Welcome to Liga Asuransi, where you find in-depth insights into risk management and insurance solutions for various industrial 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 processing palm oil Fresh Fruit Bunches (FFB) – a crucial phase in an industry that is the mainstay of exports and the national economy.
Palm Oil Factories (PKS), both mini and large industrial scale, have high potential risks: fires, explosions, machine damage, and environmental pollution. All of this needs to be managed strategically through an appropriate risk management and insurance approach.
Read this article completely to understand the types of risks at 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 Processes and High Risks
After going through a long process in the plantation, oil palm Fresh Fruit Bunches (FFB) finally enter the processing stage at the Palm Oil Factory (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 breakdowns, supply disruptions, to disasters such as fires and explosions.
Both mini mills and large-scale mills face complex operational and technical challenges. If it is not anticipated with a strong risk management system and appropriate insurance protection, the resulting losses could 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 Brokers in designing comprehensive protection for palm oil industry processing lines.
Risk Profile of Palm Oil FFB Processing
Processing Fresh Fruit Bunches (FFB) at the Palm Oil Mill (PKS) is a key stage that determines the final value of plantation products. This process involves various mechanical and thermal stages, such as boiling, pulverizing, pressing, oil refining (CPO), and waste handling. Even though it looks routine, each stage holds the potential for high technical and non-technical risks, especially when carried out on a large scale and operating continuously.
- Risk of Fire and Explosion
- PKS has a high potential fire risk because:
- The use of high pressure hot steam in the sterilizer 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 main facilities, machine damage, production disruption, even loss of life.
- Damage to Main Machinery and Equipment
- Vital components such as digesters, screw presses, decanters and boilers are very vulnerable to:
- Mechanical damage due to age or wear
- Operator error
- Disruption of power supply or steam pressure
These risks can cause:
- Production downtime for days
- Losses of raw materials that have already been processed
- Expensive engine repair or replacement costs
- Disruption of FFB Supply and Internal Logistics
Even though processing occurs in the factory, the FFB supply chain from the plantation determines operational sustainability. Supply disruptions can occur due to:
- The garden access road is damaged
- Extreme rain causes transportation delays
- Internal conflict influence harvest
Consequences: Factory capacity is not optimal, raw materials rot, and production efficiency decreases.
- Pollution and Waste Risk
Liquid palm oil waste (POME), boiler ash and emissions from chimneys can cause environmental pollution if not managed properly. Non-compliance with waste processing with regulations can invite legal sanctions and fines from the government.
Pollution risks include:
- Contamination of rivers or surrounding land
- Complaints from local people
- Lawsuits from environmental authorities
- Occupational Safety and Health Risks (K3)
PKS is a work environment full of potential dangers:
- Hot steam, fast rotating equipment, high pressure
- Risk of work accidents in the loading, pressing and boiler areas
- Exposure to harmful gases from waste ponds
The Importance of Risk Audit and Risk Engineering in PKS
Palm Oil Mills (PKS) are complex industrial facilities, with mechanical, thermal and chemical systems that operate simultaneously every day. To ensure that all potential risks can be controlled, a systematic approach is needed through regular risk audits and risk engineering.
- Risk Audit: Comprehensive Evaluation
Risk audits are carried out to:
- Identifying danger-prone points (hotspots)
- Assess compliance with SOPs and regulations
- Analyze possible losses due to system failure
The results of the audit can be the basis for setting repair 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 inspection; this is a long-term prevention strategy. Brokers like L&G Insurance Brokers work with underwriters and engineers to:
- Analyze building structures and production layouts
- Evaluate fire protection and electrical systems
- Provide technical recommendations to reduce risks
This step not only helps reduce insurance premiums, but also increases operational reliability, maintains worker safety, and ensures PKS complies with industry standards and government regulations.
Types of Insurance Required for Palm Oil FFB Processing
To secure investment and operational continuity of Palm Oil Mills (PKS), companies need to have a comprehensive insurance program tailored to their risk characteristics. FFB processing is not just a matter of production, but also concerns safety, the environment, strategic assets and business continuity. The following are the main types of insurance that you should have:
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
- Riots or evil acts
Why is it important?
