Widya Teknika Vol.20 No.

1; March 2012 ISSN

1411 - 0660: 31-38

CONTRACTORS IN APPRECIATION TO USE INSURANCE

CONSTRUCTION IN POOR

Dafid Irawan 1), Riman 2)

ABSTRACT
Construction is a project that has the potential risks are relatively high, compared to non-construction work such as manufacturing. The
amount of potential that they face, causing the contractor must find ways to manage risk by using insurance. This study aims to look at the
usual types of projects covered by insurance, types of insurance, the risks that often occur, and understanding the contractor on the
importance of insurance as an alternative risk transfer projects. Random sampling in the contractor in Malang. A questionnaire was used as a
means of collecting data, the results are processed using descriptive statistics. To find out the contractor understanding of the importance of
insurance used ImportancePerformance Analysis. The results showed that the type of project that many insured is the building project,
drainage and government infrastructure projects. This type of insurance is often used is

Contractor All Risk (CAR). Risk is often the case in the project is inflation, rising prices, theft and robbery, as well as damage to equipment and
machinery. From the results of Importance-Performance Analysis, that quite a lot of respondents who know the importance of insurance for
construction projects, and pretty much do it, most of the respondents considered that the use of insurance will reduce the profits of the project,
because of the risk of collateral is rare (53%). Other results showed large premiums paid contractors kapada insurance companies are quite
small (1-7%) compared to losses which must be reached if there is a risk (40%), average premiums received reached (20%).

Keywords: Appreciation, Contractor, Development, Construction.

PRELIMINARY construction and insurance companies in Malang shows that the

The construction project is one of the projects that have
the potential risk is relatively high, compared to projects in the
field of non-construction jobs, such as manufacturing, because of
its unique, dynamic and complex. Along with the implementation
of the project, contractors often have to face risks that could give
rise to obstacles and difficulties in the course of project
implementation. Basically, it is already a risk that must be faced in
implementing the project, but which need to be considered is the
impact of the risk incurred. The impact of risk can result in
changes in the implementation schedule, cost and quality of work.
public perception of the construction industry, in particular
contractors, will transfer the risk by using insurance
very
low. This is reflected in their participation in the insurance not
because awareness of the importance of the transfer of risk, but
the emphasis as required under the contract (Rahayu, 2001).
To know how perceptions
Public construction industry (contractors) in
Malang in using insurance to transfer risk on construction
projects, need to do some research. The research will be carried
out on contractors in Malang.

The purpose of this study was to determine the types of

Because the portion of the risk faced by the contractor is
so great, we need a way of handling risks. Different ways of
handling risks that can be done on the construction project is to
avoid the risk, reduction
projects which ordinary insured by the contractor, type of
insurance are commonly used by contractors, the type of risk that
often happens in projects that need to be included within the
scope of insurance risk and how much understanding of the
contractor will be important insurance on the construction project.

risk, detain risks and

transfer of risk. For the treatment of risk by means of risk transfer
can be done risk Financing namely by allocating specific funds for RESEARCH METHODS
the risks manangani. One of the allocation of funds used to
The research method for developers appreciation models in
finance the procurement of insurance which is basically an
the use of insurance on the construction of housing in Malang,
alternative to the transfer of risk to another party (Suprapto,
generally consist of:

• Population and research sample.

1999). result • Sampling method.

study conducted in • Construct a questionnaire.

contractor who is / has been working on the project • Data collection.

• Data analysis.

