Welcome to Liga Asuransi, a place to share the latest information on insurance and risk management relevant to your business. This time, we’ll discuss a crucial topic, especially for those of you working in the oil and gas and construction industries, and the role of insurance. Construction All Risk (CAR) Insurance in the business.
As we know, oil and gas projects are no small feat. Their value can reach trillions of rupiah, involving numerous parties, sophisticated technology, and lengthy construction timelines. The larger the scale, the greater the potential risks. Imagine a fire, a work accident, or heavy equipment failure: the resulting losses could devastate a company’s finances for years.
This is where Construction All Risk (CAR) Insurance becomes crucial. This insurance isn’t just a formality, but a shield to protect the project’s continuity from collapse due to a single incident.
So, if you want to know how CAR can be a game changer in securing large-value oil and gas projects, please read this article until the end.
What is Construction All Risk (CAR) Insurance?
Before we go any further, let’s first understand what is actually meant by Constructions All Risk (CAR) Insurance.
Simply put, CAR is a type of insurance specifically designed to provide comprehensive protection for construction projects. Unlike regular insurance, which is more general in nature, CAR focuses on protecting all aspects of construction work—from materials and equipment to third-party risks during the project.
Imagine an oil and gas project: drilling, pipeline installation, construction of supporting facilities, and even the operation of heavy equipment in the field. Each stage of the project carries its own risks, ranging from physical damage, natural disasters, workplace accidents, to claims from external parties. With CAR insurance, all these risks can be transferred to an insurance company, eliminating the full financial burden from the contractor or project owner.
Why is this insurance relevant for oil and gas projects? Because the enormous investment value is disproportionate to the potential losses in the event of an incident. In fact, even a minor accident can trigger losses of billions to trillions of rupiah. With CAR, companies can have greater peace of mind when running projects, while investors and stakeholders feel more secure.
In short, CAR insurance is a broad umbrella that protects oil and gas projects from the storm of risks. Without this protection, what should be a profitable project can turn into a financial nightmare.
Characteristics of Oil and Gas Projects and the Risks That Lurk
Oil and gas projects are known as one of the most complex and high-risk types of projects. Why? Because they involve trillions of rupiah in investments, sophisticated technology, challenging work locations, and the involvement of numerous parties with divergent interests. All of these factors make oil and gas projects vulnerable to various potential losses.
From a technical perspective, common risks include construction damage due to design errors, material failure, work-related accidents, and natural disasters such as earthquakes, floods, or fires. Even a small incident can hinder project progress and result in significant additional costs.
In addition to technical risks, oil and gas projects also face financial risks. For example, delays in material deliveries can lead to…cost overrun, fluctuations in raw material prices, and even lawsuits from third parties. Imagine if there were claims from surrounding communities due to environmental damage, the costs could skyrocket.
Equally important is reputational risk. In an industry as large as the oil and gas industry, a single piece of bad news can impact a company’s image in the eyes of the public, investors, and even regulators. The impact can be far greater than mere material losses.
Given these characteristics, it’s clear that oil and gas projects cannot be managed solely through technical planning. A well-thought-out risk management strategy is required, one of which is through Construction All Risk (CAR) insurance. Without this insurance, the company would be left to bear the entire financial burden, which could be overwhelming.
What Protections Does CAR Cover?
One of the main reasons why Constructions All Risk (CAR) Insurance It’s crucial for oil and gas projects is because of its broad coverage. This insurance is designed to address almost any risk that could arise during the project’s operation.
Here are some of the main covers that are usually included in a CAR policy:
- Project Material Damage
All materials used in construction, whether already installed or in progress, are protected against the risk of damage or loss. For example, if a fire destroys part of a facility, the cost of replacing materials can be covered by insurance. - Natural Disaster Risk
Oil and gas projects are often located in risk-prone areas such as coastal areas or remote areas. Floods, earthquakes, landslides, and storms can devastate project progress in an instant. With CAR, these risks can be financially minimized. - Third Party Liability
It’s not uncommon for oil and gas projects to generate claims from external parties, such as affected local communities or third parties who suffer losses due to the project. A CAR policy provides legal protection and compensation in these situations. - Heavy Equipment & Machinery Breakdown
Oil and gas projects rely heavily on large equipment such as cranes, drilling rigs, and high-pressure pipelines. If a sudden breakdown occurs, repair or replacement costs can be prohibitive. CAR insurance can protect against these losses.
In addition to the main protection above, CAR also provides additional coverage such as protection against terrorism, sabotage, and certain work accidents according to the agreement made in the policy.
To illustrate, imagine a drilling rig catching fire due to an electrical short circuit. Without insurance, the company would have to cover repair costs amounting to hundreds of billions of rupiah. But with CAR, that burden can be shifted to the insurance company, allowing the project to continue without major disruptions.
In short, CAR is not just a policy, but a financial shield that protects oil and gas projects from various risks that might happen.
Case Study: Oil and Gas Project Failed Due to Lack of CAR Insurance
Imagine a project to build an oil and gas facility in a coastal area. The contract value is estimated at Rp 3 trillion (approximately US$2.5 billion), involving hundreds of workers, heavy equipment, and supporting infrastructure. Initially, the project is proceeding smoothly: drilling has begun, the main pipeline has been installed, and even some storage facilities are under construction.
However, one night, a heavy storm caused flash floods. Within hours, much of the project area was submerged, newly installed pipes shifted, and several pieces of heavy equipment were severely damaged. The damage was estimated to reach hundreds of billions of rupiah.