PKS is an asset worth tens to hundreds of billions of rupiah. Losses due to fire incidents, for example, can halt production for months.
The role of the L&G broker: Helps determine accurate coverage amounts, 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 very vital. Damage to just one unit can stop the entire production line.
MB Insurance Benefits:
- Covers the costs of repairing or replacing the machine due to internal damage
- Protects the machine from mechanical/electrical failure beyond the risk of fire
- Guarantee that the machines operate 24 hours non-stop
Case example: Decanter damaged due to internal overheating → loss of hundreds of millions of rupiah if not insured.
L&G broker’s role: Evaluate the technical and historical risks of the machine, develop a protection scheme appropriate to the age and value of the machine.
Often, the biggest losses are not from physical damage, but from lost income due to the factory being unable to operate.
Benefit:
- Covers loss of net income during the repair period
- Cover fixed costs such as salaries, electricity, loan interest
- Prevent cash flow disruptions that could shut down operations
Example: Factory did not operate for 3 months due to fire → BI Insurance provides compensation for lost income.
Broker’s role: Determine the appropriate “indemnity period” (replacement period), and prepare the claim basis (gross profit or gross revenue) precisely.
Accidents at PKS can have an impact on third parties — such as the local community, factory guests, or the environment.
Examples of risks:
- The waste spill into the river caused residents to protest
- The boiler explosion damaged property of nearby residents
- The fire spread to areas outside the factory
Benefit:
- Cover legal costs and compensation
- Protect the company’s reputation
- Support ESG (environmental, social, governance) aspects
Broker’s role: Adjust liability limits and coverage areas to suit actual risks.
- Environmental Liability Insurance
PKS produces liquid waste (POME), methane gas and other emissions. If the management is not appropriate, it could trigger lawsuits and administrative sanctions.
Benefit:
- Cover environmental restoration costs
- Cover fines, investigations, and lawsuits
- Provides a financial buffer against unexpected contamination
Note: This is a specialized product, often only available through cooperation with experienced brokers.
- Equipment Breakdown + Boiler Explosion Insurance
Plants with high pressure boilers require additional insurance for the risks of:
- Vapor pressure explosion
- Heating system malfunction
- Operation disruption due to electrical disturbances
Benefit:
Covers the costs of high pressure system damage that is not covered by 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:
- Covers losses due to IT system disruption
- Provides protection against data theft or sabotage of production systems
- Product Liability & Product Recall Insurance (For Palm Oil Downstreaming)
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 lawsuits for products that cause consumer harm
- Costs of product withdrawal from the market
Case Study & Practical Recommendations
One concrete example of the importance of insurance in palm oil FFB processing occurred in a mill with a capacity of 60 tons/hour in Sumatra. In this incident, the boiler experienced an explosion due to uncontrolled steam pressure. As a result, some production facilities were damaged, and operations were halted for more than two months.
Thanks to protection from the Property All Risks and Machinery Breakdown Insurance programs designed by professional brokers, the company managed to get reimbursement for repair costs worth more than IDR 4 billion. Not only that, Business Interruption Insurance claims also pay for lost income while the factory is not operating.
This case shows that risks cannot always be prevented, but the losses can be significantly controlled with the right insurance coverage.
Practical recommendations:
- Conduct a factory risk audit at least once a year.
- Make sure the insurance value of machinery and property is always updated.
- Involve an experienced broker such as L&G Insurance Broker to develop a comprehensive protection scheme and accompany the claims process professionally.
Conclusion and Direction of Sustainable Palm Oil Industry Strategy
The FFB processing stage in the Palm Oil Factory 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 even 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 here as a strategic partner who not only provides insurance solutions, but also assists in the risk audit process, selecting the right policy, and handling claims efficiently.
With a proactive and sustainable approach, the Indonesian palm oil industry will become more resilient, responsible and ready to face future challenges.
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