Semiconductor Factory Insurance Malaysia | E&E P&E Guide

Malaysia's electrical and electronics sector accounts for roughly 38% of the country's total exports. A single semiconductor fab line can hold RM2 billion or more in equipment. When a wafer lithography machine costs RM150 million and a power surge can destroy an entire production batch worth RM5 million in seconds, standard factory insurance doesn't come close.

This guide covers the complete property and engineering (P&E) insurance programme that semiconductor, chip packaging, PCB assembly, and electronics manufacturing facilities in Malaysia actually need.

You'll find:

• Why E&E factories need a different insurance approach than general manufacturing
• EEI as the primary coverage for cleanroom and fab equipment
• How to classify equipment between EEI, MB, and IAR
• Business interruption exposure and the three loss-of-profits policies
• Cleanroom-specific risks that standard policies miss
• Premium factors and sum insured challenges for high-value facilities
• Three real-world claim scenarios with RM breakdowns

Why Semiconductor and E&E Factories Need Specialised Insurance

General manufacturing insurance was designed for factories where the building is the most valuable asset. In semiconductor and E&E facilities, the equipment inside is worth 5 to 20 times more than the building itself. That single fact changes everything about how you structure coverage.

A typical Malaysian semiconductor fab with 300mm wafer capacity houses equipment worth RM500 million to RM3 billion. The cleanroom structure adds another RM50 million to RM200 million. The building shell? Maybe RM30 million to RM80 million. Your insurance programme needs to reflect this reality.

The bottom line: E&E facilities need EEI as the primary policy, not fire or IAR. The equipment drives the risk, the equipment drives the premium, and the equipment drives the claim.

Complete P&E Insurance Programme for E&E Facilities

A semiconductor or E&E factory needs six to eight policies working together. No single policy covers everything. The key is making sure there are no gaps between policies and no double-charging for overlapping coverage.

The sequence matters. EEI + ILOP comes first because your electronic equipment is your highest-value asset. IAR + BI covers the building and fire perils. MB + MLOP covers the mechanical support systems that keep your cleanrooms running.

EEI: The Primary Coverage for Semiconductor and E&E Equipment

Electronic Equipment Insurance (EEI) is the backbone of any E&E factory insurance programme. It covers sudden and unforeseen physical damage to electronic and electrical equipment from any cause not specifically excluded. This is broader than fire insurance (named perils only) and covers internal faults that IAR doesn't touch.

What EEI Covers in a Semiconductor Facility

EEI Covered Causes of Loss

EEI operates on an "all risks" basis for covered equipment. That means it covers any sudden and unforeseen physical damage unless specifically excluded. The most common causes of loss in E&E facilities include:

Key EEI Exclusions for E&E Facilities

EEI doesn't cover everything. The exclusions that matter most for semiconductor operations:

The fire exclusion is the one that catches people off guard. If a fire destroys your RM50 million lithography system, the EEI policy won't pay. Your IAR or fire policy covers fire damage to all assets including electronic equipment. This is why you need both EEI and IAR working together.

Equipment Classification: EEI vs MB vs IAR

E&E facilities have a mix of electronic, electrical, and mechanical equipment. Getting the classification right prevents gaps and avoids paying for the same asset under two policies. The rule is straightforward: if it processes electronic signals or requires precision electrical control, it goes under EEI. If it has moving mechanical parts as its primary function, it goes under MB.

Grey area alert: Some equipment falls between categories. Fan filter units (FFUs) with electronic variable-speed drives could go under either EEI or IAR. Gas delivery systems with electronic mass flow controllers could be EEI or MB. Work with your broker to agree on classification before binding, not after a claim.

Business Interruption: The Three Loss-of-Profits Policies

For most manufacturing plants, business interruption is a secondary concern after property damage. For semiconductor facilities, it's often the other way around. A fab running at capacity can generate RM2 million to RM10 million in revenue per day. Equipment replacement takes 6 to 18 months. The production loss from a single equipment failure can exceed the cost of the damaged equipment itself.

Three separate loss-of-profits policies exist, each triggered by a different underlying cause:

Why E&E Factories Need All Three

Here's the scenario that illustrates the problem. Your chiller breaks down (MB event). Without cooling, cleanroom temperature rises above spec within 30 minutes. All wafer processing stops. You lose RM3 million per day in production for 8 weeks while the chiller is repaired.

