What You Need to Know About Contractor All Risk Insurance in Malaysia

What You Need to Know About Contractor All Risk Insurance in Malaysia

A single monsoon flood can wipe out months of construction progress overnight. A collapsed formwork can injure a passing pedestrian and trigger a lawsuit that drains your company's reserves. Contractor all risk (CAR) insurance is the single most important policy you'll buy for any construction project in Malaysia, and getting it wrong can cost you everything.

This guide covers CAR insurance from every angle that matters to Malaysian contractors and developers. Whether you're bidding on a JKR government project or breaking ground on a private development under a PAM 2018 contract, you'll find what you need here.

• What CAR insurance actually covers (Section I and Section II, broken down)
• Who needs it and when it's contractually required
• How premiums are calculated and what drives costs up or down
• Exclusions that catch contractors off guard
• Deductible structures and how to use them strategically
• The claims process, step by step
• Common mistakes that lead to denied claims or coverage gaps
• Contract-specific requirements under PAM 2018, PWD 203A, and FIDIC

What Is Contractor All Risk Insurance?

Contractor all risk insurance is an "all risks" policy designed specifically for construction projects. It protects the contract works, materials, construction plant, and equipment against sudden and unforeseen physical loss or damage during the construction period. It also covers third party liability arising from construction activities.

The term "all risks" is slightly misleading. It doesn't cover everything. Instead, it covers all perils except those specifically excluded in the policy wording. This is an important distinction because it shifts the burden of proof: the insurer must show an exclusion applies, rather than you proving a peril is covered.

CAR insurance is regulated under the Financial Services Act 2013 and supervised by Bank Negara Malaysia. Major insurers offering CAR policies in Malaysia include Allianz, AIG, Lonpac, QBE, Tokio Marine, Berjaya Sompo, Chubb, and others.

Feature	CAR Insurance	EAR Insurance
Designed for	Civil and building construction	Machinery and equipment erection/installation
Section I	Material Damage to contract works	Material Damage to erected machinery
Section II	Third Party Liability	Third Party Liability
Testing period	Not typically included	Includes testing and commissioning
Common projects	Buildings, roads, bridges, dams	Power plants, factories, refineries

Not sure whether your project needs CAR or EAR insurance? Read our detailed EAR vs CAR comparison to find out.

Who Needs Contractor All Risk Insurance in Malaysia?

The short answer: anyone with a financial stake in a construction project. But the specific requirement depends on your role, the contract form used, and whether the project involves government funding.

Contractual Requirements by Contract Form

Malaysian construction contracts almost universally require CAR insurance. The three most common contract forms each handle it differently.

Contract Form	Typical Use	Insurance Obligation	Key Insurance Clauses
PAM 2018 (With/Without Quantities)	Private sector building projects	Contractor must maintain CAR insurance in joint names of Employer and Contractor	Insurance clause specifies works insurance and third party liability cover; amounts stated in Appendix
PWD 203A (Rev. 2007)	Government projects (JKR/federal)	Contractor must produce policy and premium receipts to Superintending Officer	Clauses 14, 15, 16 cover indemnity, insurance of works, and third party insurance; cross liability clause required
FIDIC Red Book (2017)	International/large-scale projects	Clause 19 requires insurance in joint names for full replacement value plus 15%	Contractor arranges works insurance; terms subject to Employer's consent; Particular Conditions may modify

Who Should Be Named on the Policy?

A CAR policy is typically issued in joint names. This means the Employer (project owner), the main contractor, and all nominated subcontractors are co-insured under the same policy. Joint names insurance is different from simply having your interest "noted" on someone else's policy.

Here's the thing: if you're only noted on a policy, you can't claim directly from the insurer, and the insurer can still subrogate against you. A joint names policy treats each party as if they had their own separate policy, which is exactly what the cross liability clause achieves.

Party	Role	Why They Need to Be Named
Employer / Principal	Project owner	Owns the works upon incorporation; liable as occupier of the site
Main Contractor	Executes the works	Bears primary construction risk; contractually obligated to insure
Subcontractors	Perform specialist works	Their work forms part of the contract works; prevents subrogation disputes
Financier / Bank	Project lender	Protects their financial interest in the project; often required as a loan condition

For more on how subcontractor insurance obligations work in Malaysia, see our subcontractor stack section in our contractor insurance stack pillar.

