Introduction
Indonesia’s private infrastructure sector — including independent power producers (IPP), manufacturing facilities, logistics hubs, industrial estates, and PPP projects — has become increasingly attractive to international lenders. Among the most influential institutions supporting this growth is the International Finance Corporation (IFC), a member of the World Bank Group.
Unlike purely commercial banks, IFC not only provides capital. It brings:
- Global risk standards
- ESG and sustainability discipline
- International lender insurance requirements
For project sponsors and EPC contractors, understanding how IFC structures risk and insurance is critical. Many projects face delays or restructuring, not because of technical issues, but because insurance programs fail to meet IFC’s expectations.
This article explains:
- IFC’s approach to project risk in Indonesia
- Typical insurance requirements for IFC-financed projects
- How insurance supports project bankability
- Why independent insurance brokers play a decisive role
IFC’s Role in Indonesia’s Private Infrastructure Development
IFC focuses on private-sector-led projects, often acting as:
- Lead lender
- Co-financier
- Anchor investor
- ESG and governance benchmark
Typical IFC-Financed Projects in Indonesia
- Independent Power Producers (coal, gas, renewable)
- Manufacturing plants (cement, paper, chemicals, FMCG)
- Ports, logistics & warehouses
- Industrial estates
- PPP infrastructure with private sponsors
IFC financing structures commonly include:
- Long-term project loans
- Equity participation
- Syndicated B-loans
- Advisory services
In all cases, risk transfer through insurance is mandatory, not optional.
IFC’s Risk Philosophy: Beyond Traditional Project Finance
IFC evaluates projects using a holistic risk framework, covering:
- Physical asset risk
- Cash flow and revenue risk
- Environmental & social (E&S) risk
- Governance and compliance risk
Insurance is viewed as a financial risk mitigant that directly protects:
- Project assets
- Debt service capability
- Sponsor equity
- IFC’s capital exposure
Key Risk Categories in IFC-Financed Projects
- Construction & Completion Risk
This is the highest-risk phase for IFC exposure.
Typical risks:
- Design errors
- Faulty workmanship
- Contractor insolvency
- Delay in completion
Required insurance:
- Construction All Risks (CAR) or Erection All Risks (EAR)
- Third Party Liability (TPL)
- Delay in Start-Up (DSU)
IFC pays close attention to:
- Policy limits equal to full EPC value
- DSU indemnity period aligned with loan repayment
- Maintenance period coverage
- Operational & Asset Risk
Once operational, IFC focuses on cash flow protection.
Risks include:
- Fire and explosion
- Machinery breakdown
- Electrical failure
- Business interruption
Required insurance:
- Industrial All Risks (IAR)
- Machinery Breakdown (MB)
- Business Interruption (BI)
Coverage must reflect:
- Replacement cost valuation
- Realistic maximum loss scenarios
- Debt service protection
- Natural Catastrophe Risk (Indonesia-Specific)
Indonesia’s exposure to:
- Earthquake
- Flood
- Volcanic activity
- Tsunami
makes natural catastrophe insurance non-negotiable for IFC.
IFC expects:
- Transparent catastrophe sub-limits
- International reinsurance participation
- Engineering risk assessments
Poorly structured nat-cat coverage is a frequent red flag during IFC due diligence.
- Environmental & Social Liability Risk
IFC applies its Performance Standards, which are often stricter than local regulations.
Risks include:
- Pollution incidents
- Community impact
- Environmental damage
- Third-party claims
Insurance solutions:
- Environmental Impairment Liability (EIL)
- Extended pollution clauses under TPL
This is especially relevant for:
- Power plants
- Mining-related infrastructure
- Manufacturing projects
- Political & Regulatory Risk (Selective)
While IFC does not always require political risk insurance, it often:
- Encourages it for cross-border sponsors
- Aligns with MIGA for risk guarantees
- Coordinates with co-lenders’ requirements
IFC’s Insurance Expectations: What Projects Must Demonstrate
IFC typically requires that insurance programs:
✔ Comply with international market standards
✔ Are placed with financially sound insurers and reinsurers
✔ Include lender protection clauses
✔ Are reviewed by independent insurance advisors
Common lender clauses:
- Lender’s loss payee
- Non-vitiation clause
- Waiver of subrogation
- Notice of cancellation
- Assignment of proceeds
Failure to address these clauses early often leads to:
- Financial close delays
- Cost escalation
- Coverage restructuring under time pressure
Why Insurance Is Central to IFC’s Bankability Assessment
For IFC, insurance is not paperwork. It is:
- A credit risk management tool
- A cash flow protection mechanism
- A risk governance instrument
Weak insurance structures signal:
- Poor sponsor risk awareness
- Inadequate project governance
- Higher default probability
Strong insurance programs, on the other hand:
- Improve financing terms
- Increase lender confidence
- Protect long-term project sustainability
The Strategic Role of Insurance Brokers in IFC Projects
- Aligning Insurance with IFC Loan Agreements
IFC loan agreements contain:
- Insurance covenants
- Reporting obligations
- Claims management protocols
An experienced broker ensures:
- Policy wordings align with covenants
- Coverage remains compliant throughout the loan tenor
- Renewal gaps are avoided
- Structuring DSU to Protect Debt Service
One of the most common mistakes is an under-designed DSU.
A broker ensures:
- DSU sum insured reflects debt exposure
- Indemnity period matches realistic delay scenarios
- Trigger wording aligns with IFC expectations
- Bridging Local Insurance Capacity & International Standards
Indonesia’s local insurance market is strong but capacity and wording limitations exist.
A professional broker:
- Structures co-insurance and reinsurance
- Accesses international markets
- Ensures claims credibility for IFC
Why IFC Prefers Independent Insurance Brokers
IFC prefers brokers who:
- Represent the project, not insurers
- Have no conflict of interest
- Understand lender risk frameworks
- Can support claims professionally
Independent brokers help IFC ensure that:
- Risk is genuinely transferred
- Claims are paid efficiently
- Project viability is preserved
Practical Example: IFC-Financed IPP Project
In an IFC-financed private power project in Indonesia, insurance typically includes:
- EAR covering full EPC value
- DSU covering 18–24 months of debt service
- Earthquake and flood sub-limits supported by reinsurance
- Operational IAR and BI aligned with projected revenues
Projects that fail to structure this correctly often face:
- Financing delays
- Cost overruns
- Increased sponsor exposure
Why L&G Insurance Broker Is the Right Partner for IFC Projects
L&G Insurance Broker has deep expertise in:
- IFC-aligned infrastructure projects
- EPC and operational risk insurance
- Lender-driven insurance structures
Our value proposition:
✔ Strong understanding of IFC requirements
✔ Proven experience in power & industrial projects
✔ Access to domestic and international insurance markets
✔ Hands-on claims advisory
We don’t just place policies — we support financing success.
If your project involves:
- IFC financing
- Private infrastructure or IPP development
- EPC contracts with international lenders
👉 Do not treat insurance as an afterthought.
Engage L&G Insurance Broker early to:
- Strengthen your bankability
- Align insurance with IFC standards
- Protect your lenders, sponsors, and cash flow
📩 Contact L&G Insurance Broker today — because strong projects need strong risk protection.
About the Author
Mhd. Taufik Arifin
CEO & Technical Director
L&G Insurance Broker
With over 30 years of experience in construction, infrastructure, and project finance insurance, the author has advised international lenders, EPC contractors, and project sponsors across Indonesia, ensuring risk structures meet both local regulations and global financing standards.