1) & 2) Lecturer Department of Civil Engineering - Widyagama University of Malang

31
 WIDYA TEKNIKA Vol.20 No.1; MARCH 2012: 31-38

• Framework research sample because there is no qualified companies K1 (small) in

East Java, which operates in the international scale.
procedures groove more research
is presented in Figure 1 the following flow chart.
b. Type a project done respondent
from
The types of projects should be given on Figure 3 below:

issues

100%

50%

Study of literature Field Study

0%
1 2 3 4 5 6 7 8 9

Doing 51% 71% 24% 0% 88% 12% 88% 29% 6%

Not Implement 41% 29% 76% 100% 12% 88% 12% 71% 94%

manufacture construct
questioner
Figure 3. Types of Projects Done
respondents

Spreading From the data above shows that projects of irrigation and
questioner
drainage, and telecommunications projects: tower telecom,
network installation cables and so on is a project that is quite
dominant done by the respondents, namely 88%, in addition to
Data Analysis:
Descriptive Quantitative
building projects and housing 51%, as well as infrastructure
Important-Performance projects (government-owned) such as roads and bridges 71%, as
analysis
well as ports and airfields.

Conclusions &
Recommendations
c. The use of insurance in the project

From all contractors on-survey

available that 29% contractor
Done insure all projects,
while 53% do not insure all of its projects.
The rest, 18% insured
Figure 1. Flowchart of Research some of the projects (Figure 4) the reasons why they use and
no

RESULTS AND DISCUSSION using the insurers can be seen in Figure 5 and Figure 6.

a. Description of the type of ownership of the company respondents

Most; 18

%
Yes; 29%

Figure 2 below The profile

respondents by type ownership
No ; 53%

company.

SOE; 0%

Multi-National; Figure 4. Use of Insurance by

0%

Contractor
National
Private; d. Percentage of projects Insuring Most Her
100%

project

Figure 2. Types of Corporate Ownership From Figure 3 it can be seen that 18% of contractors
respondents insuring only partial

From Figure 2 above shows that the state-owned project. percentage number of projects

company into the sample does not exist, all of them as many as be insured by contractor that

17 companies, is a national private company. This is due to partly insure the project can be seen in Figure 5.

sampling random,

so that every company has an equal chance to be sampled.

There is no multi-national companies are drawn as

32
 APPRECIATION CONTRACTORS ... .. CONSTRUCTION IN POOR [DAFID IRAWAN & Riman]

In Figure 7 shows that the most common reasons for not

a) 21% <100% of the

Project; a) 1-10% of the

using insurance is because the value of the project is small and
not required by owner, also because it is not required under the
b) 0% Project;

b) 33%

contract. It is very related to the previous image. Figure 7 shows

that the highest percentage of respondents to the use of
a) 11-20% of the
Project;
b) 67%

insurance

Figure 5. Percentage Projects Insuring Most

also leads when
Her project
required under the contract, then that contract that requires the
The figure above shows that the contractor use of insurance then the insurance is not used. In most of the
insuring partially interview, there are some respondents argued that insurers only
project (11-20%) 67% 3 respondents. Even then, when there is a reduce profits or benefits of the project, due to the fact that the
request from the owner of the project ( owner) or if required in the risk had feared happened turned out to be very rare.
employment contract. More details about the motivation of the
respondent to implement the insurance can be seen in Importance-Performance
Analysis.

h. Description of the type of projects that are insured

e. Reasons insure project

From the survey data obtained insured types of projects
Figures 6 and 7 below this will such as Figure 8 as follows:
show some reason why
respondents (contractor) choose for 80%

using or not using insurance as a risk diversion projects that they

60%

carry out.
40%

20%

f. Reasons contractors insure all of its projects 0%

2 3 4 5 6 7 8 9

Uninsured 80% 60% 40% 20% 80% 20% 20% 20% 20% No

20% 40% 60% 80% 20% 80% 80% 80% 80% 1

100%

80% Figure 8. Type Project

60%
be insured
40%

20% From Figure 8 above shows that the project buildings /

0%
1 2 3 4 5 6 7 8
warehouses and residential irrigation and drainage project
Yes 40% 100% 60% 80% 100% 100% 0% 0%
also ranked highest on the projects that are insured by the
60% 0% 40% 20% 0% 0% 100% 100%

respondents (80%). This is due to buildings, especially

Figure 6. Reasons Respondents Insuring high-rise buildings and irrigation and drainage projects have
fairly high complexity, so the chances of risks that occur will
Seen in the picture, that most respondents use insurance
be greater. Opportunities this big risk that causes
for high-risk construction projects and requested by the project
owner or as specified in the employment contract. But most
precisely using the insurance because they are aware that the
implementation of the project a long time increase the risk and
attempted for
value of projects which likely means the possible risks greater.
transfer risk in the insurance job. Infrastructure projects road
and bridge projects is the second of the insured (60%).