Government Project Requirements

If you're working on a JKR (Jabatan Kerja Raya) or other government project, insurance compliance is non-negotiable. Under PWD 203A, the contractor must deposit the CAR policy and premium receipts with the Superintending Officer, whether demanded or not. Failure to do so allows the Government to arrange insurance on your behalf and deduct the premiums, plus on-cost charges, from your progress payments or Performance Bond.

Government projects also commonly require the policy to run from the date of site possession through to the issuance of the Certificate of Making Good Defects. This is typically longer than private sector requirements. Read our full guide to JKR and MOF requirements section in our contractor insurance stack pillar for details.

What Does CAR Insurance Cover? Section I and Section II Explained

Every CAR policy in Malaysia is divided into two main sections. Understanding what each section covers, and where the boundaries lie, is essential for arranging proper protection.

Section I: Material Damage

Section I covers sudden and unforeseen physical loss or damage to the insured property during the construction period. This is the core of your CAR policy. It operates on an "all risks" basis, meaning anything not specifically excluded is covered.

Item Covered Under Section I	Description	Basis of Valuation
Contract Works	Permanent works executed in accordance with the contract, including variations	Full contract value (including materials, labour, overhead, profit)
Temporary Works	Scaffolding, formwork, coffer dams, temporary diversions, shoring	Replacement value
Materials on Site	Construction materials stored at site awaiting incorporation	Purchase cost plus delivery
Construction Plant and Equipment	Cranes, excavators, concrete pumps, generators (if declared)	Current market value or agreed value
Construction Machinery	Batching plants, piling rigs, tower cranes	Current market value or agreed value
Existing Property (if insured)	Existing structures where construction work is carried out adjacent to or on them	Reinstatement value
Removal of Debris	Costs to remove debris after an insured loss event	Actual costs incurred
Professional Fees	Architect, engineer, and surveyor fees for reinstating damaged works	Actual fees incurred

The perils covered under Section I include fire, lightning, explosion, flood, storm, windstorm, earthquake, landslide, subsidence, theft, burglary, malicious damage, impact, collapse, and more. The key phrase is "sudden and unforeseen." Gradual deterioration, wear and tear, and expected damage don't qualify.

Section II: Third Party Liability

Section II covers your legal liability for accidental bodily injury to third parties or accidental damage to third party property. This liability must arise out of and in connection with the construction works, and the incident must happen on or in the immediate vicinity of the site during the insurance period.

Section II Covers	Section II Does Not Cover
Accidental bodily injury or death of third parties	Bodily injury to employees or workmen of the Contractor or Principal
Accidental damage to third party property	Damage to property belonging to or in the care, custody, or control of the Insured
Legal costs and expenses for defending claims	Judgments not delivered by a court of competent jurisdiction in Malaysia
Vibration damage to neighbouring buildings	Liability arising from the use of motor vehicles on public roads
Damage from pile driving or excavation to adjacent property	Consequential losses, penalties, or loss of contract

The catch? Section II only covers third parties. Your own workers are not third parties. For employee injuries, you need workmen compensation insurance, which is compulsory under Malaysian law. And for broader liability protection beyond what Section II provides, consider Contractors General Liability (CGL) insurance.

Maintenance Period Coverage

Most CAR policies extend into the defects liability period (DLP), but with a significant limitation. During the maintenance period, the policy only covers damage to the completed works caused by the contractor or subcontractor while carrying out rectification work. It does not cover all risks during this period.

For example, if your team returns to fix a leaking roof and accidentally damages the newly installed ceiling, that's covered. But if a monsoon flood damages the building after handover, and the contractor isn't on-site doing rectification work, the CAR policy won't respond. The maintenance period typically lasts 12 to 24 months after practical completion, matching the DLP in the construction contract.

Key Exclusions You Must Know

Exclusions are where claims get denied. Every contractor should read the exclusions clause carefully, because "all risks" comes with significant carve-outs. These are the most common exclusions found in Malaysian CAR policies.

