A Contractor’s All Risk or Erection All Risk policy covers only the cost of repairing physical damage to a project under construction. It does not cover the revenue, profit, and fixed charges that the project owner loses every day that commissioning is delayed. Advance Loss of Profit Insurance bridges this gap — protecting the anticipated gross profit, standing charges, debt service costs, and increased working costs that accrue during a delay period caused by an insured physical damage event under the underlying construction or erection policy.
Engineering Insurance · Project Finance · Construction · Infrastructure · Power · Industrial Capital Projects
Advance Loss of Profit Insurance — commonly called ALOP, Delay in Start-Up (DSU) insurance, or Consequential Loss — Engineering insurance is a specialised policy that covers the financial loss a project owner suffers when the commercial commissioning of a capital project is delayed because of physical damage covered under the underlying construction or erection insurance policy. While a Contractor’s All Risk (CAR), Erection All Risk (EAR), or Marine-cum-Erection (MCE) policy pays the cost of repairing or replacing the physically damaged property, ALOP covers the revenue and profit losses that accumulate during every day of delay — the lost income, the fixed charges that continue regardless of production, debt servicing costs, and penalties that cannot be avoided during the delay period.
Consider a 100 MW solar power plant under construction in Rajasthan. The developer has invested ₹500 crore and has committed to commence supply to a state discoom under a Power Purchase Agreement (PPA) from 1 April 2026. In December 2025, a fire destroys the main transformer yard, causing physical damage of ₹15 crore.
ALOP and CAR/EAR policies together provide complete project protection: physical damage is covered by CAR/EAR, and the financial consequence of delay is covered by ALOP.
Covers net profit plus standing charges (fixed costs) that would have been earned during the delay period, calculated on the basis of anticipated turnover from the commissioned project.
PROFITThe maximum period for which the policy pays — selected at inception based on the worst-case time needed to re-import, re-erect, and re-test any critical component. Typically 12–36 months.
PERIODCovers additional expediting costs — airfreight instead of sea freight, overtime labour, premium supplier rates — incurred to shorten the delay period and reduce the overall loss.
ICOWCovers interest charges and loan repayments that continue during the delay period even though the project is not yet generating revenue — a critical exposure for leveraged project finance structures.
DEBTALOP responds only when there is a valid, payable claim under the underlying CAR, EAR, or MCE policy. No physical damage claim = no ALOP claim. The two policies must be co-ordinated.
LINKEDProject finance lenders routinely require ALOP as a condition of project loan drawdown. Build-Operate-Transfer (BOT) concession agreements and Power Purchase Agreements (PPAs) may mandate it.
LENDERSWhat ALOP Insurance Covers — Covered Losses and Key Definitions
ALOP insurance covers the financial consequences of delay in project commissioning arising from an insured physical damage event under the underlying engineering policy. The coverage is structured around the concept of Gross Profit — which has a specific technical definition in this context.
How to Calculate the Correct Sum Insured and Select the Indemnity Period
Correct sum insured calculation is the most technically demanding aspect of ALOP insurance. Underinsurance at the time of a claim results in proportionate claim reduction. The sum insured must represent the anticipated gross profit for the full indemnity period selected.
The sum insured should represent: Anticipated Gross Profit × Indemnity Period (in months) / 12
Where Anticipated Gross Profit = Net Profit + Standing Charges for the first full year of operation.
Net Profit = Projected business profit before taxation, based on the financial model for the project. For a power plant: anticipated revenue from electricity sales minus variable O&M costs and fuel costs.
Standing Charges = All fixed costs that continue regardless of whether the project operates during the delay: interest on project loans, salary and wages, director and management fees, fixed O&M contract costs, insurance premiums, lease rentals, property taxes, audit and legal fees.
Example (100 MW Solar Power Plant):
Anticipated annual revenue: ₹70 crore
Variable O&M costs: ₹3 crore/year
Net Profit = ₹67 crore
Standing Charges (debt service + fixed O&M + admin): ₹25 crore/year
Anticipated Gross Profit = ₹67 + ₹25 = ₹92 crore/year
Indemnity Period: 18 months
Sum Insured = ₹92 crore × 18/12 = ₹138 crore
The Indemnity Period is the maximum duration for which the ALOP policy will pay — measured from the scheduled commercial operation date (COD). Once the indemnity period expires, no further ALOP payments are made regardless of whether the delay continues.
How to select the right indemnity period:
The indemnity period should cover the worst-case scenario for the longest possible delay arising from the most critical single-point-of-failure component in the project. Ask: "What is the single item in this project that, if damaged, would take the longest to source, ship, and reinstall?" For most large infrastructure projects, this analysis typically identifies:
• Power transformers (large custom units): 12–24 months lead time to manufacture, test, and deliver
• Gas turbines (bespoke large units): 18–36 months from order to commissioning
• Boilers and pressure vessels: 12–18 months
• Specialised rotating equipment: 6–18 months
• Marine foundations (offshore wind): 12–24 months
The indemnity period should be set at least equal to the replacement lead time of the longest-lead critical item. Under-selection of indemnity period is the most common error in ALOP placement and leaves significant uninsured exposure.