g. Reasons contractors no
i. Insurance used
insure all of its projects
From the survey data obtained commonly used types of
90%

80% insurance such as Figure 9:

70%

60%
100%
50%

40%
80%
30%

20% 60%
10%

0% 40%
1 2 3 4 5 6 7 8

Yes 11% 33% 56% 22% 56% 56% 11% 33% No 89% 67% 44% 78% 44% 44% 89% 67% 20%

0%
2 3 4 5 6 7 8 9 10 11 12

Figure 7. Respondents Reason Not Using 80% 0% 0% 0% 20% 0% 0% 20% 0% 0% 0% 0% No

20% 100 100 100 80% 100 100 80% 100 100 100 100 1
Insure
Figure 9. Insurance Type Used
Respondents in Construction Projects

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 WIDYA TEKNIKA Vol.20 No.1; MARCH 2012: 31-38

From the survey it was only three types of insurance used Table 1. Risk type that occurred in the Project
by contractors, namely: CAR, Operation Completed Libiality
Insurance, Cargo Insurance. But the majority of contractors (80%) No. type Risk
Very
rarely
Rarely moderate Often
Very
often

using CAR insurance ( Contractor All Risk). Selection of this type

0-20% 20- 40- 60- 80-
of insurance can be obtained assurances various types of risk 40% 60% 80% 100%
1 the collapse of the structure 17
that often happens in projects with just one policy. Selian CAR 2 Windstorm 16 1
3 Landslide (landslides) 14 3
insurance premiums paid fairly mild. Details reason for using this 4 Flood 13 3 1
Fire
type of insurance and the amount of the premium paid can be
5 15 1 1
6 Earthquake 15 2

seen in Figure 10 and 11 below. 7

8
Struck by lightning

Decreased water level

17
17 1
9 Erosion 14 1 1 1
10 Volcanic eruptions 17
11 Cracks and leaks 14 2 1
12 Damage dewatering system 14 1 1 1
13 Work accident 6 5 4 2
14 Inflation 3 5 4 5
15 Ambiguity contract 12 1 4
16 regulatory changes 13 1 1 1 1
100%
17 Price increases 2 2 4 4 5

80% 18 Strikes and riots 15 1 1

19 Theft and robbery 10 1 2 3 1
60%
20 Selm risk of future maintenance 12 3 1 1
40% 21 Implementation method is wrong 15 1 1
22 Wrong design 13 1 1 1 1
20%
23 Designs that can not be implemented 13 1 1 1 1

0%
24 Pd damage transp facilities. 13 1 1 1 1
1 2 3 4 5 6 25 Damage to the existing land bawh 16 1

Yes 80% 20% 40% 60% 80% 0% 26 Delay mtrial & supplier 10 1 2 2 2
27 Vibrations, moving the carrying capacity 13 1 1 2
No 20% 80% 60% 40% 20% 100%
28 For the cost of overtime work tambahn 12 1 2 1 1
29 Damage / ketdklengkapan dock 12 1 1 1 2

Figure 10. Reasons to Use Insurance 30 Damage to equipment and machinery 5 2 2 4 4

31 Delay pemb olh owner 11 1 2 1 2
a) 5-7% a)> 7% 32 Disruption of traffic in the project 9 2 2 2 2
b) 20% b) 0% 33 Late start pack owner 10 1 2 2 2
34 Accidents, damage, loss of vehicle 15 1 1