Exclusion Category	What's Excluded	Why It Matters in Malaysia
War and terrorism	War, civil war, insurrection, rebellion, revolution, military power, terrorism	Standard global exclusion; separate terrorism cover may be available
Nuclear risks	Nuclear reaction, radiation, radioactive contamination	Standard global exclusion; uninsurable in the conventional market
Wilful acts and negligence	Intentional damage or wilful neglect by the Insured	Prevents moral hazard; poor site management can trigger this exclusion
Faulty design	Cost of replacing or rectifying defective design, material, or workmanship	Only the defective item itself is excluded; resultant damage to sound work may still be covered (depending on policy wording)
Wear and tear	Gradual deterioration, rust, oxidation, normal wear and tear	Malaysia's hot and humid climate accelerates deterioration; keep this separate from sudden damage
Mechanical/electrical breakdown	Mechanical or electrical breakdown of construction plant and machinery	Separate machinery breakdown insurance is needed for this risk
Consequential loss	Penalties, delay damages, liquidated damages, loss of contract, loss of use	Separate Delay in Start-Up (DSU) insurance covers revenue loss from construction delays
Inventory shortages	Loss discovered only upon stocktaking or inventory checking	Materials must be properly inventoried and secured; losses must be reported when discovered
Vehicles on public roads	Liability from licensed vehicles used on public roads	Separate motor insurance is compulsory for vehicles on public roads under the Road Transport Act 1987
Pollution and contamination	Seepage, pollution, and contamination (unless sudden and accidental)	Growing concern for projects near waterways and environmentally sensitive areas

The faulty design exclusion deserves special attention. Most modern CAR policies include a "DE3" or similar clause that excludes only the cost of replacing the defective item itself, but still covers resultant damage to other parts of the work. So if a poorly designed retaining wall collapses and damages adjacent foundations, the cost to rebuild the retaining wall isn't covered, but the cost to repair the foundations may be.

For a deeper look at exclusions that frequently catch contractors off guard, see our article on complete list of CAR insurance exclusions.

Natural Disaster Coverage: Monsoon, Floods, and Malaysian Weather Risks

Malaysia's equatorial climate creates specific construction insurance risks that you won't find in textbooks written for temperate countries. Two monsoon seasons, the Northeast Monsoon (November to March) and the Southwest Monsoon (May to September), bring heavy rainfall, flooding, and landslide risk.

The good news is that standard CAR policies in Malaysia typically cover flood, storm, and tempest damage under Section I. These are "sudden and unforeseen" events and fall within the all-risks scope. But there are important nuances.

Natural Peril	Typically Covered?	Watch Out For
Flood	Yes, under standard Section I	Higher deductibles for flood claims; some policies impose a separate flood excess
Windstorm / Tempest	Yes, under standard Section I	Damage from rain entering through incomplete roofing may be disputed
Landslide / Subsidence	Yes, under standard Section I	Hillsite projects in states like Selangor and Penang may face higher deductibles or sub-limits
Earthquake	Typically covered but may carry separate deductible	Sabah projects face higher seismic risk; underwriters may impose specific conditions
Tsunami	Coverage varies by insurer	Coastal construction projects should confirm this explicitly

For projects in flood-prone areas, such as the east coast states of Kelantan, Terengganu, and Pahang, insurers will likely impose higher deductibles for flood-related claims. You may also see a "72-hour clause" that aggregates all flood losses within a 72-hour window as a single event for deductible purposes.

The practical advice: schedule construction phases to minimise open-excavation exposure during peak monsoon months. This isn't just good engineering. Insurers look at your project timeline when assessing risk, and a well-planned programme can help keep premiums lower.

How CAR Insurance Premium Is Determined

CAR premium is not a fixed tariff. Each placement is rated individually because every project has a different combination of risk drivers. Understanding what those drivers are helps you anticipate where your project will land relative to similar projects, and what you can do at the planning stage to influence the outcome.

The five factors underwriters weigh

Factor	Why it matters
Project type	Civil works, building, M&E erection, and renovation each have different loss patterns. Underwriters apply different base ratings to each category.
Contract value and duration	Sum insured and policy period are the two largest premium drivers. A two-year project carries more exposure than a six-month project at the same contract value.
Site conditions	Flood-prone areas, slope work, congested urban sites, and proximity to existing buildings (Existing Surrounding Property exposure) all push the rating up. Reclamation work and basement excavation are particularly scrutinised.
Contractor profile	CIDB grade, claims history, years of experience in the relevant project type, and quality management system maturity all factor in. A G7 contractor with five years of clean claims history will be quoted differently to a G3 contractor on their first comparable project.
Principal contract requirements	JKR Standard Specifications for Tender (SST), PAM 2018 conditions, IEM contract clauses, and MOF tender insurance schedules each impose specific cover, sum insured, and extension requirements that affect the placement.

