Hello Liga Asuransi Friends! We’re delighted to welcome you back to our information channel, which consistently discusses risk management strategies for business and construction projects. This time, we’ll cover a crucial yet often overlooked topic:why construction projects must have double protection in the form of Construction/Erection All Risk Insurance (CAR/EAR) and Surety Bond (Bank Guarantee).
If you’re a project owner, contractor, or someone involved in the construction industry, this article is specifically for you. Read it through to find out why single coverage is never enough, and how the combination of CAR/EAR insurance and a surety bond can save projects worth billions to trillions of rupiah.
Why is Construction Project Protection Important?
Every construction project, whether it’s an office building, a bridge, a toll road, or even energy infrastructure, is a major investment. Such projects involve significant funding, a company’s reputation, and the interests of many parties—from investors and banks to the wider community who will benefit from the project’s results.
However, the facts on the ground show that the construction industry is one of the highest-risk sectors. No project is completely immune from threats. These risks can come from a variety of complex and unpredictable sources, including:
- Physical and Natural Risks: Projects are vulnerable to unforeseen natural disasters, such as earthquakes, floods, storms, or landslides. Furthermore, there are technical and operational risks such as fire, explosion, structural collapse, or damage from heavy equipment accidents.
- Risk of Crime and Third Party Damage: Project sites are often easy targets for criminals, such as theft of materials or heavy equipment. Vandalism or damage caused by third parties can also cause significant losses.
- Contractual and Financial Risks: This is an often overlooked risk. Contractors face the possibility of default, which is the failure to fulfill contractual obligations, whether due to financial problems such as bankruptcy, poor work quality, or the inability to complete the project on time.
Without adequate protection, losses from any of these risks can be devastating: halting projects, destroying cash flow, incurring large fines, and even tarnishing a company’s reputation with clients, investors, and the public.
Why One Protection Is Not Enough?
Many still believe that one protection is sufficient. They assume that having one of these instruments ensures a project’s safety. However, this is not the case. Relying on a single protection leaves a very dangerous risk gap.
- If You Only Rely on CAR/EAR Insurance
Asuransi Construction/Erection All Risk (CAR/EAR) It’s specifically designed to protect projects from physical and technical risks. This policy provides financial compensation if your project is damaged by a covered unforeseen event, such as fire, flood, or structural collapse.
However, there is a big loophole that this policy cannot cover. CAR/EAR Insurance does not protect you from contractual risksIf a contractor suddenly goes bankrupt midway, stops work without a valid reason, or fails to meet contract specifications, you cannot file a claim with the CAR/EAR insurance company. In this scenario, even if there is no physical damage to the project, you, as the project owner, will suffer significant losses due to delays, the cost of finding a new contractor, and late fees.
- If You Only Rely on Surety Bonds
On the other hand, Surety Bond or Bank GuaranteeIt is very useful to ensure that contractors fulfill their contractual obligations. This guarantee provides project owners with the assurance that in the event of a default, they have the right to file a claim for financial compensation.
However, Surety Bonds cannot be the sole solution.This guarantee not bear any physical risk.If your project catches fire due to a short circuit, collapses due to a storm, or is damaged by an earthquake, the surety will not provide compensation. The main function of a surety is to guarantee performance, not to compensate for losses resulting from natural disasters or accidents. In this scenario, even if the contractor is not in default, you will still suffer significant losses that cannot be covered by a surety bond.
This is why single coverage always leaves a significant gap. Your project will remain vulnerable to any type of risk not covered by your chosen instrument.
Dual Coverage CAR/EAR and Surety Bond
CombinationCAR/EAR Insurance And Surety Bondis the answer to creating comprehensive, total protection. With this approach, your project will be protected from two sides at once:physical and technical risks as well as contractual and financial risks.
The Benefits of Double Protection that Create a Fortress of Defense
- Comprehensive Protection from Various Risks
- CAR/EAR Insurance stands as the first pillar, bearing all risks of physical damage to the project. This ensures that if any part of the project is damaged, there is a reliable source of funds to finance repairs and continue work.
- Surety Bond acts as the second pillar, guaranteeing contractor performance. This provides project owners with assurance that if the contractor fails to complete the work, there is a financial guarantee available.
- Minimizing Financial and Non-Financial Losses
With dual protection, your project will be protected from various sources of loss, from repair costs due to natural disasters to fines for delays due to default. This ensures stable cash flow and prevents unexpected financial losses.
- Increase Contractor Credibility and Reputation
Contractors who can provide both types of protection are perceived as more professional, credible, and responsible. This demonstrates to project owners and investors that the contractor is serious about managing risks and committed to completing the job.
