Welcome to LigaAsuransi.com, a space to share the latest information on insurance and risk management relevant to your business. This time, we’ll discuss something very important, especially for those of you working in the oil and gas and construction sectors.
As we know, oil and gas projects are no ordinary endeavor. Investments can reach trillions of rupiah, involving hundreds of workers, sophisticated technology, and even expensive heavy equipment. With such a scale, the risks involved are significant. A single incident could disrupt progress, erode the company’s finances, and even threaten the sustainability of the entire project.
From fires and natural disasters to heavy equipment breakdowns, workplace accidents, and even social disruption—all of these can become ticking time bombs that could explode at any moment. Without proper protection, losses can balloon to unimaginable levels.
So, in this article, we’ll discuss five major disasters that could cause an oil and gas project to collapse if not covered by Construction All Risk (CAR) Insurance. Pay close attention, as this information could determine whether your project remains solid or collapses before completion.
Why Are Oil and Gas Projects So Vulnerable to Risk?
When we talk about oil and gas projects, don’t think of building a typical house or office building. The scale and complexity are far greater. These projects involve thousands of components, from onshore or offshore drilling, to the construction of distribution pipelines, to the installation of processing facilities. All of this requires complex coordination, involving numerous contractors, consultants, and vendors from various fields.
Furthermore, the working environment on oil and gas projects is also extreme. Some are located in the middle of the ocean with large waves, on coasts prone to abrasion, or on remote, inaccessible land. Bad weather, unstable soil, and even tectonic activity can directly impact construction progress.
Not to mention the investment costs. Imagine if a project worth trillions of rupiah were suddenly halted due to a single disaster. The financial losses incurred could leave the company gasping for breath, even losing investor confidence.
This is where risk management is crucial. Every risk must be anticipated from the outset, not only through technical procedures but also through financial protection through insurance. Constructions All Risk (CAR) Insurance present as a “shield” so that major risks do not immediately engulf the company.
Disaster #1: Fire & Explosion
If there’s one risk most feared in oil and gas projects, it’s clear: fire and explosion. With flammable materials like oil, gas, and high-pressure chemicals present, the potential for fire is enormous. Even a small spark or a minor oversight can trigger a catastrophic incident.
Imagine, a single explosion in a drilling area could destroy billions of rupiah worth of equipment, halt work for months, and of course, risk loss of life. The impact is not only financially devastating but also tarnishes the company’s reputation in the eyes of the public and investors.
Fires at oil and gas projects are not uncommon. We often hear news stories about burning drilling platforms or gas pipeline explosions that damage surrounding areas. Each time such incidents occur, the losses can reach hundreds of billions to trillions of rupiah.
This is where Construction All Risk (CAR) Insurance plays a crucial role. A CAR policy can provide financial protection for physical damage caused by fire or explosion, including repair costs, equipment replacement, and even losses due to project delays. This means the company doesn’t have to bear the burden of losses alone.
So, when it comes to oil and gas projects, the risk of fire and explosion is not just a possibility but a reality that must always be anticipated. Without CAR insurance, a single incident could bring the project to a complete halt and wipe out all the investment already invested.
Disaster #2: Natural Disasters
Apart from fires and explosions, oil and gas projects are also very vulnerable to natural disasters. Their frequent locations in remote areas such as offshore, coastal, or areas with extreme soil conditions make these risks difficult to avoid.
Earthquakes can collapse newly constructed structures. Flash floods can damage foundations and hinder material mobilization. Landslides can destroy transportation routes to project sites. Even tropical storms or high waves can destroy drilling platforms in the middle of the ocean.
The losses from natural disasters are significant. In addition to physical damage, companies can experience months of downtime, additional repair costs, and even the risk of losing contracts due to delayed project completion. All of this can mean financial losses that can reach trillions of rupiah.
Well, this is one of the advantages of Construction All Risk (CAR) Insurance. This policy can protect oil and gas projects from losses arising from natural disasters, whether partial or total. For example, damage to a drilling rig due to a storm or structural collapse due to an earthquake. With this coverage, the company doesn’t have to bear all the losses itself.
So, we can’t predict or stop natural disasters. But we can minimize their impact with financial preventative measures. CAR insurance is a bulwark that protects your significant investment, keeping it safe, even when nature strikes.
Disaster #3: Heavy Equipment Damage & Machinery Breakdown
Oil and gas projects rely heavily on heavy equipment. From drilling rigs and giant cranes, excavators, high-pressure compressors, to specialized pipes and valves—all of which are incredibly valuable and play a vital role. Without this equipment, it would be impossible for a project to proceed on schedule.
However, there’s a harsh reality: machinery can fail at any time. Damage can occur due to technical factors, operational errors, or extreme environmental conditions. For example, a crane suddenly fails to lift a load, a drilling rig jams deep in the ground, or a high-pressure pipe leaks. Just one of these events can halt field operations.
Losses due to equipment damage extend beyond repair or replacement costs, which can reach tens to hundreds of billions of rupiah. Furthermore, projects can experience lengthy delays, contracts could be cancelled, and additional costs continue to mount.
This is where Construction All Risk (CAR) Insurance comes into play. CAR can cover losses due to damage to heavy equipment during a project, including repair and replacement costs, as well as the consequences of any delays. This way, companies won’t have to worry about sudden cost spikes.
