Contractor All Risk Insurance Malaysia

If you’re involved in construction in Malaysia, you’ve probably encountered the term “Contractor All Risk insurance” in tender documents, bank requirements, or contract clauses. Understanding this cover is essential for anyone building in this market.

This guide breaks down everything you need to know about contractor all risk insurance in Malaysia, from what the policy covers to how you can arrange one efficiently. Whether you’re a main contractor bidding on a government project or a developer financing a mixed-use development, this article will help you navigate the essentials.

At Foundation, we specialise in providing tailored insurance solutions for the Malaysian construction industry. With extensive expertise and a commitment to client service, Foundation is your trusted partner for securing comprehensive Contractor All Risk (CAR) insurance that meets both contractual and regulatory requirements. Learn more about us at Foundation About Us and explore our dedicated CAR insurance offerings at Foundation CAR Insurance.

What you will learn:

• What contractors all risks insurance covers in the Malaysian context
• Key exclusions that could leave you exposed
• Who needs this cover and why banks require it
• Optional extensions worth considering
• Step-by-step process to arrange your policy

Overview of Contractors’ All Risks (CAR) Insurance in Malaysia

Contractor All Risk (CAR) insurance is a specialised engineering insurance product designed specifically for construction projects in Malaysia. It’s commonly purchased by main contractors, developers, and subcontractors, and is typically required under standard construction contracts like PAM (Pertubuhan Akitek Malaysia) and PWD (Public Works Department/JKR) forms.

In practical terms, CAR in Malaysia protects against sudden and unforeseen physical loss or damage to contract works, materials, construction plant, and equipment on site during the construction period. The cover responds to almost any cause of loss unless that cause is specifically excluded in the policy wording.

Here’s what you need to know about CAR at a glance:

• CAR is different from Erection All Risks (EAR) and Machinery Breakdown policies, CAR is mainly for civil and structural building works, while EAR focuses on installation and erection of plant and machinery
• The “all risks” label doesn’t mean literally everything is covered; instead, it uses broad insuring language combined with explicit exclusions
• Most Malaysian CAR policies have two main sections: Section 1 for Material Damage (property cover) and Section 2 for third party liability
• Cover is offered by licensed insurers and takaful operators regulated by Bank Negara Malaysia
• Benefits may be protected by PIDM (Perbadanan Insurans Deposit Malaysia) where applicable
• The policy contract period typically matches the construction contract, as stated in the Letter of Award
• Major composite insurers offering CAR in Malaysia include Allianz, AIG, QBE, Lonpac, Kurnia, Pacific Insurance, and Progressive Insurance

This article focuses specifically on Malaysian regulations, local practices, and references to local insurers operating in this market.

What Does Contractor All Risk Insurance Cover?

This section gives practical examples of what CAR insurance typically covers in Malaysia. While each insurer’s wording may differ slightly, the core coverage remains consistent across the market.

Coverage for Contract Works:

• Buildings under construction, including high-rise residential towers, commercial complexes, and industrial facilities
• Civil works such as roads, bridges, sewerage systems, and MRT/LRT structures
• Renovations and extensions within the contract site
• Temporary works including formwork, scaffolding structures, and site hoarding

Coverage for Construction Materials:

• Concrete, steel reinforcement, formwork, and finishing materials stored on-site
• Materials in off-site storage within Malaysia, if declared and included in the policy schedule
• Free-issue materials supplied by the employer where risk has passed to the contractor
• Items insured must be valued at full replacement cost to avoid under-insurance penalties

Coverage for Construction Plant and Equipment:

• Tower cranes, excavators, and piling rigs while on the contract site
• Scaffolding systems and temporary site offices
• Construction machinery and other equipment declared in the schedule
• Cover usually applies only while property belonging to the contractor is at the specified location

Third Party Liability Section:

• Accidental bodily injury to members of the public arising from construction works
• Damage to property owned by third parties near the site
• Example: crane collapse damaging adjacent shophouses, or construction debris injuring a pedestrian
• Illness or death of third parties where the contractor is legally liable
• The insurer will pay sums the insured becomes liable for, subject to the limit of liability stated in the schedule

Policy Period:

• Cover corresponds with the construction period, typically running from site handover or commencement date stated in the Letter of Award
• Coverage continues until practical completion or handover to the employer
• Extended maintenance period (typically 12–24 months) available if purchased
• Maintenance period cover is usually more limited—it often only responds to damage occurring from the contractor’s rectification work or causes originating during construction

Sum Insured Considerations:

• Sums insured should be based on the full contract value in Malaysia Ringgit (RM)
• Include materials supplied by the employer and anticipated variations
• Factor in professional fees, debris removal costs, and taxes (SST) where applicable
• Under-insurance can trigger proportional (average) reductions in claim payments

Major Exclusions and Limitations in Malaysia

This section summarises key exclusions common in Malaysian CAR policies. The actual policy wording of each insurer prevails, so always review your specific risks policy document.