- Increase Investor and Bank Confidence
Projects equipped with the dual protection of CAR/EAR and a Surety Bond are much more attractive to investors and financial institutions. The presence of strong collateral reduces investment risk and makes it easier for projects to obtain funding from banks or other capital sources.
Case study:
Let’s look at some real-world examples that prove why double protection is not just an extra, but an absolute necessity.
Case Study 1: Bridge Project in Java
A major bridge construction project in Java was progressing on schedule. The contractor had secured CAR insurance and a Performance Bond issued to the project owner. However, during the rainy season, flash floods caused part of the unfinished bridge structure to collapse.
The physical losses due to this damage reached tens of billions of rupiah. However, because the contractor had a CAR InsuranceA claim was filed and approved, allowing for repair costs. However, the incident caused a three-month delay in the project. The project owner has the right to impose a late payment penalty under the contract. In this situation, the project owner can liquidate the funds.Performance Bondto compensate for losses resulting from the fine.
Imagine if there were only one coverage. Without CAR insurance, the contractor would go bankrupt, having to cover repair costs themselves. Without a Performance Bond, the project owner would receive no compensation for losses due to delays, even if the physical damage had been repaired.
Case Study 2: Office Building Construction
An office building project in Central Jakarta was 50% complete. Suddenly, the main contractor encountered serious financial problems and declared bankruptcy. Consequently, work on the project came to a complete halt.
Thanks to the existence ofSurety BondThe project owner immediately files a claim against the Performance Bond issued at the start of the project. The surety company disburses the bond to the project owner as compensation. With these funds, the project owner can find a new contractor to continue the remaining work without losing their investment.
In this case, there was no physical damage to the project, so the CAR policy could not be activated. The only savior was a Surety Bond, which guaranteed the continuity of the contract.
The two examples above clearly demonstrate that dual protection is a must. It’s a smart strategy for anticipating various types of unpredictable risks.
The Role of Insurance Brokers in Securing Projects
Choosing a policyCAR/EAR Insuranceand productsSurety BondChoosing the right policy can’t be done haphazardly. There are many technical details to consider, from policy type, additional clauses, coverage amount, to the specific project risk profile.
This is where construction insurance brokers likeL&G Insurance Brokerplays a vital role. Brokers are not just policy sellers, but professional risk advisors who ensure your project is protected without any flaws.
What does L&G Insurance Broker do?
- Comprehensive Risk Analysis:Our team of experts will conduct an in-depth analysis of your project to identify all possible risks.
- Preparation of Protection Combination:We will create the most optimal and efficient combination of protection, namely a CAR/EAR Insurance and Surety Bond package that suits your project needs and budget.
- Access to Trusted Networks:We provide access to trusted insurance companies and underwriters, both local and international, so you get the best product choices.
- Negotiate the Best Premium and Terms:With our experience and business volume, we can negotiate more favorable premiums and policy terms for you.
- Claim Process Assistance:In the event of an incident, we will assist you through every step of the claims process, from document collection to negotiations with the insurance company to ensure your claim is processed quickly and thoroughly.
With the help of a broker, you don’t have to be confused by technical complications. Everything has been handled by experts who are on your side.
Why Choose L&G Insurance Broker?
L&G Insurance Broker has proven to be one of the leading insurance brokers in Indonesia with over 30 years of experience. Our reputation is built on integrity, expertise, and a commitment to providing the best solutions for our clients.
- Specialization:We have a team that specializes in project and construction insurance, understanding every detail of risk from A to Z.
- Wide Network:Our extensive network with local and international insurance companies ensures you get competitive offers and suitable products.
- Full Support:We don’t just sell policies, but also become strategic partners who accompany you from the beginning to the end of the project.
- Focus on Clients:We work entirely in the interests of the client, not the insurance company.
With this reputation and experience, L&G is not just selling policies, but truly becoming a strategic partner to protect your project investment.
Conclusion
In the risky construction industry, relying on only one coverage is a very dangerous decision.CAR/EAR Insurance And Surety Bond must go hand in hand to create total and comprehensive security.
With double protection, your project:
- Safe from unexpected physical and technical risks.
- Guaranteed against contractor default which can destroy contracts and schedules.
- More trusted by investors and business partners,open up greater funding opportunities.
The next step is in your hands. Don’t wait until a loss occurs to realize the importance of double protection.
📞 Get in touch L&G Insurance Broker now at 0811-850-7773 for a free consultation regarding your project insurance needs.
