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In this edition, we will review in depth the strategic role of insurance in supporting and securing the Government Housing Program, especially in the era of President Prabowo’s leadership. This article was prepared to provide practical and applicable insights, both for industry players and parties directly involved in public housing projects.
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President Prabowo Subianto’s government emphasized its commitment to continuing and strengthening the public housing program as part of the grand national development agenda. One of the main priorities is accelerating the construction of livable houses for low-income people (MBR), state civil servants, as well as TNI and Polri soldiers. The ambitious target set is to build up to one million housing units every year, prioritizing the principles of affordability, equity and sustainability.
To realize this target, the government is opening a wide space for collaboration between the public and private sectors. The role of housing developers—both large, medium and small scale—is crucial in implementing this project in the field. Apart from that, banks, financing institutions and investors are also involved in supporting funding through home ownership credit (KPR), FLPP and public-private partnership (PPP) schemes. However, amidst these big ambitions, various financial, technical and legal risks remain looming. Therefore, a careful and comprehensive risk mitigation strategy is needed—one of which is through risk management using appropriate insurance from the early stages of the project.
Risks in Mass Housing Projects
The program to build a million houses does offer promising prospects, but behind it there are various risks that could disrupt or even thwart its implementation. On a project scale involving hundreds to thousands of housing units, the risks faced are not only greater, but also more complex. These risks can be grouped into three main categories: technical, financial, and legal.
Technical risks include various obstacles that arise during the construction process. Starting from physical damage to buildings due to design errors or construction implementation, delays in material delivery, structural failure, to work accidents at the project site. Extreme weather conditions such as floods or landslides can also cause major disruption to project schedules.
Financial risks arise when there is a spike in the price of building materials, exchange rate instability, or payment failure from third parties such as subcontractors or suppliers. This risk also includes the potential for default by home buyers who use KPR facilities, which ultimately has an impact on the cash flow of developers and financing institutions.
Legal and social risks include land disputes, incomplete permits or legal documents for the project, and rejection from the surrounding community due to lack of outreach or the resulting environmental impacts. In the context of government projects, potential policy interventions or regulatory changes are also risks in themselves.
All of these risks can lead to major financial losses, reduce developer credibility, and hinder government targets. Therefore, a systematic approach to risk management is necessary—and insurance is one of the most effective and reliable mitigation tools.
Types of Insurance Relevant for Housing Projects
In dealing with the complexity of risks in mass housing projects, insurance protection plays an important role as a mitigation instrument capable of providing financial guarantees, operational continuity and legal protection. The following are the most relevant and strategic types of insurance to be applied to government housing projects, especially on a large scale such as the Prabowo era Million Houses Program:
- Construction All Risks (CAR) / Erection All Risks (EAR)
CAR/EAR insurance is designed to protect construction projects from various physical risks during the construction period. The coverage includes building damage due to fire, natural disasters, heavy equipment accidents, construction errors, and material theft. This policy generally covers two main parties, namely the project owner and the implementing contractor. In housing projects, CAR is vital considering the high potential for technical and weather disruptions, especially if the project is carried out simultaneously in many locations.
- Third Party Liability (TPL)
TPL insurance provides protection against legal claims from third parties who experience losses due to project activities. For example, if an accident occurs to residents around the project or damage to other people’s property due to construction work. TPL is very important in public housing projects which are often built in densely populated areas.
- Delay in Start-Up (DSU) Insurance
DSU provides compensation for financial losses arising from delays in project completion due to risks covered by the CAR/EAR policy. In subsidized housing projects, delays can result in failure to hand over, loss of bank interest, or loss of rental and mortgage income. DSU helps maintain the developer’s cash flow and financial obligations.
This type of coverage is not conventional insurance, but has a similar role in guaranteeing project performance. Performance Bond guarantees that the contractor will complete the work according to the contract. If a default occurs, the bond can be withdrawn to cover replacement costs. On the other hand, Surety Bonds are used to guarantee payment or procurement obligations by the parties involved in the project. These two products support certainty in project implementation and increase government confidence in private contractors.
After construction is completed and the house is handed over to the owner (MBR), property insurance becomes important to protect assets from fire, flood, earthquake and theft. The government can encourage schemes micro insurance or mass insurance with affordable premiums to reach the wider community. This not only protects family assets, but also supports long-term social stability.
The types of insurance above not only protect the project physically, but also increase credibility, facilitate access to financing, and speed up project implementation. With the right approach and support from professional brokers, developers and the government can ensure that the million home project runs safely and on target.
Benefits of Insurance in Guaranteeing the Smoothness and Sustainability of Projects
Insurance in a housing project is not just a formality or contractual obligation. In the context of large-scale development such as the One Million Houses Program in the Prabowo era, insurance has a very crucial strategic role. Its function is not only to provide compensation for losses, but also to support the smooth running of the project as a whole, maintain the sustainability of development, and increase the trust of all stakeholders.