War, Terrorism, and Nuclear Risks:

• War, civil war, rebellion, insurrection, and revolution are excluded
• Terrorism radioactive and nuclear contamination risks are not covered
• Terrorism cover may be added by endorsement with additional premium in some cases

Deliberate Acts:

• Wilful acts or wilful negligence of the insured are excluded
• Any deliberate damage caused by the policyholder or their employees falls outside cover

Wear and Tear:

• Normal wear and tear, corrosion, rust, and gradual deterioration are not covered
• Inherent vice and normal maintenance requirements are excluded
• These are considered routine operational matters, not insurable events

Faulty Design and Defective Workmanship:

• The cost of replacement, repair, or rectification of defective material or workmanship is excluded
• Tear faulty design out of the equation as a covered cost—you cannot claim for the defective component itself
• However, many policies cover resulting damage to surrounding insured property caused by the defect
• Example: if a poorly designed beam collapses, the beam itself isn’t covered, but accidental loss to other completed works may be

Financial and Consequential Losses:

• Penalties, liquidated damages, and loss of contract are not covered
• Any claim related to delay in completion falls outside standard CAR
• Machinery consequential loss is excluded unless specifically endorsed
• If you need protection against delay-related losses, arrange separate Delay in Start-Up (DSU) or Advanced Loss of Profits cover

Pollution and Contamination:

• Pollution and contamination are normally excluded from CAR policies
• Exception: if caused by a sudden, accidental insured event and only if specifically endorsed
• Gradual seepage or contamination over time is never covered

Other Common Exclusions:

• Mechanical and electrical breakdown of construction plant and machinery
• Vehicles licensed for general road use, waterborne vessels, and aircraft
• Loss of files, drawings, accounts, currency, stamps, and deeds
• This is a non exhaustive list—full list of exclusions appears in your policy document

Always talk to a licensed Malaysian intermediary for full terms and conditions before relying on any coverage assumptions.

Who Needs Contractor All Risk Insurance in Malaysia?

Malaysian construction contracts and financiers commonly require CAR insurance before project commencement. If you have an insurable interest in construction works, you likely need to be covered under a CAR policy.

Main Contractors:

• Primary buyers of CAR in Malaysia
• Involved in residential projects (high-rise condominiums in Kuala Lumpur, landed housing in Johor)
• Commercial developments (office towers, shopping malls, hotels)
• Infrastructure projects (highway projects along the PLUS network, water treatment plants)

Property Developers:

• May purchase CAR on behalf of all risks contractors for large mixed-use developments
• Common in cities like Kuala Lumpur, Johor Bahru, Penang, and Kota Kinabalu
• Developer-controlled programmes provide economies of scale and consistent coverage

Subcontractors:

• Required under Sub-Contract Agreements to be co-insured or named under the main CAR policy
• Piling contractors, M&E specialists, and façade installers often need coverage confirmation
• Should verify they are properly noted in the policy schedule before commencing work

Project Owners and Employers:

• Often named as principals under the policy
• Satisfies financing or contractual conditions set by Malaysian banks
• Joint-names structure avoids subrogation disputes between employer and contractor

Joint Venture Partners:

• All JV partners should be named as insured parties
• Particularly important on large engineering projects with multiple stakeholders
• Ensures indemnity flows correctly when claims arise

Government and GLC Projects:

• PWD/JKR contracts specifically stipulate CAR requirements
• Major infrastructure like MRT, LRT3, and Pan Borneo Highway require substantial cover
• Tender documents typically specify minimum third party liability limits
• Performance bonds and insurance evidence required before Letter of Award

General Principle:

• Any party with an insurable interest in the contract works in Malaysia should ensure they are properly named in the policy schedule
• This includes bank or financier interests where project financing exists
• Being “unnamed” could mean you have no benefit under the policy when a claim arises

Optional Add-ons and Related Covers

Similar to international markets, Malaysian CAR policies can be extended with optional covers to better match contractual and project risks. These extensions require additional premium but can close significant gaps in protection.

Surrounding Property / Principal’s Existing Property:

• Covers accidental damage to existing structures owned by the employer
• Essential for renovation or extension projects (e.g. upgrading an existing shopping mall in Selangor)
• Without this extension, damage to pre-existing structures falls outside cover
• Should be valued and declared separately in the schedule

Extended Maintenance Cover:

• Provides insurance during the defects liability period
• Covers damage occurring after handover but caused by the contractor’s work during the construction period
• Typically more limited than full construction phase cover
• Duration usually matches the contract’s defects liability clause (12–24 months)

Delay in Start-Up (DSU) / Advanced Loss of Profits:

• Protects project owners against loss of anticipated revenue
• Applies if project completion is delayed due to an insured event like fire or flood
• More common on large infrastructure or industrial projects
• Often arranged under a separate policy with specialist underwriters

