Liga Asuransi – Amid increasing pressure on companies to adopt sustainable business practices, environmental regulations in Indonesia are being tightened. The government, through the Ministry of Environment and Forestry (KLHK), continues to enforce environmental laws, including imposing strict sanctions on businesses that pollute the environment.
One form of compliance that is now starting to be considered a strategic need, not just an option, is Environmental Liability Insurance. This insurance provides protection against financial risks resulting from environmental pollution or damage, including remediation costs, third-party lawsuits, and other legal liabilities.
Regulatoryly, the obligation to have environmental insurance is regulated in Law No. 32 of 2009 concerning Environmental Protection and Management, specifically in Articles 42–43, and is strengthened by Government Regulation No. 22 of 2021 and Regulation of the Minister of Environment and Forestry No. 6 of 2021. This regulation requires certain business actors, especially in the B3 waste management sector, to have environmental insurance as a licensing requirement, with a minimum coverage value of IDR 5 billion.
Entering 2025, there has been no explicit expansion of environmental insurance obligations to other industrial sectors. However, the policy direction is becoming clearer. Two new regulations, namely Government Regulation No. 26 of 2025 concerningEnvironmental Protection and Management Planningand PP No. 27 of 2025 concerningMangrove Ecosystem Protection, emphasize the importance of environmental economic instruments in supporting sustainability. While not directly mandating insurance for all sectors, these two regulations strengthen the legal basis and policy incentives for companies to be more responsible for their environmental impact.
With the rise of citizen lawsuits, shareholder pressure, and stringent ESG criteria, companies that fail to anticipate environmental risks face not only material losses but also significant reputational risks. This is where environmental insurance comes in as a crucial mitigation tool—and is increasingly becoming a requirement for sustainable business practices in Mother Earth.
Environmental Liability Insurance (OR), or in Indonesian known as environmental liability insurance, is a form of insurance protection designed to cover financial losses due to pollution or environmental damage caused by a company’s operational activities.
This insurance has become highly relevant in today’s era, when companies are judged not only by their financial performance but also by their environmental footprint and ability to account for potential impacts. The scope of coverage provided by this insurance product includes:
- Environmental remediation and cleanup costs, both inside and outside the business premises
Lawsuits by third parties(community, NGOs, government) due to the impact of pollution
Legal and defense costs against environmental claims or demands - Damage to property or health of third parties due to environmental incidents
- Investigation and monitoring of post-event environmental impacts
Differences with Regular Insurance Policies
Differences with Regular Insurance Policies
Most property or business insurance policies exclude environmental risks from their protection. That is why ELI is present as special insurance which provides coverage against legal liabilities that are often very costly and can lead to business closure if not addressed.
Environmental Liability Insurance covers a wide variety of environmental risks, often arising from a company’s daily operations. Examples include chemical spills into rivers that contaminate community water sources, underground tank leaks that cause soil contamination, and toxic waste leaks that damage the ecosystem around industrial areas. Furthermore, excessive air emissions that impact the health of local residents are also covered, as is the case of factory waste polluting residents’ agricultural land and causing economic losses. All of these incidents carry not only environmental consequences but also the potential for significant legal action against the business.
Why is this insurance increasingly necessary now?
In recent years, the government has increasingly tightened regulations governing environmental protection and management. The primary basis for these regulations is Law No. 32 of 2009 concerning Environmental Protection and Management, which mandates that businesses be accountable for the environmental impacts of their activities.
Furthermore, Government Regulation No. 22 of 2021 and Regulation of the Minister of Environment and Forestry No. 6 of 2021 require companies operating in the hazardous waste management sector to have proof of environmental insurance as a licensing requirement. This insurance must cover a minimum of IDR 5 billion to ensure the company can finance environmental restoration in the event of damage or pollution.
Entering 2025, although there has been no expansion of environmental insurance obligations to other sectors, the government issued Government Regulations No. 26 of 2025 and No. 27 of 2025, strengthening the legal framework for environmental management, particularly regarding environmental protection planning and mangrove ecosystem preservation. These regulations emphasize the importance of risk mitigation instruments, including insurance, in maintaining environmental sustainability.
Tighter law enforcement has also been accompanied by increased administrative and criminal sanctions for environmental violations. Many environmental pollution cases have resulted in lawsuits and compensation claims, increasing pressure on businesses to implement financial protection through insurance.
With increasingly stringent environmental regulations and growing public awareness, Environmental Liability Insurance (ELI) is no longer just an optional option, but a necessity that every company operating in a sector with potential environmental risks must consider.
Huge Financial Risk
Environmental damage often results in significant remediation and compensation costs, often reaching billions of rupiah. Without insurance coverage, companies must cover these costs themselves, which can disrupt operational continuity and even lead to bankruptcy.