The problem was that the contractor company lacked Construction All Risk (CAR) insurance. As a result, they had to cover all the losses themselves. Investors began to lose confidence, the project was delayed by more than six months, and additional costs continued to escalate. Ultimately, the contractor experienced serious financial difficulties and even faced lawsuits from the employer.
Stories like this aren’t just theory. Around the world, numerous large oil and gas and construction projects have failed simply because they lacked adequate insurance protection. If a CAR policy had been in place from the start, the financial losses from the disaster could have been minimized and the project could have continued.
The important lesson from this case study is clear: ignoring CAR insurance is not just about taking on risk, but also about project continuity and company reputation.
Strategic Benefits of Having CAR Insurance for Oil and Gas Projects
After seeing how big the risks are, now is the time to discuss what strategic benefits oil and gas companies and contractors can get from having Constructions All Risk (CAR) Insurance.
- Maintaining Project Financial Stability
With CAR, losses due to material damage, accidents, or disasters do not directly burden the company’s cash flow. The insurance policy acts as a “safety cushion” that keeps the project’s financial condition stable even in the event of a major incident. - Increasing Investor and Stakeholder Confidence
Investors naturally want to ensure their money is safe. Having a CAR demonstrates a company’s commitment to risk management, thus increasing investor confidence in investing. In fact, in some contracts, owning a CAR policy is a mandatory requirement. - Reducing the Risk of Conflict Between Parties
In oil and gas projects, many parties are involved: the main contractor, subcontractors, suppliers, and even the project owner. In the event of a loss, a CAR policy ensures a clear financing solution, minimizing potential conflict. - Ensuring Smooth Project Progress
With insurance protection, a project doesn’t have to be completely halted due to an incident. Repair or replacement costs can be addressed promptly, allowing the project to remain on schedule without losing momentum. - Improving Company Image and Reputation
Companies that use CAR demonstrate a commitment to risk management. This creates a positive image in the eyes of the public, regulators, and business partners.
In short, CAR insurance is not just about protection, but also a smart business strategy to ensure the long-term sustainability of oil and gas projects.
How to Choose the Right CAR Policy for Oil and Gas Projects?
Deciding to purchase Construction All Risk (CAR) Insurance is certainly the right move. However, don’t just choose any policy! For oil and gas projects worth trillions, small details can have a big impact. To avoid making a mistake, here are some important things to consider:
- Insurance Value According to Project
Ensure the insurance coverage covers the entire project cost, including materials, heavy equipment, and installation work. Avoid under-insuring (covering too little), as this can result in less than optimal claim coverage. - Police Timing
Oil and gas projects typically last a long time. Choose a policy with a validity period that aligns with the project schedule, and even extend the coverage period if necessary.maintenanceto guarantee damage after the project is completed. - Risk Expansion
In addition to standard risks (fire, disaster, accident), consider extending protections such as terrorism, sabotage, or political disturbances, especially if the project is in a vulnerable area. - Policy Conditions and Exclusions
Carefully read what is covered and what is excluded. For example, some policies do not automatically cover design errors or certain force majeure events. - Use Insurance Broker Services
Brokers play a vital role in helping tailor policies to the specific needs of oil and gas projects, while ensuring that premiums are commensurate with the protection received.
A quick checklist before purchasing a CAR policy:
- Is the project value in accordance with the insured value?
- Does the policy validity period cover the entire duration of the project?
- Is the risk expansion appropriate to field conditions?
- Is there an experienced broker accompanying me?
By paying attention to the points above, companies can obtain a CAR policy that is truly effective and meets the needs of oil and gas projects.
The Role of Insurance Brokers in Oil and Gas Projects
Managing oil and gas project risks is no simple task. The sheer investment value, the sheer number of parties involved, and the technical complexity make the need for insurance protection increasingly specific. This is where insurance comes in.insurance brokerbecome very important.
Many companies think they can simply purchase a CAR policy from an insurance company. However, without proper guidance, there’s a risk the policy purchased might not fully meet the project’s needs. For example, the coverage might be too low, the risk coverage incomplete, or even complicated claims in the event of an incident.
An insurance broker acts as an independent advisor to the client, not the insurance company. The broker will help:
- Analyze risks specific to oil and gas projects.
- Designing CAR policies that suit field needs.
- Negotiate premiums to stay competitive.
- Provide full support when claims are filed.
For the oil and gas industry, having an insurance broker means gaining a strategic partner who can save time and money, while ensuring optimal protection.
For example, L&G Insurance Broker has extensive experience handling policies for the energy, construction, and oil and gas sectors. With a deep understanding of regulations, technical risks, and investor needs, L&G is ready to partner with companies from initial planning to claims settlement.
Conclusion
Oil and gas projects are investments worth trillions of rupiah, with significant risks. From construction defects and workplace accidents to natural disasters and third-party claims, all have the potential to cause significant financial losses. This is where Constructions All Risk (CAR) Insurance presents as a comprehensive protection solution.
By having the right CAR policy, companies not only protect their assets and project progress, but also maintain financial stability, increase investor confidence, and ensure projects remain on track.
Don’t let your major project falter simply because it lacks adequate protection. Entrust your oil and gas project insurance needs to L&G Insurance Broker, a trusted partner in risk management and insurance.
Contact us now via whatsapp at 08118507773 or email halo@lngrisk.co.id for a FREE consultation and find the best protection solution for your project!