35 Differences in interpretation of the spec. 12 2 1 1 1

Source: Survey Contractors in Malang 2010

a) 3-5% Table 1 above shows that according to the

a) 1-3%
b) 20%
b) 60% respondents the risks can occur in construction projects with very
common frequency up to extreme
rarely happening.
Figure 11. The amount of premiums to the value
Research on the risks that occur in this project aims to determine
Project
whether the insurance used by respondents already include the
Figure 11 shows that the premiums have to be paid by risks this. Basic information about these types of risk will be
the contractor to the insurance company only between 1 - developed (in subsequent research) to see if the risks are
covered by insurance type situation already cover these risks.
7% of the project value. This includes small when compared
to the loss to be borne by the contractor
when occur risks in
implementation of the project. According to the survey data
in Figure 5.11. losses to be borne by the contractor as a k. Contractor claims against the Insurance Company
result of the risk in the project reaches 40% of the project
value.
(A) 21% -40% value, (b) per cent of
From the results of a survey of contractors who
(A) 0% -20% value, (b) per cent of

mengansuransikan project. It is known that as many as 80% had

respondents 40%
respondents 60%

had a claim, while the remaining 20% ​never make a claim. The
Other 0%; 0%

result can be seen in Figure 13 the average values ​obtained can

be seen in Figure 13 below.

Description: (a)% Losses if there is a risk

(B)% of respondents
(A) Never a claim, (b) per cent of
(A) claims, (b) per cent of respondents 80%
respondents 20%

Figure 12. Losses In Case Risks

j. Description of Risks in Projects Happen

Risks that might happen in the project, can be presented in

the following description.

Figure 13. Respondents Claim

Insurance company

34
 APPRECIATION CONTRACTORS ... .. CONSTRUCTION IN POOR [DAFID IRAWAN & Riman]

l. The average value Retained Claims
Most respondents (80%) stated that the average value of
the claim obtained by the contractor who had done by 1 - 10% of
the project value. 20% of respondents said the average value of
claims amounted to 11-20% of the project value. These results
can be seen in Figure 14 below.
(A) 11% -20% value, (b) per cent of
e) Respondents rated 0 (zero), is the respondents who do not
mengansuransikan all projects ( Zero Performance).
Scoring is done by looking at the answers
respondents in the questionnaire and
Researchers consideration when conducting interviews. Table 2
and Figure 15 the following is the result of processing Importance-Performance
Analysis.
(A) 1% -10% value, (b) per cent of

respondents 20% respondents 80%

Other 0%; 0%

Table 2. Studies of Respondents

Importance Performance
No. respondents
(I) (P)
1 Respondents-1 5 6
2 Respondents-2 0 0
Description: (a)% Value of the project claim 3 Respondents-3 8 5
(B)% of respondents

4 Respondents-4 7 5
5 Respondents-5 7 5
Figure 14. Claims against Project Value
6 Respondents 6 0 0
7 Respondents-7 0 0
m. Importance-Performance Analysis
8 Respondents-8 0 0
On Impotance-Performance analysis, 9 Respondents 9 7 5

a study of the level of understanding and implementation of the 10 Respondents-10 0 0

contractors in the use of insurance is done by providing 11 Respondents 11 10 8

12 Respondents 12 7 3
qualitative weight, with a range from 0 to 10. Respondents were
13 Respondents 13 0 0
said to have 14 Respondents 14 0 0
comprehension 15 Respondents 15 0 0
( importance) about insurance if he 16 Respondents 16 0 0
know that : 17 Respondents 17 5 3
a. Insurance is needed in construction projects given the nature Average 7 5
of the dynamic and complex projects. (Score 3). Source: Calculation Results 2010

High Performance

b. Risks that occur in the project, such as work accidents caused

10

by human error, natural (external factors) and others, are so

8

high that can cause substantial losses. (Score 3).

