Welcome to Liga Asuransi which specifically discusses risk management and insurance for various sectors, including housing, construction, finance, and national projects. This article is intended for developers, contractors, financing institutions, and government officials who are or will be involved in the construction of public housing.
This time, we will discuss how construction insurance can be an important tool for developers of subsidized housing projects to build safely, efficiently, and sustainably. If this article was helpful, feel free to share it and explore hundreds of other articles on our blog.
The Private Role in the People’s House Program
In an effort to reduce the housing backlog that has reached millions of units, the Indonesian government has engaged the private sector to participate in the people’s housing development program, especially for low-income communities (MBR). The Prabowo Subianto administration continues the national commitment to provide one million houses every year, where the implementation largely depends on the role of local developers, including medium and small-scale developers.
The participation of private developers is key to accelerating the realization of subsidized housing projects, because they are closer to the needs of the community and are able to flexibly adjust the design and location of the project. However, amid these opportunities, developers also face major challenges—ranging from limited funding, technical constraints, to fluctuations in material prices and social risks such as land conflicts or community rejection.
In such conditions, developers must think more strategically, not only about design and construction, but also how to protect the project from the risk of loss that can hinder or even stop construction. One of the most effective and often overlooked solutions is the use of construction insurance and project-related insurance. Proper protection from the start of the project will provide legal certainty, financial protection, and increase trust from investors, banks, and consumers.
Development Risks Faced by Developers
Getting involved in a public housing project is not a simple matter, especially for small and medium-scale developers who have limited capital and resources. Although the subsidized housing market looks promising due to high demand and government support, in reality, the construction process is full of challenges and risks.
- Technical and Operational Risks
Design errors, substandard construction quality, and work accidents are common risks that can occur in the field. Projects that are driven by time and low cost targets have the potential to create structural problems that can damage the developer’s reputation and trigger legal claims from buyers.
- Weather and Natural Risks
Indonesia as a tropical country has high rainfall and is prone to natural disasters such as floods, landslides, or earthquakes. In these conditions, construction work can be disrupted, even damaged, before the house is finished. Every damage means additional costs that can drain the developer’s cash flow.
- Social Risks and Licensing
Land disputes, rejection from the surrounding community, and delays or changes in local government policies can hamper the smooth running of a project. These things often occur in the field and cause significant losses of time and money.
- Financial and Reputational Risks
Delays in project completion can cause developers to have to pay fines to buyers or even lose the trust of financing institutions and investors. In a cooperation scheme with the government or banking, this is very fatal and can lead to project termination or termination of cooperation.
Facing these risks, developers cannot rely solely on technical planning. They also need a comprehensive risk mitigation strategy, and one crucial step is to prepare insurance protection from the start of the project.
Construction Insurance: Relevant Products
To face the various risks in the construction of public housing, developers need strong and flexible financial protection. Construction insurance is present as the main solution that can protect developers from major losses due to technical incidents, accidents, or natural disasters during the project period. Here are some relevant and recommended insurance products for subsidized housing project developers:
CAR insurance is a form of comprehensive protection against physical damage during construction. The coverage of this policy includes fire, flood, earthquake, material theft, human error, and equipment damage. This product is very important because losses due to damage in the middle of a project can be worth billions of rupiah and threaten the continuity of the project as a whole.
TPL insurance provides protection against claims from third parties who suffer losses due to project activities. For example, a resident who is hit by building materials, or a neighbor’s property damaged by heavy equipment work. In projects located in densely populated areas, this policy is highly recommended.
- Delay in Start-Up (DSU) Insurance
This product provides compensation for financial losses arising from delays in project completion caused by risks covered by the CAR policy. DSU helps developers maintain cash flow, especially if the project is late in being handed over or disrupts the financing plan to the bank.
- Performance Bond
While not technically insurance, a performance bond guarantees that the developer will complete the project as per the contract. In the event of default, the project owner can cash in the bond to find a replacement contractor or complete the construction. This is important in projects in collaboration with the government or large developers.
- Contractor’s Plant & Machinery (CPM) Insurance
CPM policy protects construction equipment and machinery from damage or loss. For developers who own or rent heavy equipment such as excavators, generators, or mixers, this policy is very useful so that repair or replacement costs do not disrupt the project budget.