Common selections: 12 months (small projects), 18 months (standard industrial), 24 months (large infrastructure), 36 months (mega projects with very long-lead equipment).
ALOP policies always include a Time Excess — the initial period of delay that the insured bears before the policy begins paying. Common time excesses are 30, 60, or 90 days.
The time excess choice affects both the premium and the insured’s retained risk:
• A 30-day time excess means the insured bears the first month of delay loss themselves; the policy pays from day 31
• A 90-day time excess reduces the premium significantly but means the insured self-retains all losses for the first 3 months of any delay
For projects with strong cash reserves or where short delays would be manageable, a higher time excess (60–90 days) reduces premium cost. For leveraged projects with tight debt service obligations, a lower time excess (30 days) provides earlier policy response and is typically required by lenders.
Note: The time excess is measured from the actual date the project was scheduled to commence commercial operation, not from the date of the physical damage event.
ALOP policies are subject to the average condition (co-insurance clause). If the sum insured at the time of the claim is less than the actual anticipated gross profit for the indemnity period, the claim settlement will be reduced proportionately.
Example: Sum insured = ₹100 crore. Actual anticipated gross profit = ₹150 crore. Claim assessed at ₹30 crore. Settlement = ₹30 crore × (₹100 / ₹150) = ₹20 crore — the insured effectively self-retains ₹10 crore due to underinsurance.
Underinsurance in ALOP frequently arises from: using outdated financial models that do not reflect PPA price revisions, failing to include all standing charges (particularly all-in debt service), selecting an indemnity period that is too short, and not updating the sum insured when project scope or financing changes during the construction period. Annual review of the ALOP sum insured during the construction period is strongly recommended.
Understanding How ALOP and CAR / EAR Policies Work Together
ALOP is always a companion policy to an underlying engineering policy — never a standalone product. The two must be co-ordinated at placement to ensure there are no gaps in coverage and that the trigger, exclusions, and indemnity periods are properly aligned.
| Aspect | CAR / EAR / MCE Policy | ALOP Policy |
|---|---|---|
| What it covers | Cost of repairing or replacing physically damaged property | Financial loss from delay in commercial commissioning |
| Loss basis | Reinstatement / replacement cost of damaged items | Anticipated gross profit per day × number of delay days |
| Deductible structure | Monetary deductible (e.g. ₹50 lakh per event) | Time excess (e.g. 30/60/90 days) |
| Trigger | Accidental physical loss or damage during construction | Delay caused by a payable CAR/EAR claim event |
| Period of cover | Construction period until commissioning / testing | From scheduled COD to actual COD (up to indemnity period) |
| Sum insured basis | Contract value / replacement cost of project assets | Anticipated gross profit × indemnity period |
| Who is the insured | Principal, main contractor, sub-contractors, lenders | Principal / project company (the revenue earner) |
| Lender interest | Lenders noted as additional insured / loss payee | Lenders typically require ALOP as a loan condition |
| Independence | Can stand alone without ALOP | Cannot respond without an underlying payable CAR/EAR claim |
ALOP and CAR/EAR policies must be placed with co-ordinated terms to avoid coverage gaps. Key co-ordination requirements:
• Exclusions alignment: Any exclusion in the CAR policy (e.g. defective design, faulty workmanship) should be reviewed in the context of ALOP — since ALOP only responds when the CAR claim is payable, a broad CAR exclusion can inadvertently eliminate ALOP coverage too.
• Territorial scope: Both policies should cover the same geographic scope — particularly important for projects with equipment sourced internationally (marine-cum-erection structure).
• Insured parties: The principal/project company must be insured under both policies to make ALOP claims.
• Policy period: The ALOP period should extend beyond the CAR period to cover delays materialising at the end of the construction period.
Probitas provides specialist co-ordination of CAR and ALOP placement for project finance transactions. Call 022 4302 0000.
Which Projects, Principals, and Lenders Require ALOP Insurance
ALOP is most relevant for capital-intensive projects where a construction delay causes significant, quantifiable revenue loss and where fixed financial obligations (debt service, fixed costs) continue during the delay period.
How an ALOP Insurance Claim Works — From Damage Event to Settlement
ALOP claims are complex and require specialist loss adjustment. The ALOP claim can only proceed in conjunction with the underlying CAR/EAR claim and requires detailed financial documentation.
The ALOP claim process begins with a physical damage event under the CAR/EAR/MCE policy:
• Notify Probitas (022 4302 0000) and the CAR/EAR insurer immediately upon occurrence of significant physical damage
• Preserve evidence of the damage — photographs, site reports, contractor incident reports
• Do not commence repair without surveyor attendance for significant losses
• Simultaneously notify the ALOP insurer (usually a co-ordinated notification)
• Issue a formal delay notification to the off-taker, lender, and concession authority as required under the PPA/loan agreement
The date of the physical damage event is critical as it establishes the start of the delay calculation and the reference point for the time excess measurement.