- Maintaining the Trust of Investors and Financial Institutions
Banks and financing institutions need assurance that the projects they fund have adequate risk protection. Insurance policies such as CAR and DSU provide confidence that the project will continue despite technical problems or disasters. This makes investors more confident in channeling funds or opening credit lines.
- Protects Developers from Huge Losses
In subsidized housing projects, developers’ profit margins are often thin. If an incident occurs such as a fire at the project site or material damage due to flooding, the costs that arise can be very large and have the potential to stop construction. With insurance, the developer has financial protection to cover these losses, so that the project can continue.
- Support Good Project Governance
Insurance encourages disciplined and professional project implementation. In the policy application process, the insurance company or broker will ask for technical documents, work schedules, risk analysis and mitigation plans. This spurs developers to plan projects more maturely and systematically.
- Adding Social and Economic Added Value
With insurance protection, the risk of failure to hand over the house can be minimized. This provides a sense of security for prospective residents, both in terms of building suitability and guaranteed completion time. The success of one project also increases public confidence in government programs as a whole.
With all these benefits, insurance is not a cost burden, but a high-value protection investment. The existence of appropriate insurance not only ensures projects go according to plan, but also strengthens the foundations of trust and sustainability in the national housing sector.
Case Study or Insurance Protection Scenario Simulation
To practically understand how insurance works in a housing project, let’s compare two different scenarios: one project that comes with adequate insurance protection, and another that has no insurance protection at all. Both projects are in the context of building 500 subsidized housing units in flood-prone areas.
Scenario 1: No Insurance
Project A begins construction without an insurance policy. In the fourth month, heavy rains caused major flooding that damaged the foundations and initial structures of 100 housing units under construction. The value of the loss is estimated at IDR 3 billion. Without insurance, developers must bear these losses themselves. As a result:
- The project experienced delays of up to 5 months.
- Cash flow was disrupted, leading to termination of contracts with several vendors.
- The bank postponed the next phase of disbursement because there was no guarantee of sustainability.
- The trust of the public and potential buyers has decreased drastically.
Scenario 2: With CAR and DSU Protection
Project B has a Construction All Risks (CAR) and Delay in Start-Up (DSU) policy. When a similar flood hits, damage to the affected units is immediately reported to the insurance company. After the investigation process, a claim of IDR 2.8 billion was approved and paid within 45 days. Positive impacts:
- The project was only delayed for 1 month, and additional costs were covered by the claim.
- Relationships with vendors and banks are maintained.
- The developer’s good name remains strong in the eyes of the government and society.
Simulation Conclusion:
Insurance protection has a real impact in maintaining project sustainability. It is not only about compensation for losses, but also about trust, credibility and financial sustainability. In public housing projects targeting low-income groups, time reliability and quality are critical. Insurance helps ensure that any disruptions that arise do not immediately stop construction.
Conclusions and Strategic Recommendations
The One Million Houses Program launched by the Prabowo government is a monumental step to overcome the housing backlog in Indonesia. However, for this program to run effectively and on target, risk management must be a top priority, considering the complexity of the project and the many stakeholders involved.
Insurance is present as a strategic instrument that not only provides financial protection, but also supports good project governance, strengthens investor confidence, and maintains program sustainability. Products such as CAR/EAR, TPL, DSU, and post-development property insurance must be part of the planning of every housing project, whether funded by the APBN/APBD or a public-private partnership scheme.
We recommend that:
- The government requires certain insurance coverage for nationwide projects.
- Developers work closely with professional insurance brokers to design protection solutions that suit your needs.
- Financial institutions require insurance policies as part of project credit approval.
With this approach, the national housing program will not only be physically completed, but its sustainability will also be guaranteed for all parties.
The important role of insurance brokers like L&G
In a project as large as the One Million Houses Program, the use of services insurance broker professional like L&G Insurance Broker it is critical to ensure risk protection is appropriate, efficient and beneficial to all parties. In contrast to agents who only represent one insurance company, brokers work independently and side with the client.
Brokers like L&G have access to various insurance companies, are able to carry out in-depth risk analysis, develop appropriate protection strategies, and handle the claims process professionally and quickly.
Arranging insurance directly with a company or through an agent often results in developers missing out on the best options, paying more expensive premiums, or getting coverage that doesn’t meet their needs.
With a broker, developers get comprehensive consulting services, defense in the event of claims, and ongoing support throughout the life of the project—ultimately increasing the success and safety of the housing project itself.
Looking for insurance products? Don’t waste your time and contact us now
HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)
Website: lngrisk.co.id
Email: oktoyar.meli@lngrisk.co.id
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