What's not part of the calculation

Premium is not a simple percentage of contract value. Two contractors bidding on identical RM30 million projects can be quoted very different premiums based on the five factors above. The biggest single mistake at tender costing stage is assuming a fixed-percentage line item.

Estimate your premium before tender submission

Use our CAR/EAR premium calculator to model the range for your specific project. Enter contract value, project type, duration, and CIDB grade, and the calculator returns a working range you can use for tender costing or internal budgeting. The calculator uses the same logic an underwriter applies at first quote stage.

Open the CAR/EAR premium calculator →

Getting the Sum Insured Right

The sum insured for Section I (material damage) should reflect the full reinstatement value of the works at completion, not just the contract value. This typically includes:

• Contract value (the gross amount payable to the contractor)
• Free-issue materials and equipment supplied by the principal
• Existing structures or property being insured under the policy
• Site clearance, debris removal, and professional fees if specified by the contract

Under-declaring the sum insured triggers the Average Clause at claim stage. If you declare RM8 million and the actual reinstatement value at the time of loss is RM10 million, the insurer will only pay 80 percent of any partial loss, leaving you to fund the balance. This is one of the most common reasons CAR claims are short-paid in Malaysia.

Deductible Structures in CAR Insurance

Every CAR policy has a deductible (also called the excess). This is the amount you agree to pay out of pocket before the insurance responds. Understanding how deductibles work, and structuring them intentionally, can save you significant premium while still protecting against catastrophic losses.

Deductible Type	How It Works	When You'll See It
Standard deductible	A fixed amount deducted from every claim under Section I	All claims; amount stated in the policy schedule
Natural catastrophe deductible	A higher deductible applied specifically to flood, storm, or earthquake losses	Projects in flood-prone or hillsite areas
Percentage deductible	A percentage of the claim amount (e.g., 10% of loss, subject to a minimum)	Sometimes applied to specific high-risk perils
Third party liability deductible	Deductible applied to property damage claims under Section II (often nil for bodily injury)	Section II property damage claims
Time deductible (waiting period)	A waiting period before certain coverages respond (rare in CAR, common in DSU)	Delay in Start-Up extensions

A strategic approach to deductibles means choosing a level that reflects your ability to absorb smaller losses. If your company can comfortably handle losses under a certain threshold, raising the deductible to that level can produce meaningful premium savings. But don't set it so high that a moderate loss becomes a financial strain.

Insurers may also apply more than one deductible to a single claim. For example, a flood that damages both the contract works and construction plant might have a standard deductible for works damage and a separate, higher deductible for plant and machinery damage.

How to Arrange CAR Insurance: Step by Step

Arranging CAR insurance isn't just about getting a quote and paying the premium. Done properly, it involves coordination with your contract requirements, accurate valuation, and attention to timing.

1. Review your contract's insurance clause. Before anything else, read the insurance requirements in your construction contract (PAM 2018, PWD 203A, FIDIC, or other). Note the required coverages, minimum limits, joint names requirements, and whether the policy must include specific extensions. The contract will often specify who arranges the insurance (contractor or employer) and the deadline for providing proof of cover.

2. Calculate the correct sum insured. The sum insured for Section I should be the full completed value of the contract works, including contingencies and variations. Add separate amounts for temporary works, construction plant and machinery (if included), and existing property. For Section II, determine the appropriate third party liability limit based on the project's location, scale, and proximity to public areas or neighbouring properties.

3. Prepare your project information pack. Insurers will need the construction contract, project description, site layout, construction methodology, project timeline, contractor's profile (CIDB grade, experience, past projects), and claims history. The more complete and professional this pack, the better your chances of competitive pricing.

4. Engage a specialist insurance intermediary. Construction insurance is a specialist field. A general insurance agent who primarily handles motor and fire policies may not understand the nuances of CAR wordings, special clauses, or how to negotiate extensions. Work with an insurance intermediary or agent experienced in engineering and construction insurance.

5. Request and compare quotations. Get quotes from at least three insurers through your intermediary. Compare not just the premium, but the policy wording, deductible levels, exclusions, and any special conditions or warranties imposed. The cheapest policy isn't always the best if it comes with restrictive conditions.

