Factory Licence Granted. Which Insurances Are Now Legally Mandatory?

You've been granted your licence to operate. Somewhere on your setup checklist is a line that says "insurance," and you're right to ask which cover the law now forces on you. The answer is shorter than most people expect, and the confusion is expensive.

Your factory licence does not trigger a long list of compulsory insurances. Only worker protection is mandatory by statute. Fire and property cover feel mandatory only because your bank or landlord makes them so.

Getting this distinction right saves you from either skipping a legal duty or over-buying because someone told you it was "required." Here's the clean version.

What the law actually makes mandatory

The compulsory obligations come from employment law, not from the factory licence itself. The moment you employ people, you owe them statutory protection.

Worker protection is the heart of it. Registering employees with PERKESO is a legal duty, and failing to register is an offence under the Employees' Social Security Act 1969, punishable by a fine of up to RM10,000 or imprisonment of up to two years, or both. For what you owe an injured worker, see our guide on employer obligations for workplace injuries.

What only feels mandatory: fire and property cover

Here's where most operators are misinformed. Fire insurance on your factory building is not, by itself, a statutory requirement of holding a factory licence. It becomes compulsory the moment there's a bank or a landlord involved.

The practical effect is that almost every factory carries fire insurance, but the obligation is contractual, not statutory. Knowing the difference tells you who sets the sum insured and the terms: your lender, not a regulation.

The full picture: mandatory, contractual, advisable

Put every common factory cover in one of three buckets and the decisions get simple.

The advisable bucket isn't optional in any real sense. It's where the losses that close factories live. But treat it as a business decision, not a legal one, and you'll size it to your actual risk instead of a rumour. For the local-authority side of the licence, see our PBT factory licence guide.

FAQ

Is fire insurance legally required for my factory?

Not by statute simply for holding a factory licence. It's almost always required by your bank if the property is financed, or by your landlord if you rent, so in practice most factories must carry it, contractually.

What insurance is genuinely mandatory by law?

Worker protection: SOCSO/PERKESO contributions for all employees under the Employees' Social Security Act 1969, plus injury and hospitalisation cover for foreign workers. Motor third-party applies if you operate road vehicles.

Do I need workmen compensation insurance if I pay SOCSO?

Worker injury is covered through PERKESO for both local and foreign workers, so a separate policy is not a blanket requirement. Specific situations can still call for additional cover, which is worth checking for your workforce.

What happens if I don't register workers with PERKESO?

It's an offence under the Employees' Social Security Act 1969, with a fine of up to RM10,000 or up to two years' imprisonment, or both. Registration is due within 30 days of a worker starting.

If IAR and liability aren't mandatory, should I skip them?

No. They're advisable because they cover the losses that actually sink factories, fire beyond basic perils, machinery failure, third-party claims, and lost income. Treat them as a risk decision sized to your operation, not a legal box.

Foundation Conclusion

The law makes you protect your workers. Your bank makes you protect the building. Everything else is a judgment about how much risk you're willing to carry yourself.

Setting up a new factory's cover cleanly, mandatory duties first, then the property and liability protection your operation warrants, is exactly where we help operators start.

Talk to our risk specialists about setting up your factory's cover

Disclaimer: This article provides general guidance based on the Employees' Social Security Act 1969, the Road Transport Act 1987, and insurance coverage available in the Malaysian market as of August 2026. Regulations may be amended and requirements vary by situation. Always verify current obligations with the relevant agency or a qualified professional before making decisions.