INSURED
 LIMIT PER BOTTOM
 TRANSPORTATION SCHEDULE
LEEWAY FOR DELAYS

INDEMNITY PERIOD 6 / 9 / 12 MONTHS

TIME EXCESS
90 DAYS
60 DAYS
30 DAYS
RECOMMENDED PROJECT INSURANCE PROGRAMME
COMPOSITE AND COMPREHENSIVE MARINE-CUM-ERECTION
INSURANCE POLICY INCLUDING LIABILITY TO THIRD PARTIES, DAMAGE,
TO SURROUNDING PROPERTY AND DEFECTS LIABILITY COVER.
DELAY IN START-UP COVER (ALOP) FOLLOWING DAMAGES COVERED
UNDER TRANSIT AS WELL AS ERECTION ALL RISKS(EAR) INSURANCE.
OTHER (LOCAL) COVERS
EMPLOYERS’ LIABILITY/ WORKMEN’S COMPENSATION
MEDICLAIM/ TRAVEL INSURANCE
OFFICES/DOCUMENTS/CASH/COMPUTER ETC.,
MOTOR DAMAGE AND THIRD PARTY