6. Negotiate terms and special clauses. There are over 40 special clauses available in CAR policies. Some expand coverage (e.g., 72-hour clause for natural catastrophe aggregation, offsite storage cover, expediting expenses). Others are warranties you must comply with. Make sure you understand every special condition before accepting it.

7. Issue the policy before site mobilisation. The policy must be in force before any work begins on site. For government projects, you'll need to deposit the original policy and premium receipts with the Superintending Officer. For private projects, provide a copy to the Employer as required by the contract.

8. Manage the policy throughout the project. Construction projects change. Variations increase the contract value, extensions of time extend the construction period, and new subcontractors join the project. Update your insurer promptly about material changes to avoid coverage gaps. If the contract value increases, increase the sum insured to match.

For a complete checklist of insurance requirements before breaking ground, see our construction insurance checklist for site mobilisation.

The Claims Process: What to Do When Something Goes Wrong

When a loss event happens on your construction site, the steps you take in the first hours and days can determine whether your claim is paid, reduced, or denied. Here's the process.

Immediate Steps After a Loss Event

1. Ensure safety first. Secure the site, protect human life, and prevent further damage where possible. Your duty to mitigate loss is a policy condition.
2. Notify your insurer and intermediary immediately. Most policies require notification "as soon as practicable" or within a specific timeframe (commonly 7 to 14 days, depending on the policy). Don't wait. Late notification is a common reason for claim disputes.
3. File a police report if required. For theft, vandalism, malicious damage, or any incident involving third party injury, lodge a police report as soon as possible.
4. Document everything. Photograph and video the damage from multiple angles. Record the date, time, and circumstances. Preserve damaged materials as evidence. Don't start cleanup or repairs until the loss adjuster has inspected, unless safety requires immediate action.
5. Prepare your claim documentation. Gather the items listed in the table below.

Document	Purpose
Written notice of loss (claim form)	Formal notification to the insurer with basic details of the event
Photographs and video evidence	Visual proof of the damage extent and conditions at the time of loss
Police report (where applicable)	Required for theft, vandalism, or third party injury claims
Progress reports and site diary	Establishes the state of works before the loss event
Bills of quantities / cost breakdown	Supports the quantum (value) of the claim
Repair or reinstatement quotations	Establishes the cost to restore the damaged works
Weather reports (for natural peril claims)	Corroborates that the loss was caused by an insured peril
Incident investigation report	Internal report on the root cause; demonstrates due diligence

The Adjuster's Role

For significant claims, the insurer will appoint a loss adjuster to investigate the loss, verify the cause, confirm coverage applies, and assess the quantum. The loss adjuster works for the insurer, not for you. You have the right to appoint your own loss assessor or public adjuster to represent your interests, and for large or complex claims, this is a wise investment.

Cooperate fully with the loss adjuster, but be aware that your statements can affect the claim outcome. Stick to facts and provide documentation to support your position. If there's any dispute about whether an exclusion applies, get professional advice before conceding the point.

Claim Settlement Timeline

There's no fixed timeline for CAR claim settlements in Malaysia. Simple, well-documented claims may be settled in weeks. Complex claims involving disputes over coverage, causation, or quantum can take months. Maintaining thorough records and responding promptly to adjuster requests are the best ways to speed up the process.

Common Mistakes That Lead to Problems

After years of working with contractors and developers in Malaysia, certain mistakes come up again and again. Avoiding these will save you money, hassle, and potential financial loss.

Mistake	What Happens	How to Avoid It
Underinsuring the contract value	Average clause applies; insurer pays only a proportion of the claim	Insure the full completed value including overhead, profit, and contingencies
Not updating the sum insured for variations	Variation orders increase the contract value but the sum insured stays the same, creating underinsurance	Notify your insurer of any variation order that changes the contract value
Failing to extend for EOT	Extension of time extends the construction period, but the policy expires on the original date, leaving you uninsured	Request a policy extension as soon as EOT is approved or anticipated
Assuming "all risks" means "everything"	Claim denied because it falls under a standard exclusion the contractor never read	Read the exclusions clause and understand what's not covered; arrange supplementary insurance where needed
Late notification of claims	Insurer may deny or reduce the claim if notification wasn't timely	Notify your insurer and intermediary within 24 to 48 hours of discovering a loss
Not naming subcontractors on the policy	Subcontractor causes damage; insurer subrogs against them, creating disputes and delays	Add all subcontractors as co-insured parties
Choosing the cheapest policy without reading terms	Restrictive conditions, high deductibles, or missing extensions leave you exposed	Compare policy wordings, not just premiums
Ignoring warranty conditions	Breaching a warranty (e.g., security requirements, de-watering obligations) can void coverage entirely	Read every warranty and special condition; ensure your site team knows and complies
Starting work before the policy is in force	Any loss occurring before the policy inception date is not covered, period	Confirm the policy is issued and effective before any site work begins