6
High Important
low Important 5

c. The cost of large projects can increase the odds of risk. (Score
0

0 1 2 3 4 5 6 7 8 9 10

2).
low Performance

d. The timing of the project long enough a factor to be taken into

Figure 15. Assessment of the respondents
account the risks, so that the insurance can be used as an
( IP Output Analysis)
alternative risk transfer. (Score 2).
From Figure 15 above it can be seen that the average Importance
e. When respondents carry out insurance because of demand or Contractors in Malang tend
because the owner is required in the contract, then the high, so also average
respondent will be given a value of 0 (zero), meaning that it is Its performance was. This means quite a lot of respondents who
considered not know the importance of insurance for know the importance of insurance for construction projects, in
construction projects ( Zero Importance). addition to quite a lot of others do it, although associated with
disyaratkannya in the contract or demand of owner. As

respondents said doing

already
( performance) when he used the insurance in the projects,
described above, a number of respondents who actually believe
although the grounds that it was done because:
that the use of insurance will only reduce the profit of the project,
due to the risk of collateral often rare.
a) Required contract (Value 3)
b) At the request of the project owner (Value 3)
n.
c) Payment of premiums are quite light / small (Value 2)
Risk premiums comparison with the project

d) Other reasons, such as the presence of attractive offers from From the research results it can be seen that the
insurance companies (Value 2). construction project heavily laden with risks such as inflation,
rising prices, theft and

35
 WIDYA TEKNIKA Vol.20 No.1; MARCH 2012: 31-38

robbery, as well as other risks as dilihatkan in Table 1. The data This condition is the evidence that insurance is one
also showed that the losses incurred by the contractor can effective way to transfer risk. Therefore the use of insurance
achieve should be considered by the contractor. For contractors who do
40% of the value not want or use the insurance, they must consider other ways to
project (Figure 12). handle the risks that occur in the project.

The above conditions make the contractor must think of

ways of handling risks, such as: avoidance
risks ( risk Avoidance)
risk reduction ( Risk Reduction), containment of risk ( Risk p. Understanding comparison Contractors
Retention) and transfer of risk (risk transfer). Insurance is a form by Socialization Insurance
of risk management by way of transfer of risk ( Risk Transfer).
From Figure 4 (use of insurance by the contractor) is still
risks should many companies that do not insure their projects (53%) and the
borne by the contractor, transferred to insurance companies to results
pay for the risk insured. Importance - Performance Analysis ( Figure 16) looks still many
construction companies are reluctant to insure
projects,
Figure 11 shows that the average amount of the premium unless specified in the employment contract. Whereas Figure 15
paid to the insurance company contractors ranged from 1% to 3% shows that the contractor Importance or understanding of the
of the project value. Although some of the premium value importance of insurance is quite high.
reached 7%. This value is quite small when compared to the
amount of losses to be borne by the contractor by 20% - 40% of
the project value, if there is a risk. That is, the contractor knows the importance of insurance,
however tend reluctant
implement them. Figure 18 below presents the results of research
on how or business
o. Premium Comparison With Value Claims insurance companies in disseminating programs.

A survey of insurance companies showed that quite a lot of

claims of contractors on the risk of collateral. Figure 16 shows the 100%

average number of claims incurred in the

80%

60%

40%

1 (one) year 20%

the contractor filed in insurance companies as much as 80% of 0%

1 2 3 4 5

respondents from the insurance company stated in 1 (one) year Implement 100% 100% 60% 100% 60%

No 0% 0% 40% 0% 40%

more than two (2) times

occur claims to be paid Figure 18. Program Socialization Strategy
the insurance company to the contractor. 20% of respondents Insurance
stated value of the claim to be paid 1-10% of the value of the
From the above data it can be seen that the actual effort
contract.
(effort) insurers to socialize
100%
programs that
its pretty good and varied, but the results are less encouraging.
Less encouraging results can be seen from Figure 19 on
50%

insurance developments from year to year.

