Premiums Greater than Claims, Upstream Oil and Gas Insurance Rated Still Prospective

JAKARTA - The Special Working Unit for Upstream Oil and Gas Business Activities (SKK Migas) assesses that the insurance sector related to upstream oil and gas activities still provides benefits for risk-bearing companies and this is seen from the comparison between the premiums received and the amount of claims paid, where the value of the premium is generally still greater.

Head of the Taxation, Insurance, and Treasury Division of SKK Migas Achmad Rezki Isfadjar explained that this condition makes insurance and reinsurance companies still view the upstream oil and gas industry as a promising sector in terms of business.

"It is Alhamdulilah that it receives more premiums than claims. This means that this business is profitable on the side of the risk taker," he said in the EITS Talk: The Great Potential of the Insurance Business Behind the Increase in Oil and Gas Production, Thursday, March 5.

Rezki emphasized that the use of foreign insurance or reinsurance companies does not necessarily harm the insured party.

He cited an experience in the 2012-2013 period when claim values increased drastically to reach two to three times the average annual premium and at that time, the total claims even exceeded US$160 million, a figure considered very large for the insurance industry.

According to Rezki, the existence of insurance allows oil and gas contractors to remain focused on pursuing production targets without having to be burdened with asset repair costs due to unforeseen events.

He added that without insurance protection, any operational damage would be the responsibility of the state through the cost recovery mechanism.

According to him, most of the oil and gas contracts still use the cost recovery scheme by the state, the damage to uninsured assets has the potential to directly reduce state revenues.

"This means that it is important and necessary for us at SKK Migas to secure these assets through insurance," he explained.

Rezki explained that the need for asset protection is also increasing as the activity of drilling oil and gas wells increases, where the number of wells drilled has increased significantly, from around 200-300 wells per year to almost 1,000 wells in the 2022-2023 period.

He added that the increase in the number of operational assets automatically increases the potential risks that must be faced.

Rezki also reminded that without adequate protection systems, incidents such as wild bursts or blowouts can cause very large financial losses for the national oil and gas industry.