Demands from Stakeholders
Investors, lenders, and business partners are increasingly prioritizing sustainability and corporate social responsibility. Many require evidence of environmental risk protection as part of their risk assessments when making business decisions.
Compliance dan Due Diligence
Having environmental insurance demonstrates that a company is serious about fulfilling its legal obligations and conducting due diligence regarding environmental impacts. It is also often a requirement for tender processes, environmental audits, and project financing applications.
Readiness to Face Third Party Lawsuits
Communities and environmental advocacy groups are now more active in holding companies accountable for their environmental impacts. Environmental insurance helps companies face the risk of lawsuits with financial support and legal assistance.
For these reasons, ELI has become a crucial instrument in modern risk management, ensuring that companies are not only legally compliant but also able to survive and thrive in a business era that increasingly prioritizes sustainability.
Who Should or Should Have Environmental Liability Insurance?
Although the explicit requirement to have Environmental Liability Insurance (ELI) is currently limited to certain sectors such as hazardous waste management, regulatory trends and increasing environmental risks have made its coverage more expansive in practice. Many types of businesses now“de facto dry”need to have this protection to mitigate potential environmental claims and losses.
- Hazardous Waste Management Company
According to Ministry of Environment and Forestry Regulation No. 6 of 2021, businesses managing hazardous and toxic waste are required to have environmental insurance with a minimum coverage value. This is the sector with the most explicit regulation and oversight.
- Chemical and Petrochemical Industry
With a high potential for pollution from raw materials, production waste, and leaks, this sector is highly vulnerable to environmental risks and frequently comes under the scrutiny of regulators and the public.
- Mining and Energy
Mining, power generation, and other energy industries have the potential to damage land, water, and air on a large scale. In these sectors, environmental claims can impact operating permits.
- Manufacturing and Processing Plant
Industries that produce liquid, solid waste, or gas emissions in their production processes should have an ELI, especially if they are located near residential areas or agricultural areas.
- Large-Scale Infrastructure Projects
The construction of toll roads, ports, industrial areas, and reclamation projects can have significant ecological impacts if not properly monitored. Many financing institutions now require environmental risk protection as part of their due diligence.
- Owner or Tenant of Chemical/B3 Materials Warehouse
Even though they are not direct producers, warehouse managers who store chemicals, fertilizers, solvents, or industrial oils still bear responsibility for leaks and spills that occur in their areas.
Case study
- Case 1: River Pollution Due to Textile Factory Waste Spill (Bandung, 2021)
A textile factory in the Bandung area is suspected of dumping toxic liquid waste into the Citarum River without adequate treatment. As a result, local residents experienced a decline in clean water quality, disruption to agriculture, and fish kills along the river. The Ministry of Environment and Forestry (KLHK) intervened, imposing administrative sanctions and requiring the company to undertake environmental restoration. Furthermore, the company was sued by the community through an environmental NGO. Unfortunately, the company lacked environmental insurance, requiring it to cover all remediation and legal costs. Consequently, operations ceased and the company’s reputation suffered drastically.
- Case 2: Tank Leak at Chemical Terminal (Tangerang, 2022)
A chemical storage terminal experienced a tank leak, contaminating the surrounding soil and air. Although the damage was contained within 24 hours, environmental authorities immediately issued a temporary shutdown order. Fortunately, the company had an Environmental Liability Insurance policy that covered remediation costs, compensation to affected residents, and legal fees. With this protection, the company was able to carry out its responsibilities without financial disruption and resume operations quickly after repairs. The lessons from this case are as follows:
- Without protection, environmental damage can have an impact on massive financial and reputational losses
- With protection, the company can faster and more responsible response in accordance with the law, without sacrificing business continuity
- Environmental Liability Insurance becomes strategic mitigation tools, is no longer a complement
Conclusion & Recommendations
Amid increasing regulatory pressure and growing environmental awareness, companies operating in Indonesia can no longer ignore the potential environmental risks inherent in their operations. Waste spills, air pollution, and ecosystem damage now impact not only the physical environment but also legal, social, and even reputational consequences that are extremely costly to repair.
This is why Environmental Liability Insurance is now a crucial part of a professional and sustainable risk mitigation strategy. This policy not only ensures regulatory compliance but also demonstrates your company’s commitment to full responsibility for the environment and surrounding communities.
As an independent and trusted insurance broker in Indonesia, L&G Insurance Broker is ready to help you understand, design, and implement the right environmental insurance solution, according to your industry needs and applicable regulations.
- Are you running a project with a high environmental impact?
- Confused about how to fulfill environmental permit requirements in full?
- Need financial protection from the risk of lawsuits and environmental remediation costs?
Don’t wait until a crisis occurs. Protect your business now.
📞 Contact our team at 0811-8507-773
for free consultations, risk audits, and fast and transparent environmental insurance placement solutions.
