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In recent years, Indonesia has become one of the main destinations for Chinese investors to develop businesses in strategic sectors such as nickel mining, smelter construction, new energy, and road and port infrastructure. The large local market opportunities and geopolitical support create a strong flow of capital. Chinese projects in Indonesia continue to increase significantly.
However, behind these opportunities, there are important challenges that are often overlooked by foreign business actors: compliance with insurance regulations in Indonesia or what is known as insurance compliance.
Many Chinese investors in Indonesia fail to realize that non-compliance with local insurance obligations can lead to legal risks, claim rejections, or even project termination. This not only has financial consequences but can also damage the company’s reputation with local partners and regulators.
In this article, we will thoroughly explore what insurance compliance is, why it is so important for foreign companies, and how to ensure that all projects are legally compliant and optimally protected.
What Is Insurance Compliance? Why Is It Important for Foreign Companies?
Insurance complianceIt is the obligation of every company operating in Indonesia to comply with national insurance regulations, including regarding policy placement, the type of coverage used, and the involvement of local insurance companies.foreign investors in Indonesia, especially Chinese companies working on large projects, understanding this concept is the first step to avoiding unwanted legal risks and financial losses.
The Indonesian government, through the Financial Services Authority (OJK), requires that all risks occurring within Indonesia be covered by licensed insurance or reinsurance companies. This applies not only to local companies but also to other companies.foreign companies operating in Indonesia — including those that are part of Chinese projects in Indonesia.
This compliance is also a primary requirement in variousIndonesian government project contracts, especially those involving state-owned enterprises or state institutions. Many contracts include a clause that the insurance policy must be issued by a local insurer and throughIndonesian insurance brokers officially registered with the OJK.
Without proper compliance, foreign companies risk experiencing:
- Claim rejection because the policy is not valid under Indonesian law
- Administrative or legal sanctions from the regulator
- Termination of contract by local partners or government
- Bad reputation in the industrial community
In this context, insurance compliance is not just about meeting the rules — it is also a strategy to ensure the project runs safely, smoothly, and credibly in the eyes of all parties.
Insurance Regulations in Indonesia That Chinese Investors Must Understand
In order to run the project legally and safely, Chinese investors in Indonesia must understand the applicable insurance regulations. Many foreign companies have encountered legal challenges or claims rejections simply because they lack understanding of Insurance placement rules in Indonesia.
The following are important regulations that foreign companies must know:
- OJK and Ministry of Finance Regulations
The Financial Services Authority (OJK) as the supervisor of the insurance industry in Indonesia has determined thatEvery risk that occurs in Indonesia must be insured through a local insurance company.. These provisions are regulated in:
- Law No. 40 of 2014 concerning Insurance
- BOY No. 69/POJK.05/2016concerning the Implementation of Insurance Business
This means that foreign companies are not permitted to place policies directly offshore without special permission. Policies issued by foreign insurance companies will not be legally recognized if a claim occurs in Indonesia, except in very limited conditions and with OJK approval.
For foreign investors in Indonesia, this means that every project or asset that is insured—whether a smelter, heavy equipment, or building—must be protected by a local insurance company or through a mechanism of co-insurance and reinsurance which is valid.
- Provisions in the Project Contract
On many Indonesian government project contracts and BUMN projects, there are clauses that explicitly require:
- Insurance placement through local brokers registered with the OJK
- Certain types of insurance such asCAR/EAR (Contractor’s All Risk/Erection All Risk), Liability Insurance, And Surety Bond
- Adding the name of the employer or project owner as “additional insured”
Violation of this clause can have serious consequences, including termination of the contract, non-receipt of payment guarantees, or termination of the project by the employer.
- Insurance for Workers and Health
Chinese companies employing both local and foreign workers are also required to provide health coverage. This includes:
- BPJS Health and BPJS Employment membership
- Additional private health insurance for foreign workers, in accordance with Indonesian immigration and employment policies
Failure to comply with these obligations may result in revocation of work permits and administrative fines.
By understanding and complying with all of the above regulations, Chinese companies can conduct their investments with greater peace of mind and strengthen good relations with local partners and the Indonesian government.
Legal and Financial Risks If Not Complied
For Chinese companies that do not comply with insurance regulations in Indonesia, the consequences not only impact operational legality, but also directly affect the financial aspects and reputation of the business. The absence of insurance compliance can cause a number of legal and financial risks.
The following are the most common impacts:
- Failed Insurance Claim
If Chinese companies place insurance directly abroad without following OJK regulations, then when an incident occurs such as a project fire, work accident, or equipment damage, insurance claims can be rejected. This is because the policy is considered legally invalid in Indonesia.
There are many cases where project owners feel they are protected, but when a disaster occurs, replacement funds cannot be disbursed because policy placement does not comply with Indonesian regulations.
- Legal Risks and Penalties from Regulators
OJK and the Ministry of Finance have the authority to impose sanctions on foreign companies that violate insurance regulations. Sanctions can include:
- Administrative fines
- Written warning
- Blocking of business activities
- Revocation of project permits (for PMA companies)
In addition, non-compliance can hinder the process of obtaining new permits or extending investment permits.
