How Much Does a CAR/EAR Insurance Premium Cost for a Construction Project?

Indonesia’s construction sector continues to show significant growth, particularly heading into the 2025–2030 period. Both the government and the private sector are aggressively developing infrastructure projects, housing, energy, and industrial estates. From toll roads and airports to dams and renewable energy projects, all require significant investment and sound risk management. This situation opens up tremendous business opportunities while simultaneously increasing the need for reliable financial protection.

In any construction project, the risk of loss is almost unavoidable. These range from physical damage due to natural disasters, structural failure, fire, to third-party claims. It’s no surprise that one of the main questions frequently asked by contractors, developers, and investors is: “How much does the premium cost? “CAR/EAR insurance for my construction project?” This is a reasonable question, because insurance premiums will affect the calculation of the overall project costs.

This article aims to provide a comprehensive overview of CAR (Contractors’ All Risks) and EAR (Erection All Risks) insurance premium costs in Indonesia. The discussion will cover construction project opportunities in the coming years, types of construction work and their risks, factors influencing premium rates, relevant insurance types and coverage, and the importance of an experienced insurance broker like L&G Insurance Broker. By understanding this, construction businesses can plan financial protection more efficiently and effectively.

Construction Project Opportunities in the Coming Years

Indonesia is currently undergoing a phase of massive development acceleration. The government has launched various national strategic projects (PSN) worth thousands of trillions of rupiah, ranging from the construction of the Indonesian capital city (IKN), the Trans-Sumatra and Trans-Java toll road networks, to new dams, ports, and airports. These projects not only meet basic transportation and infrastructure needs but also serve as drivers of economic growth in various regions.

In addition to government projects, the private sector is also actively developing large-scale projects, such as manufacturing plants, industrial estates, commercial properties, and renewable energy projects. The continued influx of foreign investment, particularly from East Asia and the Middle East, is further expanding the scale of Engineering, Procurement, and Construction (EPC) projects in Indonesia.

The energy transition trend also opens up new opportunities. Solar, wind, and biomass power generation projects, as well as the construction of green energy transmission networks, will be a major focus in the coming years. These projects require more complex insurance protection, given the high risk nature of the new technologies they employ.

With such a large-scale investment, the potential for losses due to construction risks also increases. Every delay, accident, or damage has the potential to cause financial losses ranging from hundreds of billions to trillions of rupiah. Therefore, CAR/EAR insurance is no longer viewed as a formality but rather a key risk management strategy that contractors, developers, and investors must have in place.

Types of Construction Projects and Their Risk Characteristics

The construction industry encompasses a wide variety of jobs, each with varying levels of risk. Understanding the risk characteristics of each project type is crucial for determining the appropriate CAR/EAR insurance program.

1. Civil Works

Projects such as toll roads, bridges, dams, ports, and tunnels fall into this category. The main risks include landslides, structural failure, flooding, or earthquake damage. Because they are constructed in open areas, civil works projects are highly vulnerable to unpredictable natural factors. Premiums are typically higher if the site is located in a disaster-prone area.

2. Engineering & Plant Construction

These include the construction of factories, power plants, oil refineries, and industrial processing facilities. These projects are subject to risks of fire, explosions, mechanical failure, and design or installation errors. Due to the large and complex nature of the projects, potential losses in the event of an accident could reach trillions of rupiah.

3. General Infrastructure

Examples include airports, MRT/LRT facilities, hospitals, government buildings, and schools. The main risks include project delays, additional costs, and workplace accidents involving large numbers of workers.

4. Wet Risks

This category includes projects on or near water, such as piers, jetties, offshore platforms, and coastal reclamation. The main risks include storms, flooding, erosion, and even ship collisions. Due to the complexity of marine work, wet risks often command higher premiums than onshore construction.

5. High-Rise & Commercial Properties

Apartment, office, mall, and hotel projects carry risks of fire, earthquakes, structural failure, and human error. Locations in densely populated areas also increase the risk of third-party lawsuits due to disturbances or damage to surrounding property.