The selection of insurance products must be adjusted to the scale of the project, location, dominant risk types, and specific needs of the developer. In this process, the presence of an experienced insurance broker is essential to ensure optimal coverage and premium prices.
Developer Strategy to Manage Risk Through Insurance
Managing risk in public housing projects is not just about transferring risk to the insurance company, but also how developers intelligently plan and place the right protection from the start of the project. Here are some effective strategies that developers can implement:
- Identify Risks from Planning
The first step a developer must take is to identify all potential risks—technical, legal, and social—before starting a project. This includes the project location, soil conditions, construction season, and potential conflicts with the surrounding community.
- Develop an Insurance Scheme Based on Risk
Once the risks have been identified, the developer must choose the appropriate insurance type. For small to medium-sized projects, a combination of CAR + TPL is the minimum package. However, if there is a potential for delay, an additional DSU policy is highly recommended. If owned equipment is used, CPM should also be considered.
- Involve an Insurance Broker from the Start
Many developers still rely on agents or deal directly with insurance companies. In fact, professional insurance brokers such as L&G Insurance Broker have an important role in developing the right and competitive protection solutions. Brokers can help:
- Arrange insurance requirements according to project plan.
- Providing quotes from various insurance companies.
- Simplify the claims process in the event of an incident.
- Provide risk education to project teams in the field.
- Short Study: Protected vs Unprotected Developers
A public housing developer in West Java experienced a major flood that damaged 80% of the buildings under construction. Because it had an active CAR policy, the insurance company paid compensation of Rp 4.5 billion and the project could be continued within two months. Meanwhile, a similar project in another area, which was not insured, was forced to stop because the losses were too great and there was no reserve fund.
With the right strategy, insurance becomes not just an additional expense, but a project safety tool that can maintain business continuity and the developer’s reputation amidst field challenges.
Developer Profit Simulation with Insurance Protection
To understand the real impact of using insurance in public housing projects, let’s look at a comparison of two project scenarios with and without insurance coverage:
Scenario A: Project Without Insurance
A small developer in Central Java built 100 subsidized housing units. In the middle of construction, a fire broke out due to a short circuit in the work equipment, destroying 40 semi-finished houses. The total loss reached Rp 2.8 billion. Because they did not have a CAR policy, they had to bear all the losses themselves.
As a result:
- The project stalled due to lack of funds.
- Developers must sell personal assets to complete parts of the project.
- Relations with financing banks deteriorated.
- The developer’s good name is tarnished in the eyes of consumers and the government.
Scenario B: Project with CAR + DSU Insurance
Another developer with a similar project had an active CAR policy. When a flash flood damaged 35 houses, a claim worth Rp 2.2 billion was filed and paid within 30 days.
The impact:
- The project is still ongoing, although it has been delayed.
- Relationships with buyers and banks are maintained.
- Developers are still trusted to participate in tenders for the next housing project.
From this simulation, it is clear that insurance is not just a formality, but a risk management tool that has a direct impact on cash flow, project continuity, and business reputation. Proper protection will be an important pillar for developers in facing unexpected situations in the field.
Conclusions and Practical Recommendations
The construction of people’s houses is both a social mission and a promising business opportunity. However, for developers—especially small and medium-scale ones—this project is full of challenges and uncertainties. Technical risks, extreme weather, social conflicts, and strict regulations can threaten the smoothness and profitability of the project at any time.
This is where construction insurance becomes an important tool in risk management, not only as a form of protection against losses, but also as a strategy to maintain cash flow, reputation, and stakeholder trust. Products such as Construction All Risks (CAR), Third Party Liability (TPL), DSU, CPM, and Performance Bond need to be part of the project planning from the beginning, not a decision in the middle of the road.
Developers are also advised not to manage insurance directly or only through agents, but to work with professional insurance brokers such as L&G Insurance Broker who can help design protection solutions according to the specific needs and risks of the project. Brokers will ensure that policy coverage is optimal, premiums are competitive, and the claims process is handled quickly and fairly.
As a recommendation, the government also needs to encourage education and regulations that strengthen the culture of risk protection among developers. Thus, the people’s housing project is not only physically completed, but also economically sustainable and trusted in the eyes of the public.
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