OSHA 1994 and Workplace Safety: The Insurance Connection

The Occupational Safety and Health Act 1994, as amended by Act A1648 (2022) which came into force on 1 June 2024, now applies to all workplaces in Malaysia, including construction sites. This is relevant to your CAR insurance in several ways.

First, OSHA 1994 requires employers to conduct risk assessments (Section 18B, introduced by the 2022 amendment), develop emergency procedures, and maintain safe working conditions. Failure to comply can result in fines up to RM500,000 or imprisonment of up to two years. But the insurance connection goes deeper.

Insurers expect you to comply with occupational safety laws. If a loss occurs and the investigation reveals that you violated OSHA requirements, the insurer could argue that the loss resulted from wilful negligence, which is a standard exclusion. Strong safety practices don't just keep your workers safe. They protect your insurance coverage and give you leverage when negotiating premiums.

• Risk assessment: Required under Section 18B of the amended OSHA 1994; documents hazards and control measures
• Safety and Health Officer (SHO): Required for sites with 100 or more workers; smaller sites may appoint a Safety and Health Coordinator
• Safety and Health Committee: Required for workplaces with 40 or more employees
• Emergency response plan: Must cover foreseeable emergencies at the construction site
• Employee right to refuse dangerous work: Section 26A gives workers the right to remove themselves from imminent danger

Your CAR insurance should work alongside your workmen compensation insurance and safety management system to form a complete risk management framework for your construction project.

CAR Insurance Checklist for Malaysian Contractors

Use this checklist when arranging CAR insurance for your next project. It covers the essentials from contract review through to policy management.

Checklist Item	Status	Notes
Contract insurance clause reviewed	☐	Check PAM, PWD, FIDIC, or other form for specific requirements
Sum insured matches full contract value (including contingencies)	☐	Include overhead, profit, and anticipated variation allowance
Temporary works value declared	☐	Scaffolding, formwork, shoring, temporary diversions
Construction plant and equipment declared (if to be covered)	☐	List major items with current values
Existing property value declared (if applicable)	☐	Reinstatement value of any existing structures at the site
Section II (TPL) limit adequate	☐	Consider project location, proximity to public, and scale
All parties named as joint insured	☐	Employer, contractor, subcontractors, financier
Cross liability clause included	☐	Required by PWD 203A and standard practice
Construction period matches contract period	☐	From date of site possession to practical completion
Maintenance period included and matches DLP	☐	Typically 12-24 months post-completion
Deductible levels reviewed and acceptable	☐	Check standard and natural catastrophe deductibles
All special conditions and warranties understood	☐	Non-compliance with warranties can void coverage
Policy issued before site mobilisation	☐	No work on site without active coverage
Complementary insurances arranged	☐	Workmen compensation, CGL, professional indemnity, motor
Process for reporting changes to insurer established	☐	Variations, EOT, new subcontractors, material project changes

Frequently Asked Questions

Is contractor all risk insurance mandatory in Malaysia?

CAR insurance is not mandated by a specific statute in the same way workmen compensation insurance is. But it is contractually required by virtually every construction contract used in Malaysia, including PAM 2018, PWD 203A, and FIDIC forms. If your contract says you must have it, then it's a binding obligation, and failure to comply can put you in breach of contract.

What's the difference between CAR insurance and EAR insurance?

CAR (Contractor All Risk) insurance covers civil and building construction works: buildings, roads, bridges, dams, and similar projects. EAR (Erection All Risk) insurance covers the erection and installation of machinery and equipment, such as power plants, factories, and refineries. EAR policies also include testing and commissioning cover, which CAR policies typically don't. Read our full EAR vs CAR comparison guide for details.