Factors Affecting Construction Insurance Premium Rates

Determining Contractors’ All Risks (CAR) and Erection All Risks (EAR) insurance premiums is not a simple matter. Insurance companies consider various risk factors that can affect the likelihood of a claim. The higher the risk level of a project, the higher the premium. Here are the main factors involved:

1. Project Value (Contract Value)

The size of the project contract is the most fundamental factor. The higher the project value, the greater the potential losses covered by insurance. Typically, premium rates are expressed as a small percentage of the project value, for example, 0.1% – 0.25%.

2. Type of Job

Civil works, mechanical installations, and electrical projects carry different risks. For example, a dock project (wet risk) tends to have higher premiums than an office building in a city center.

3. Project Duration

Construction time is directly proportional to risk. The longer a project takes, the greater the chance of damage or accidents. Premiums will be higher for multi-year projects.

4. Location and Geographical Conditions

Projects in areas prone to flooding, earthquakes, or landslides have higher premiums than those in lower-risk locations. Insurance takes into account topography, climate, and transportation access to the site.

5. Materials and Technology Used

The use of fire-resistant materials, modern steel structures, or advanced construction technologies can reduce risks. Conversely, cheap materials or traditional work methods can increase the risk of damage.

6. Contractor’s Track Record

The contractor’s experience and reputation are also taken into account. Companies with a good track record and few claims typically receive more competitive premiums.

7. Previous Project Claim Experience

If a similar project has previously generated a large number of claims, the premium rate for a new project with the same characteristics may be higher.

8. Additional Guarantees (Extensions)

Additional coverage such as Third Party Liability (TPL), Delay in Start Up (DSU), or Acts of God (earthquakes, floods) will increase the premium. However, these coverages are often mandatory for large-scale projects.

Types of Insurance and Guarantees in Construction Projects

Every construction project has unique risks that require different coverage. Therefore, project insurance programs typically consist of more than just a single policy, but rather a combination of several types of insurance and coverage. Here are the most commonly used:

1. Asuransi CAR (Contractors’ All Risks)

CARprovides protection against physical damage to the project during construction, whether due to natural disasters, accidents, or human error. Furthermore, CAR also protects against third-party liability claims for losses incurred as a result of project activities.

2. Asuransi EAR (Erection All Risks)

Required for projects involving the erection, installation, and testing of mechanical/electrical equipment, such as power plants, factories, or oil refineries. EAR covers the risks of installation errors, mechanical damage, and even explosions during commissioning.

3. Third Party Liability (TPL)

Mandatory additional insurance in construction projects, protects contractors and project owners from lawsuits due to bodily injury or damage to third party property.

4. Delay in Start Up (DSU) / Advance Loss of Profit (ALOP)

Covers financial losses resulting from project delays due to accidents covered by the CAR/EAR policy. For example, a power plant project that is delayed in starting operations can result in significant revenue losses.

5. Heavy Equipment & Machinery Breakdown Insurance

Protecting heavy equipment and construction machinery from the risk of damage, accidents, or malfunction. Given its significant value, this protection is crucial for contractors.

6. Transportation Insurance (Marine Cargo)

Guarantees project materials or equipment during shipment from overseas or between islands within Indonesia. Protection can be in the form of ICC A, B, or C, depending on requirements.

7. Surety Bond

Functioning as financial guarantees for project owners, they include tender bonds, performance bonds, advance payment bonds, and maintenance bonds. In practice, surety bonds can also be issued through a contra bank guarantee scheme.

With the combination of protections above, project owners and contractors can ensure that their trillions of rupiah in investments remain protected from unforeseen risks. The role of insurance brokers is crucial in designing the most appropriate and efficient coverage combination.

Construction Insurance Premium Cost Estimate

CAR/EAR insurance premiums vary widely, depending on the project value, location, type of work, duration, and coverage. However, generally, construction premium rates in Indonesia range from 0.1% to 0.25% of the project value. For high-risk projects (wet risk or in earthquake-prone areas), rates can be higher.

