Welcome to Liga Asuransi, where you will find in-depth insights into risk management and insurance solutions for various industry sectors in Indonesia.
As part of our commitment to supporting a more resilient and sustainable business world, this time we specifically discuss the risks and insurance protection in the processing of Fresh Fruit Bunches (FFB) of oil palm — a crucial phase in the industry that is a mainstay of exports and the national economy.
Palm Oil Mills (PKS), both mini and large scale industries, have high potential risks: fire, explosion, machine damage, and environmental pollution. All of these need to be managed strategically through the right risk management and insurance approach.
Read this article to the end to understand the types of risks in PKS and how a professional insurance broker like L&G Insurance Broker can be a key partner in protecting the value of your investment.
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Vital Process and High Risk
After going through a long process in the plantation, the Fresh Fruit Bunches (FFB) of oil palm finally enter the processing stage at the Palm Oil Mill (PKS). This is a transformative phase that determines the quality and selling value of the harvest, as well as being a critical point full of risks – from machine damage, supply disruptions, to disasters such as fires and explosions.
Both mini mills and large-scale PKS face complex operational and technical challenges. If not anticipated with a strong risk management system and proper insurance protection, the losses incurred can be worth billions of rupiah.
This article will comprehensively discuss the types of risks in the FFB processing process, relevant insurance solutions, and the strategic role of insurance brokers such as L&G Insurance Broker in designing comprehensive protection for the palm oil industry processing line.
Risk Profile of Palm Oil FFB Processing
Fresh Fruit Bunches (FFB) Processing in Palm Oil Mills (PKS) is a key stage that determines the final value of plantation products. This process involves various mechanical and thermal stages, such as boiling,crushing, pressing, refining oil (CPO), and waste handling. Although it looks routine, each stage has the potential for high technical and non-technical risks, especially when carried out on a large scale and operated sustainably.
- Risk of Fire and Explosion
- PKS has a high potential fire risk because:
- The use of high pressure steam in the sterilization process.
- The presence of flammable materials such as palm oil, machine lubricants, and process residues.
- Electrical system failure or short circuit in the control room.
Impact:
Loss of key facilities, machine damage, production disruption, even loss of life.
- Damage to Main Machines and Equipment
- Vital components such as digesters, screw presses, decanters and boilers are particularly vulnerable to:
- Mechanical damage due to age or wear
- Operator error
- Disruption of power supply or steam pressure
These risks may cause:
- Production downtime for days
- Loss of raw materials that have been processed
- Expensive engine repair or replacement costs
- Disruption of Fresh Fruit Bunch Supply and Internal Logistics
Although processing occurs in the factory, the supply chain of FFB from the plantation is very important for operational continuity. Supply disruptions can occur due to:
- Garden access road damaged
- Extreme rain causes transportation delays
- Internal conflict thatinfluence harvest
Consequences: Factory capacity is not optimal, raw materials rot, and production efficiency decreases.
- Pollution and Waste Risks
Palm oil liquid waste (POME), boiler ash, and chimney emissions can cause environmental pollution if not managed properly. Non-compliance with waste management regulations can invite legal sanctions and fines from the government.
Pollution risks include:
- Contamination of rivers or surrounding land
- Complaints from local residents
- Legal demands from environmental authorities
- Occupational Health and Safety (K3) Risks
PKS is a work environment full of potential hazards:
- Hot steam, fast rotating equipment, high pressure
- Risk of work accidents in the loading, pressing and boiler areas
- Exposure to hazardous gases from waste ponds
The Importance of Risk Audit and Risk Engineering in PKS
Palm Oil Mill (PKS) is a complex industrial facility, with mechanical, thermal, and chemical systems operating simultaneously every day. To ensure that all potential risks can be controlled, a systematic approach is needed through periodic risk audits and risk engineering.
- Risk Audit: Comprehensive Evaluation
Risk audits are conducted to:
- Identifying hazard-prone points (hotspots)
- Assess compliance with SOPs and regulations
- Analyze potential losses due to system failure
Audit results can be the basis for setting improvement priorities, developing new SOPs, or adding protection systems such as fire alarms, hydrants, and automatic extinguishers.
- Risk Engineering: Proactive Mitigation
Risk engineering is more than just inspections; it is a long-term prevention strategy. Brokers like L&G Insurance Brokers work with underwriters and engineers to:
- Analyze building structure and production layout
- Evaluating fire protection and electrical systems
- Provide technical recommendations to reduce risks
This step not only helps lower insurance premiums, but also improves operational reliability, maintains worker safety, and ensures that PKS complies with industry standards and government regulations.
Types of Insurance Needed in Palm Oil FFB Processing
To secure investment and operational continuity of Palm Oil Mills (PKS), companies need to have a comprehensive insurance program that is tailored to their risk characteristics. FFB processing is not just about production, but also concerns safety, the environment, strategic assets, and business continuity. Here are the main types of insurance that should be owned:
This insurance provides protection against physical damage or loss of factory assets, including buildings, machinery and equipment due to:
- Fire
- Boiler explosion
- Lightning strike
- Floods, earthquakes and extreme weather disturbances
- Riot or malicious act
Why is it important?