So, while heavy equipment failure is difficult to predict, solutions can be prepared. With CAR protection, companies remain confident in continuing projects even if vital machinery experiences problems.
Disaster #4: Workplace Accidents & Third-Party Lawsuits
Oil and gas projects are known as high-risk workplaces. Imagine hundreds of workers working on-site with heavy equipment, hazardous chemicals, and harsh environmental conditions. In such situations, workplace accidents can occur at any time, even if strict safety procedures are implemented.
Accidents involving workers can have devastating consequences—ranging from serious injuries to death. The impact extends beyond compensation costs to reduced employee morale and a company’s reputation.
Furthermore, risks can also arise from third parties. For example, local residents may suffer losses due to the project, vendors may experience property damage while working in the oil and gas sector, or even legal claims from external parties who feel affected. These types of lawsuits can be costly, especially if they end up in court.
The good news is that Construction All Risk (CAR) Insurance usually includes Third Party Liability (TPL). This means that if a third-party claim or a work-related accident results in a lawsuit, this policy can help cover compensation and legal costs. This way, the company doesn’t have to bear the entire loss itself.
In essence, an oil and gas project without CAR protection is like walking a tightrope without a safety net. The moment an accident or lawsuit occurs, the impact can immediately devastate the company’s finances. With CAR, this risk can be minimized.
Disaster #5: Force Majeure & Social Disruption
In addition to technical and natural risks, oil and gas projects also face threats from non-technical factors that are often no less dangerous: force majeure and social disruption.
Force majeure encompasses events beyond human control, such as war, embargoes, or sudden changes in government policy. Imagine a trillion-dollar project suddenly having to stop because permits are revoked or access to imported materials is halted. The impact could immediately paralyze construction.
On the other hand, social disruption also poses a threat. Demonstrations, road blockades, sabotage, and even riots near projects can lead to delays or even physical damage to facilities. These risks are often overlooked, yet in reality, their impact can bring projects to a complete halt.
Construction All Risk (CAR) Insurance allows companies to add protection clauses for specific risks like these. This way, in the event of force majeure or social disruption, the company still has the financial means to continue the project or cover losses.
Without CAR protection, the impact of force majeure and social disruption could be devastating. Projects not only lose time but also risk losing investors due to perceived lack of sound risk management.
So, never underestimate these non-technical risks. Sometimes it’s the unexpected that can bring down a major project.
What Happens If an Oil and Gas Project Doesn’t Have a CAR?
Imagine this scenario: an oil and gas project worth trillions of rupiah is halfway through its construction. Suddenly, a fire, natural disaster, or heavy equipment failure strikes. Within hours, the losses could reach hundreds of billions of rupiah. Without insurance coverage, the company would have to cover all these costs out of its own pocket.
The result? A company’s cash flow suffers, project progress stalls, and its reputation is ruined in the eyes of investors and business partners. In fact, many large projects ultimately fail to proceed simply because of a lack of financial protection.
Furthermore, without CAR insurance, companies are also vulnerable to lawsuits from injured third parties. Compensation and litigation costs can add to an already heavy financial burden.
In short, running an oil and gas project without CAR insurance is like walking on the edge of a cliff without any safety measures. One wrong move could instantly destroy the entire investment.
On the other hand, companies that use CAR appear much more professional and convincing to investors. They demonstrate that the project is being managed with sound risk management, thus increasing the chances of securing additional financial support.
The Role of Insurance Brokers in Securing Oil and Gas Projects
Managing an oil and gas project insurance policy is no simple matter. The coverage amounts are substantial, the risks involved are complex, and the required clauses are often highly specific. Therefore, companies cannot simply purchase policies directly from insurance companies. They require a true expert in designing protection solutions, namely an insurance broker.
A broker acts as an independent consultant who acts in the client’s best interests, not the insurance company’s. They help comprehensively analyze oil and gas project risks, select the appropriate coverage, and design a policy tailored to the project’s unique needs.
Furthermore, brokers play a crucial role in negotiating premiums to ensure companies don’t overpay. More importantly, when a claim arises, the broker will assist the client from start to finish. The often-complicated claims process can be made quicker and more efficient with the assistance of an experienced broker.
In Indonesia, one of the brokers who is experienced in handling oil and gas projects is L&G Insurance Broker With extensive experience and a team that understands the characteristics of energy projects, L&G is ready to be a strategic partner, ensuring your significant investment remains optimally protected.
Conclusion
Trillion-dollar oil and gas projects are fraught with risks. Fires, natural disasters, heavy equipment failures, workplace accidents, and even social unrest can threaten the smooth running of a project. Without protection, the losses could be substantial, even leading to project failure.
Constructions All Risk (CAR) Insurance presents a solution. This policy protects investments from various potential losses, provides financial certainty, and maintains investor confidence. With CAR, companies can focus on completing projects without worrying about unforeseen disasters.
However, to get a policy that truly fits your oil and gas project needs, you need the support of an experienced insurance broker. This is where L&G Insurance Broker is ready to be a trusted partner.
Don’t wait until disaster strikes. Contact L&G Insurance Broker now at 08118507773 and ensure your oil and gas projects remain safe, smooth, and protected.