Natural Catastrophe Extensions:

• Malaysia’s monsoon weather and flash floods make these extensions critical
• Flood, storm, and landslip extensions with adequate sub-limits
• Deductibles for these perils are often higher than standard claims
• Particularly important for hillside developments and coastal projects

Related Policies Often Packaged with CAR:

• Erection All Risks (EAR) for installation of machinery and steel structures
• Machinery Breakdown for commissioned equipment
• Equipment All Risks for mobile plant used across multiple sites
• Public Liability insurance where higher party liability limits are needed beyond CAR Section 2

Other Valuable Add-ons:

• Professional fees (architects, engineers, quantity surveyors for reinstatement design)
• Removal of debris from the site following an insured loss
• Express freight for urgent replacement of materials
• Increased cost of working to expedite repairs
• Off-site storage cover for prefabricated components

These extensions should be evaluated against your contract obligations and the specific risk profile of your project.

How to Arrange Contractor All Risk Insurance in Malaysia

This section provides a step-by-step guide for Malaysian contractors and developers to purchase CAR insurance efficiently. Getting this right from the start saves headaches during claims.

Step 1: Prepare Key Project Information

• Project title and complete location within Malaysia
• Detailed description of construction works
• Full contract value in RM, including provisional sums and anticipated variations
• Contract period dates (commencement and expected completion)
• Main contractor and employer details (company registration numbers, addresses)
• Special risks to highlight: marine works, tunnelling, high-rise exceeding 30 storeys, basement excavation

Step 2: Obtain Competitive Quotes

• Request a quote
• Consider working through an experienced Malaysian insurance platform such as Foundation
• Find advisors who understand local contract requirements and bank conditions
• They can negotiate better terms and help with connection to claims support

Step 3: Align Policy with Contract Documents

• Ensure the policy matches requirements in PAM, PWD/JKR, or FIDIC contract forms
• Note the bank’s interest where project financing exists
• The policy should refer to the specific contract and act as the insurance required under that agreement
• Check that liability limits meet or exceed contract stipulations

Step 4: Review the Policy Schedule Carefully

• Insured parties should be correctly named (contractor, employer, subcontractors, financiers)
• Sum insured must represent full value at completion
• Location and geographical limits (within Malaysia) clearly stated
• Period of insurance matching the contract period plus maintenance
• Key extensions and exclusions clearly documented

Step 5: Understand Your Deductibles

• Review deductibles/excesses for perils such as flood, landslide, and collapse
• These can be significant for hillside or coastal projects
• Higher deductibles reduce premium but increase your out-of-pocket exposure
• Ensure your company can absorb the deductible amount in a claim scenario

Step 6: Know the Claim Process Basics

• Prompt notification to the insurer is critical—delays can prejudice your claim
• Collect site photographs immediately after any incident
• Obtain police or authority reports if applicable (theft, accidents involving injury)
• Preserve damaged property and project documents for investigation
• Cooperate fully with local loss adjusters appointed by the insurer
• The insurer will pay valid claims subject to policy terms and conditions

Step 7: Maintain Ongoing Policy Management

• Keep the policy, endorsements, and claim contact details accessible at the site office
• Review cover at each major variation order or extension of time
• Notify the insurer of material changes in risk (scope increases, additional sites)
• Update sums insured if the contract value changes significantly
• Request endorsements in writing and obtain confirmation before relying on coverage

Taking time to arrange your CAR insurance properly protects your project investment and ensures you’re not left exposed when something goes wrong on site.

Key Takeaways

• CAR insurance is a standard requirement for construction projects in Malaysia, mandated by contracts and financiers alike
• The policy covers sudden and unforeseen physical loss or damage to works, materials, and equipment, plus third party liability
• Major exclusions include war, terrorism, nuclear risks, faulty design costs, wear and tear, and consequential losses
• All parties with an insurable interest—contractors, developers, subcontractors, employers, and banks—should be named in the policy
• Optional extensions like DSU, principal’s existing property cover, and natural catastrophe extensions can close important gaps
• Proper preparation, accurate valuations, and alignment with contract documents are essential for effective coverage

Conclusion

Contractor all risk insurance in Malaysia isn’t just a contractual formality—it’s genuine protection for the significant capital at stake in every construction project. From high-rise developments in Kuala Lumpur to infrastructure works across East Malaysia, CAR provides the foundation for managing physical damage risks during the construction period.

The key to getting value from your CAR policy lies in understanding what it covers, what it excludes, and how to structure it correctly for your specific project. Taking shortcuts on sums insured, ignoring exclusions, or failing to name the right parties can leave you exposed when you need the cover most.

If you’re preparing for a new project or reviewing your existing coverage, consult with a property & engineering insurance specialist platform like Foundation, who understands local construction practices. Foundation is ready to help you tailor your policy to match your contract obligations and ensure you’re properly protected from day one. Visit Foundation CAR Insurance to learn more and get started.