1. Toll Road Project

• Contract value: Rp. 1 trillion.
• Premium rate: 0.3%.
• Estimated premium = Rp. 3,000,000,000.
• Additional DSU/ALOP coverage can increase premiums up to 40% higher.

2. Construction of Manufacturing Plant

• Contract value: USD 200 million (±Rp 3 trillion).
• Premium rate: 0.25%.
• Estimated premium = Rp. 7,000,000,000.
• If it involves high-value imported equipment, transportation insurance (Marine Cargo) is also mandatory.

3. Pier Project (Wet Risk)

• Contract value: Rp. 500 billion.
• Premium rate: 0.60%.
• Estimated premium = Rp. 3,000,000,000.
• The risks of storms, flooding and erosion make premiums higher than onshore projects.

4. Commercial Buildings (Apartments/Offices)

• Contract value: Rp. 750 billion.
• Premium rate: 0.20%.
• Estimated premium = Rp. 1,500,000,000.
• Additional TPL guarantee is very important because the location is usually in a densely populated area.

This simulation demonstrates that premiums are not fixed costs, but are heavily influenced by the type of project risk and the coverage chosen. This is why contractors and project owners must conduct a thorough risk analysis before selecting an insurance policy. Insurance brokers play a key role in helping obtain the best premiums for the project’s needs.

Note: To get a more accurate cost estimate, contact an L&G insurance broker when you calculate your project budget!

The Important Role of Insurance Brokers in Construction Projects

Managing insurance programs for construction projects worth billions to trillions of rupiah is no simple matter. CAR/EAR policies involve numerous technical details, from wording and coverage limits to exclusions and additional clauses. Small errors can have significant consequences when a claim arises. This is where insurance brokers play a crucial role.

1. Project Risk Analysis

An experienced broker will conduct a risk assessment to understand the type of work, location, contract value, and potential hazards. The results of this analysis form the basis for designing an appropriate policy.

2. Look for Competitive Premiums

Brokers have access to a wide range of insurance companies, both local and international. With their extensive networks, brokers can negotiate the most efficient premiums for clients without compromising on the quality of coverage.

3. Compiling the Right Policy Wording

Not all projects require standard clauses. Brokers will tailor policy wording to specific project needs, including additional clauses such as DSU/ALOP, Act of God, and Automatic Reinstatement.

4. Administrative and Claims Assistance

The project insurance claims process is often lengthy and complex. Brokers assist clients with everything from preparing claim documents and communicating with adjusters to ensuring smooth payment.

5. Why L&G Insurance Broker?

As an experienced broker for EPC projects, mining, energy, transportation, and national infrastructure, L&G Insurance Broker has proven its expertise. L&G focuses not only on affordable premiums but also on ensuring comprehensive protection and prompt claims resolution.

With the support of a professional broker, contractors and project owners can focus on completing the work, while financial risks are handled professionally.

Kesimpulan & Call to Action

CAR/EAR insurance premiums for construction projects are not simply additional costs, but crucial investments to ensure the smooth running and sustainability of the project. The premium amount is influenced by various factors, including the contract value, type of work, project location, construction duration, and additional coverage such as TPL, DSU/ALOP, or Act of God. Each type of project—whether civil works, a factory, a high-rise building, or a wet risk—has unique risk characteristics that require different coverage.

From the simulation we discussed, it appears that premiums can reach billions of rupiah. However, these costs are offset by potential losses that could reach hundreds of billions to trillions of rupiah if risks are not properly managed. Therefore, construction companies, contractors, and investors must ensure that each project has the appropriate insurance coverage.

This is where the role of an experienced insurance broker like L&G Insurance Broker becomes crucial. L&G not only helps you obtain competitive premiums but also provides risk consultation, appropriate policy wording, and claims support through to resolution.

👉Don’t let your major project be jeopardized by a lack of protection. Contact L&G Insurance Broker today and ensure your construction project runs more safely, efficiently, and bankably.

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