- Termination of Contract by Local Partner
On Indonesian project contracts, there is a clause that requires the fulfillment of insurance requirements according to national law. If these requirements are not met,project owners or local partners have the right to terminate the contract unilaterally, and foreign companies cannot claim compensation.
This often occurs in infrastructure, energy, and mining projects involving state-owned enterprises or state institutions.
- Long-Term Financial Losses
When a project is not properly insured, the entire risk falls directly on the company. For example, if heavy equipment damages millions of dollars or a work accident results in a lawsuit, these costs must be borne entirely by the Chinese company without insurance coverage.
- Damage to Business Reputation
Failure to comply with local laws can undermine the trust of partners, contractors, and the Indonesian government.Chinese companies that do not comply with regulationsIt will be more difficult to obtain new projects, especially those that are strategic or sourced from public funds.
For this reason, insurance compliance is not just a formality but a main shield for protection for the continuity and success of foreign investment in Indonesia.
Types of Mandatory Insurance for Chinese Projects in Indonesia
In carrying out large investments and projects, Chinese companies in Indonesia Several types of insurance are required, both mandatory and highly recommended. The goal is to provide comprehensive protection against physical, legal, and financial risks during the project.
Here is a listconstruction project insurance and foreign investmentthings to pay attention to:
This type of insurance is the main standard in infrastructure, manufacturing, energy and construction projects. CAR protect against physical damage that occurs during construction, such as:
- Structural failure
- Natural disasters
- Fire
- Theft of project equipment
While EAR is used for machine installation, fabrication, and technology installation projects.
- Liability Insurance (Liability)
This type protects the company from lawsuits resulting from third-party losses, including physical injury, property damage, or accidents at the project site.
It is especially important for high-risk projects, such as smelters, coal-fired power plants, chemical factories, and toll roads.
Covers protection for buildings, warehouses, machinery, and inventory. This is important because many Chinese projects in Indonesia are worth hundreds of millions of dollars and vulnerable to the risk of major damage.
This protection covers the risks of fire, explosion, earthquake, and machine damage.
- Employment Insurance (Local & Foreign Workers)
It is mandatory to register all local workers with BPJS Health and Employment. TKA (foreign workers), it is necessary to add that private insurance covers:
- Inpatient and outpatient treatment
- Emergency medical evacuation
- Repatriation of remains in case of death
For projects involving shipping heavy equipment and materials from overseas, transportation insurance is essential to prevent losses in the event of damage or loss during transit.
By placing the above types of insurance through credible local insurance brokers, Chinese companies will receive legal and optimal protection while carrying out investments in Indonesia.
Strategies to Ensure Insurance Compliance: The Role of Local Brokers
In order not to get caught in a regulatory violation or risk losing insurance coverage, Chinese companies in Indonesia are better to work together with trusted local insurance brokers. Insurance brokers not only sell policies, but also act as consultants who ensure all aspectsinsurance compliancefulfilled according to regulations in Indonesia.
Here are the strategies that can be taken:
- Policy Audit and Review
Brokers can help review all of a company’s policies—both domestic and international—and align them with OJK regulations and relevant ministries. This ensures there are no discrepancies.policies that are deemed illegal or legally invalid.
- Assistance During Claim Processing
In the event of an accident or project incident, the broker acts as a facilitator in the claims process, negotiating with the insurance company, and ensuring smooth compensation. This is especially crucial foreign investors in Indonesia who do not understand the local claims system.
- Connection with Official Insurance Company
Local brokers have direct access to official insurance companies registered with the OJK, including state-owned and private insurance. This ensures risk allocation is compliant with regulations and is capable of handling large projects such as Chinese projects in Indonesia.
- Long-Term Partner for Risk Mitigation
An experienced broker will help design a long-term protection strategy, including adjusting the policy according to project development, investment expansion, or additional facilities.
By holding handsproject insurance consultantLike L&G Insurance Broker, companies not only comply with the law, but also get efficient, transparent and tailored protection solutions.
Conclusion
Insurance compliance not just an administrative obligation, but the main foundation for the sustainability and long-term success of foreign investment, especially for Chinese companies in Indonesia With increasingly stringent insurance regulations and oversight from authorities like the Financial Services Authority (OJK), foreign companies need to ensure that all aspects of their insurance comply with applicable Indonesian regulations.
Ignore insurance complianceThis can lead to legal risks, claim denials, or even project termination by local partners. Conversely, regulatory compliance paves the way for optimal protection of assets, workers, and the company’s reputation.
Amidst this complexity, L&G Insurance Broker presents as the best solution. As a trusted insurance broker in Indonesia, we have long experience in handling various large projects including Chinese projects in Indonesia. Our services include:
- Insurance compliance consultation
- Insurance policy reviews and product recommendations
- Professional claims assistance
- Custom insurance solutions according to industry
If you are an investor or representative of a foreign company that is currently or will be operating in Indonesia,don’t take the risk alone.
Contact L&G Insurance BrokerCall now at 0811-8507-773 for a free consultation and the best protection strategy!
