Liga Asuransi – Dear readers, how are you? It seems that the outbreak of the COVID-19 pandemic is over in Indonesia and has now turned into an ordinary or endemic disease. Just like with other minor illnesses.
Economic activity in the construction sector is also already showing signs of revival. Projects that are currently ongoing, their activities are getting smoother. Many projects that have been tendered have begun to be executed. Likewise, projects that were previously still in the design and concept stages have been many that have also changed their status to projects that are ready to be tendered.
There is a term in risk management that needs to be a concern for construction industry players “when the project is quiet then the risk that often occurs is the result of moral hazard and when there is a lot of projects then the most frequent risk is human error”
Moral hazard risk is the risk of evil intentions from humans, while the risk of human error is the result of error and negligence.
In a high working condition then people tend to work in a hurry and carelessly, causing accidents.
To complement our previous writings on risk management and insurance for construction projects, now we will outline 9 types of insurance policies that can overcome the potential risks of a construction project.
Usually all of these insurance requirements appear in the contract work that needs to be fulfilled by contractors.
We hope that this article will be able to improve the quality of your project risk management so that it can run smoothly and provide benefits for you and for all parties involved.
If you are interested in this article, please share it with your colleagues who are also involved in the construction field so that they also understand like you.
Why do you need project risk management?
As we know that all project construction work, both civil, construction and engineering, faces a high risk.
Although it has been arranged with careful work planning, carried out by experienced contractors, and using good materials, unfortunately all of it cannot completely prevent accidents from happening.
Therefore, to reduce the impact of financial losses, each project must be insured which is known as project insurance or project implementation insurance.
Because there are so many risks faced, it needs help from an experienced Indonesian insurance brokerage company to manage all project insurance guarantees.
There are many risks that can occur in the implementation of a project. Starting from the risk due to errors in the implementation of designs, accidents during land clearing, foundation excavation, fencing and construction implementation until the project is completed.
Among the risks that can occur there are those that can be overcome before the implementation of the project, among others, the creation of a complete and thorough design by an experienced consultant.
Location selection, selection of contractors and the formation of project management teams. While physical risks and financial risks can be transferred to insurance companies.
Here are some types of insurance needed to protect a project:
- Professional Indemnity Insurance (PI)
This insurance provides guarantees for mistakes and omissions made by the parties involved in the project. Consultant planners, consultant architects, other consultants and including contractors. What is guaranteed is the quality of the work. If the design and recommendations, they provide cause damage or demands from third parties.
In the government regulation of the Republic of Indonesia PP Number 22 of 2020.pdf – BPK Regulation has been determined that there needs to be a guarantee of the quality of construction work by using insurance guarantees.
To ensure that every contractor and consultant involved in each project already has an insurance guarantee. Project givers should also require that every contractor and consultant involved in the project already have this insurance policy.
- Surety Bond
Usually, the contractor that will be appointed as the executor of the project is selected through an auction (tender), to ensure the winning company of the tender will be able to carry out the project in accordance with the offer then they are required to provide guarantees in the form of surety issued by the insurance company or bank guarantee issued by the bank.
If they fail, then the guarantee will be disbursed. Surety Bond is issued by an insurance company.
- Performance Bond Guarantee/Bank Guarantee
Once the contractor is appointed, to ensure the contractor can complete the project in accordance with the contract, the contractor is required to provide an Implementation Guarantee in the form of a Bank Guarantee.
Bank Guarantee can be issued in the form of contra bank guarantee which is the result of cooperation between the bank and the insurance company.
From a cash flow point of view, contra bank guarantee is very mitigating for contractors because collateral to be provided by the company is minimal, contractors simply by paying insurance premiums and bank fees.
- Advance Payment Guarantee
If the contract is agreed for an advance payment, to ensure that the contractor will use the money in accordance with the contract, usually the owner asks for a bank guarantee to ensure the contractor uses the down payment for the project purpose only.
As with performance guarantee, this guarantee can also be issued in the form of a contra bank guarantee.
- Construction Erection All Risks/Third Party Liability (CAR/EAR/TPL) Insurance
Before the project starts, make sure that CAR/EAR insurance is available. CAR/EAR/TPL insurance policy protects from accidents that cause damage and loss during construction work.
Risk can occur at any time even though the volume of work is still small, but the potential risk remains high, especially the risk to third party liability (third party liability).
- Construction Plant and Equipment All Risks (CPE)
All construction equipment and tools used in the performance of the project must be ensured that everything is insured before it is operated. Many risks occur, such as burning, toppling, collisions, tools damaging projects, due to natural disasters and others.
- Freight Insurance – Marine Cargo Insurance
Any goods sent for the purposes of special projects of Mechanical Electrical components, Structures, plants, and others must be insured for the risks that can occur during the journey to the project site.
The insurance program is Marine Cargo Insurance or special freight insurance for projects.
- Worker’s Insurance –BPJS-TK
To protect every worker involved in the project make sure that they are all guaranteed in the BPJSTK government program. The insurance management is directly to the BPJSTK office.
Sometimes in the contract is also required the existence of Workmen’s Compensation Assurance (WCA) insurance by referring to PERTAMINA BENEFITS whose benefits are much higher than BPJS-TK. We will write the difference in other articles.
- Insurance on equipment belonging to other contractors
The bed building and its contents, stock materials owned by contractors and others for the risk of fire, theft, natural disasters and others. The insurance guarantee is in the form of a Commercial All Risks insurance policy.
Why do you need to use the services of an insurance broker for your project?
From the description above there are so many risks faced by each project. Starting financial risks such as tender guarantees, implementation guarantees, down payment guarantees. Physical risks such as accidents, losses, collisions, and natural disasters). Legal risk (liability) is primarily against third parties.
Well, to get an insurance guarantee with a variety of this is not easy. It needs special knowledge and expertise regarding risk and project insurance. Almost no contracting company or developer has an insurance expert in his team. Maybe they know, but not insurance experts. Why? because insurance experts prefer to work in the insurance industry…
It is best to use the services of an insurance brokerage company that is experienced in the field of Engineering Procumbent and Construction.
An insurance broker is an insurance expert certified by the Financial Services Authority (OJK) who oversees your interests, not the interests of the insurance company.
Insurance brokers design insurance programs that suit your needs and can meet the requirements of the contract so that you get insurance coverage while meeting the contract requirements.
Furthermore, the insurance broker will place your risk to several insurance companies to get the best guarantee and efficient cost.
Remember, because the risk of the project is high, not many insurance companies are able to provide coverage. This is one of the tough tasks of insurance brokers for you.
The most important task of the insurance broker is to help you in case of a claim. The insurance broker is also your advocate for claim settlement.
One insurance company with extensive experience in the field of EPC is L&G Insurance Broker. Already experienced in civil projects, infrastructure, engineering, energy, and others.
For all your project insurance needs in Indonesia, contact L&G right now!
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L&G HOTLINE 24 HOURS: 0811-8507-773 (Call – Whatsapp – SMS)
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E-mail: customer.support@lngrisk.co.id
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