PKS is an asset worth tens to hundreds of billions of rupiah. Losses due to a fire incident, for example, can stop production for months.
L&G broker role: Helps determine accurate sum insured, ensures important clauses are covered (earthquake, strike-riot-civil-commotion, etc.), and adjusts excess (deductible) to remain premium efficient.
Processing machines such as sterilizers, screw presses, digesters, and decanters are vital. A single unit failure can stop the entire production line.
Benefits of MB Insurance:
- Covers the cost of repairing or replacing the machine due to internal damage.
- Protects the machine from mechanical/electrical failure beyond the risk of fire.
- Ensuring machines operate 24 hours non-stop
Case example: Decanter damaged due to internal overheating → loss of hundreds of millions of rupiah if not insured.
Role of L&G broker: Conduct technical and historical risk evaluation of the machine, prepare a protection scheme that is appropriate to the age and value of the machine.
Often, the greatest losses are not from physical damage, but from lost revenue due to the factory being unable to operate.
Benefit:
- Covers net loss of income during the repair period
- Covering fixed costs such as salaries, electricity, loan interest
- Prevent cash flow disruptions that could kill operations
Example: The factory is not operating for 3 months due to fire → BI Insurance provides compensation for lost income.
The role of the broker: Determine the appropriate “indemnity period” (replacement period), and prepare the claim basis (gross profit or gross revenue) precisely.
Accidents at PKS can impact third parties — such as the surrounding community, factory guests, or the environment.
Examples of risks:
- Waste spill into river causes protests among residents
- The boiler explosion damaged the property of surrounding residents.
- Fire spread to areas outside the factory
Benefit:
- Cover legal costs and damages
- Protecting the company’s reputation
- Supporting ESG (environmental, social, governance) aspects
Broker’s role: Adjusting liability limits and coverage areas to suit actual risks.
- Environmental Liability Insurance
PKS produces liquid waste (POME), methane gas, and other emissions. If not managed properly, it can trigger lawsuits and administrative sanctions.
Benefit:
- Covering the costs of environmental restoration
- Covering fines, investigations, and lawsuits
- Providing a financial buffer against unexpected pollution
Note: This is a specialized product, often only available through cooperation with experienced brokers.
- Equipment Breakdown + Boiler Explosion Insurance
Factories with high-pressure boilers require additional insurance for the risks:
- Steam pressure explosion
- Heating system failure
- Operational disruption due to electrical disturbance
Benefit:
Covers the cost of damage to high pressure systems that are not covered under a regular policy.
- Cyber Insurance (Optional)
For modern PKS that have used automation and digital systems (SCADA, ERP, cloud monitoring), there is a risk of disruption due to cyber attacks or system errors.
Benefit:
- Covering losses due to IT system disruptions
- Provides protection against data theft or sabotage of production systems.
- Product Liability & Product Recall Insurance (For Palm Oil Downstream)
If the factory also produces derivatives such as cooking oil, soap or biodiesel, the risk of defective products or contamination needs to be protected.
Benefit:
- Covering claims for products that cause consumer losses
- Cost of withdrawing a product from the market
Case Study & Practical Recommendations
One real example of the importance of insurance in the processing of palm oil FFB occurred in a PKS with a capacity of 60 tons/hour in Sumatra. In the incident, the boiler exploded due to uncontrolled steam pressure. As a result, part of the production facility was damaged, and operations were halted for more than two months.
Thanks to the protection of the Property All Risks and Machinery Breakdown Insurance program designed by a professional broker, the company managed to get reimbursement of repair costs worth more than IDR 4 billion. Not only that, the Business Interruption Insurance claim also paid for the loss of income while the factory was not operating.
This case shows that risks cannot always be prevented, but losses can be significantly controlled with proper insurance protection.
Practical recommendations:
- Conduct a factory risk audit at least once a year.
- Make sure the insurance value of machinery and property is always updated.
- Engage an experienced broker such as L&G Insurance Broker to prepare a comprehensive protection scheme and accompany the claims process professionally.
Conclusion and Direction of Sustainable Palm Oil Industry Strategy (±150 words)
The FFB processing stage in a Palm Oil Mill is the core of the palm oil industry value chain. However, behind the great opportunities offered, there are high risks that can shake operations, damage assets, and threaten business continuity. Starting from boiler explosions, damage to vital machinery, logistics disruptions, to potential environmental pollution – all require serious risk management and careful insurance protection.
Therefore, companies need to build a comprehensive protection strategy by involving professional insurance brokers who understand the dynamics of the palm oil industry. L&G Insurance Broker is present as a strategic partner that not only provides insurance solutions, but also accompanies the risk audit process, selecting the right policy, and handling claims efficiently.
With a proactive and sustainable approach, the Indonesian palm oil industry will be more resilient, responsible and ready to face future challenges.
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HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)
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Email: oktoyar.meli@lngrisk.co.id
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