0%
1 2 3

Yes 0% 20% 80%

No 100% 80% 20%

Picture mentioned show
The customer growth at position 1 - 10% per - year.
Figure 16. Average Number of Claims
Occurs in 1 Year
Increased
other;
10-20% / yr; 20%
0%
11-20% Value of the 1-10% Value of the
Project; 40% Project; 60%
Other 0%; 0%

Increased 1-10%
/ year; 80%
Notes: a)% increase in customers

Description: (a)% Claims paid by insurers b)% of respondents

(B)% of Respondents

Figure 19. Development of Insurance

Figure 17. The average value of claims
Year to year
Paid Insurance Company

36
 APPRECIATION CONTRACTORS ... .. CONSTRUCTION IN POOR [DAFID IRAWAN & Riman]
If explored further unfavorable developments
the possible
due to the type of socialization strategies in use are still very
conventional insurance companies, for example, provide an
explanation if no one comes to the office, or simply entrusted to
the agent / broker (Figure 19).
Insurance companies need to think about the type of
socialization strategies in other ways, such as holding forums
such intellectual seminars or workshops on the use of insurance
to the construction projects,
as well as introducing
insurance programs they have.
CONCLUSIONS AND RECOMMENDATIONS
From the foregoing discussion of results and conclusions
can be drawn as follows:
1. Types of projects that many contractors are insured by the
project buildings / warehouses and residential irrigation and
drainage project also ranks
supreme (80%) of
projects that are insured by the respondent. Thing
this caused the building,
especially high-rise buildings and projects
irrigation and drainage have
complexity is quite high, so the chances of risks that occur
will be greater. chance
great risk this
causing both project owners and contractors seek to transfer
risk in the insurance job. Infrastructure projects
road and bridge
ranks second on the projects that are insured (60%).
2. This type of insurance is often used by contractors, there are 3
types, namely: CAR,
Operation completed
insurance, Cargo Insurance. But the majority of contractors
(80%) using CAR insurance ( Contractor All Risk). Selection of
this type of insurance can be obtained assurances various
types of risk that often happens in projects with just one
policy. Selian CAR insurance premiums paid relatively
lightweight (approximately 1-3% of the project value) for
certain conditions to reach 7%.
3. The type of risk that often occurs in the project can be seen in the
following table : work accident,
inflation, tidakjelasan contract, price increases, theft and
robbery, damage to equipment and machinery.
4. Understanding contractors the importance of
Insurance can be described in the "Know ak an importance of
the use of insurance ( importance) "And" Implementing the
project- project ( performance) ". From
result Importance -
performance Analysis it can be seen that that the average Importance
Contractors in Malang tends to be high, so is the average
Performance- his being. This means quite a lot of
respondents who know the importance of insurance for
construction projects, in addition to quite a lot of others do it,
although associated with disyaratkannya in the contract or
demand of owner,
others are just some of the respondents thought that the use
of insurance will only reduce the profit of the project, due to
the risk of collateral often infrequent (53%).
5. Large contractors premiums paid to insurance companies are
relatively mild (1-7%), when compared to the amount of
losses to be borne by the contractor when something
happens the risk reaches 40%.
6. Large premium paid to the insurance company contractor
quite small, if
compared to the value of the claims paid by insurance
companies to contractors who make a claim for
occurrence risks
reach (20%).
7. Developments wearer insurance program for construction
projects from year to year is less encouraging (1-10%),
whereas the understanding contractor
that
the importance of
insurance is quite high. Socialization is right by the insurance
company is required to increase the use of insurance
programs for the construction project. Based on the
conclusions
above, can
presented the following suggestions.
1. This study is just the basic research that needs to be
developed further, namely the contractor in the face of risk
Libiality
when not using insurance as an alternative to the transfer of
risk.
2. From the results of this study shows that the CAR insurance ( Contraktor
All Risk) is still the most widely used insurance contractors.
Therefore, it needs to be examined more deeply about this
type of insurance and risk coverage.
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 WIDYA TEKNIKA Vol.20 No.1; MARCH 2012: 31-38

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