Does CAR insurance cover worker injuries?

No. Section II of a CAR policy specifically excludes bodily injury to employees or workmen of the contractor, principal, or any subcontractor connected to the project. Worker injuries must be covered by workmen compensation insurance, which is compulsory in Malaysia under the Workmen's Compensation Act 1952 and the Employees' Social Security Act 1969 (SOCSO).

How much does CAR insurance cost in Malaysia?

CAR insurance premium varies by project type, contract value, duration, site conditions, contractor profile, and principal contract requirements. There is no fixed tariff or percentage of contract value. Use our CAR/EAR premium calculator to model the range for your specific project, or send your project details for an indicative quote. Two contractors bidding on identical projects can be quoted very different premiums based on the underwriting factors above.

What happens if I underinsure my project?

The average clause applies. If the sum insured is less than the full value of the contract works, the insurer will pay only a proportionate share of any claim. For example, if you insure for RM8 million but the actual completed value is RM10 million, the insurer will only pay 80% of any loss. The remaining 20% comes out of your pocket. This applies to every claim, not just total losses.

Does the CAR policy cover the defects liability period?

Yes, but with limited scope. During the maintenance (defects liability) period, the CAR policy only covers loss or damage to the completed works that is caused by the contractor or subcontractor while returning to site to carry out rectification work. It's not an "all risks" cover during this period. If the completed building is damaged by a flood while nobody is doing rectification work, the CAR policy won't respond for that loss.

Can I use one CAR policy for multiple projects?

Some insurers offer annual or "open cover" CAR policies that cover multiple projects within a specified period and contract value range. These can be cost-effective for contractors handling many smaller projects. Each project is declared to the insurer and added to the policy. But for large or complex projects, a project-specific policy is usually more appropriate because it can be tailored to the project's unique risks and requirements.

What should I do if the insurer denies my claim?

First, get the denial in writing with specific reasons. Review the denial against your policy wording. If you believe the denial is wrong, engage a loss assessor or insurance professional to review your case. You can also escalate the matter to Bank Negara Malaysia's dispute resolution mechanisms or pursue legal action. Many claim denials result from misunderstandings or insufficient documentation rather than genuine coverage issues, so professional advice early in the process is valuable.

Does CAR insurance cover design defects?

Not exactly. The standard CAR policy excludes the cost of replacing or rectifying the defective design, material, or workmanship itself. But depending on the policy wording and any special clauses included (such as the DE3 clause), resultant damage to other sound parts of the work caused by the defective element may be covered. This distinction between the defective item and the consequential damage to other works is one of the most commonly misunderstood aspects of CAR insurance.

How does CAR insurance interact with CGL insurance?

Contractors General Liability (CGL) insurance and CAR Section II third party liability cover overlap to some extent, but they're not the same thing. CGL provides broader third party liability protection that isn't limited to the construction site or the construction period. It can cover completed operations liability, products liability, and liability arising from your general business operations. For comprehensive protection, many contractors carry both a CAR policy (for project-specific risks) and a CGL policy (for broader liability risks).

Get Your CAR Insurance Right from the Start

Contractor all risk insurance is the foundation of your construction project's risk management strategy. Getting it right means more than just ticking a contractual box. It means ensuring that your project, your company, and every party involved are properly protected against the financial consequences of unforeseen events.

At Foundation, we specialise in construction and engineering insurance for the Malaysian market. We understand the requirements of PAM 2018, PWD 203A, and FIDIC contracts, and we work with all major insurers to structure CAR policies that provide genuine protection, not just paper compliance.

Whether you're a G1 contractor starting your first project or a G7 firm managing a portfolio of high-value developments, we can help you arrange CAR insurance that fits your project's specific risks, meets your contractual obligations, and gives you the confidence to build.

Talk to our team today. Fill out the form below or contact us directly. We'll review your project details and come back with a tailored recommendation within 2 working days for most projects.

Get a CAR Insurance Quote Now

You can also explore our CAR/EAR insurance product page or visit our construction industry page to learn more about the full range of insurance solutions we provide for Malaysian construction professionals.

Disclaimer: This article provides general guidance on insurance coverage available in the Malaysian market as of March 2026. Policy terms, conditions, and availability vary by insurer. Always review your specific policy wording or consult a qualified insurance professional before making coverage decisions.