The ALOP claim cannot proceed until the CAR/EAR claim is admitted:
• A property damage surveyor assesses the physical damage under the CAR/EAR policy
• The scope and cost of repairs is established
• The CAR/EAR insurer confirms the damage is a valid, payable claim (not excluded)
• The projected repair timeline is documented by the contractor and equipment supplier
Throughout this stage, Probitas co-ordinates between the CAR/EAR surveyor and the ALOP loss adjuster to ensure consistent findings on the cause of damage, which is the common trigger for both policies.
Key documentation at this stage: Contractor’s incident report, surveyor’s inspection report, equipment manufacturer’s damage assessment, initial repair timeline estimate from contractor, correspondence with equipment suppliers about replacement lead times.
Once the physical damage claim is established, a specialist ALOP loss adjuster (usually a forensic accountant with engineering project experience) is appointed to quantify the financial loss:
• Establish the scheduled COD: Documented in the EPC contract, PPA, or loan agreement — the date the project was contractually required to begin commercial operation
• Establish the actual COD: The date the project actually achieved commercial operation after repairs
• Calculate the delay period: Actual COD minus Scheduled COD, less the time excess
• Calculate daily loss: Anticipated Gross Profit / 365 = daily loss rate
• Assess ICOW: Review additional costs incurred to shorten the delay — airfreight, overtime, expediting premiums
• Cross-check sum insured adequacy: Verify whether the sum insured is adequate for the actual gross profit, or whether underinsurance applies
Financial documentation required: PPA or off-take agreement, audited financial projections, project financial model (base case), loan agreement (for debt service quantification), contractor’s revised project schedule, invoices for ICOW expenditures.
For long delay periods, ALOP policies typically allow for interim payments:
• As the delay period accumulates, interim ALOP payments can be requested periodically (typically quarterly or at agreed milestones)
• Interim payments are made on account of the final settlement, subject to final reconciliation
• Probitas manages the interim payment requests and supports the loss adjuster with financial data
Final settlement:
• Agreed once the actual COD is achieved and the final delay period is confirmed
• Final settlement = (Actual Delay Days − Time Excess Days) × Daily Loss Rate, plus agreed ICOW, subject to sum insured cap and any underinsurance adjustment
• Payment is made to the principal and/or lenders as specified in the policy
ALOP claims are typically the most complex and long-running claims in the engineering insurance class. Probitas’s specialist claims advocacy role is critical throughout the process.
What ALOP Insurance Does Not Cover
ALOP exclusions are critically important because they define when the policy does not respond despite a delay occurring. Understanding these is essential for project risk management.
If the delay-causing damage is excluded under the underlying CAR/EAR policy (e.g. excluded defective design, faulty workmanship exclusion applied), ALOP cannot respond. The CAR/EAR trigger is a prerequisite.
Loss of raw materials, consumables, or finished goods stored at site. These are property damage items that may be covered under CAR but are not a commissioning delay cause for ALOP purposes.
Delay in shipment of replacement equipment, materials, or supplies — where no physical damage to the project has occurred — is not an ALOP trigger. Only damage-caused delay is covered.
Baseline schedule overruns from construction inefficiency, poor planning, labour shortages, and normal project execution delays not caused by any specific physical damage event.
Delay in repair because funds are not available to purchase replacement equipment — even though the physical damage is covered — is not a covered delay cause under the ALOP policy.
Delay from revocation of environmental clearance, cancellation of grid connection permission, change in government policy, or any regulatory / administrative action by a government authority.
The initial delay period (typically 30–90 days) falls entirely on the insured as the temporal deductible. No ALOP payment is made for delay days within the time excess period.
If the actual delay exceeds the selected indemnity period, ALOP payments cease at the end of the indemnity period. The insured bears all delay losses beyond the indemnity period cap.
The information and product comparisons displayed on this platform are intended solely for general informational and evaluation purposes, and do not constitute a legal offer or binding insurance contract. Specific policy features, premium rates, riders, and underwriting guidelines are determined exclusively by the respective general insurance carriers and may vary significantly based on the insurer, product tier, and location across multiple Indian states. All quotes and premium calculations generated on this website are indicative estimates based on preliminary data and do not guarantee final underwriting approval or policy issuance by the insurer. For comprehensive details regarding specific coverage terms, limits, and permanent exclusions, please refer directly to the official sales brochure and policy wording issued by the respective insurance company, which will take absolute legal precedence in the event of any discrepancy or dispute.
ALOP Insurance Questions
Specialist ALOP Insurance Enquiry
ALOP insurance requires specialist underwriting and project-specific structuring. Share your project details and our engineering insurance specialist will contact you within 24 hours to discuss your ALOP placement requirements.
By submitting you agree to our Privacy Policy and Terms & Conditions. ALOP insurance is a specialist engineering product requiring detailed project information for underwriting. Terms, premium, and coverage are subject to underwriter review. Probitas Insurance Brokers Pvt. Ltd. · IRDAI Lic. No. 528.