If you only have BI (fire/IAR trigger), the chiller breakdown doesn't trigger a payout because it's not a fire or named peril. You need MLOP to cover production losses from mechanical breakdowns. And you need ILOP for when an EEI-covered electronic failure causes the same cascade.

Indemnity period matters more in E&E than any other industry. Standard BI policies offer 12-month indemnity. But if your lithography system takes 12 months to replace and 3 months to qualify, you need at least 18 months. Underinsuring the indemnity period is the single most expensive mistake in semiconductor insurance.

Cleanroom-Specific Risks and Coverage Gaps

Cleanrooms create insurance challenges that standard industrial policies weren't designed for. The cleanroom itself is a building component (IAR), but everything inside it needs EEI or MB coverage. And the interaction between the cleanroom environment and the equipment creates risks that fall between policies if you're not careful.

Cleanroom Risk Categories

The critical lesson: cleanroom incidents almost always involve multiple policies paying simultaneously. A single gas leak can trigger claims under EEI (equipment corrosion), IAR (structural damage, stock loss), CGL (third-party injury), WC (employee exposure), and ILOP (production shutdown). Your broker needs to coordinate all these policies at placement, not at claims time.

Sum Insured Challenges in E&E Facilities

Getting the sum insured right in a semiconductor facility is harder than in any other industry. Equipment values are massive, they change rapidly as technology evolves, and replacement costs can be very different from book value. Underinsurance triggers the average clause, which reduces your claim payout proportionally.

Sum Insured Approaches by Asset Type

Wafer WIP Valuation: A Unique Challenge

A blank 300mm silicon wafer costs roughly RM500 to RM2,000. By the time it reaches final testing, that same wafer can hold chips worth RM50,000 to RM500,000 depending on the product. Your IAR stock coverage needs to reflect the maximum WIP value at any point in the production cycle, not just the raw material cost.

A large fab can have 5,000 to 20,000 wafers in process at any time. At an average WIP value of RM30,000 per wafer, that's RM150 million to RM600 million in WIP alone. Many facilities insure WIP under IAR stock at a fraction of this amount.

Premium Factors for E&E Facility Insurance

E&E factory insurance premiums are driven by different factors than standard manufacturing. The concentration of high-value assets in a controlled environment creates both higher rates and more underwriter scrutiny. Here's what determines your premium.

Indicative Premium Ranges for Malaysian E&E Facilities

These are indicative ranges only. Actual premiums depend heavily on the specific risk profile, loss history, and insurer appetite. Semiconductor risks above RM1 billion total sum insured typically require reinsurance placement in the London or Singapore market, which adds lead time and complexity to the renewal process.

Need a P&E programme review for your E&E facility? Talk to our specialists

Malaysia's E&E Manufacturing Corridors

Malaysia's semiconductor and E&E sector is concentrated in specific industrial zones. Each corridor has different risk profiles that affect insurance placement and pricing.

Location affects more than just flood risk. Penang's concentration of E&E facilities means insurers have significant accumulated exposure. A single major flood event in Bayan Lepas FIZ could trigger billions in claims across multiple policies. Some insurers actively manage their Penang E&E exposure, which can affect capacity and pricing for new placements.

Three Claim Scenarios: How P&E Policies Respond

Scenario 1: Power Surge Destroys Lithography System

A voltage transient from the TNB grid bypasses the UPS system during a switchover and hits the fab power distribution. The surge damages the optics module and wafer stage of a 193nm immersion lithography scanner. The tool is down for 9 months while replacement parts are manufactured and shipped from Japan.

The equipment damage (RM32.7 million) is less than a third of the total loss. Without ILOP, this facility absorbs RM85 million in uninsured production losses. The 9-month repair timeline is realistic for major lithography repairs because parts are custom-manufactured.

Scenario 2: Chemical Gas Leak in Cleanroom

A silane (SiH4) gas line develops a leak at a fitting in the CVD area. Silane is pyrophoric and ignites on contact with air. The resulting fire is contained by the gas suppression system but not before damaging 4 CVD tools, contaminating a 500m² cleanroom section, and exposing 3 workers to toxic fumes.

Because the cause was fire (silane ignition), the IAR policy responds for property damage, not EEI. The BI policy covers the production loss because it's triggered by an IAR-covered peril. This is why equipment classification by peril matters: the same equipment can be claimed under different policies depending on what caused the damage.

Scenario 3: Chiller Failure Causes Cleanroom Temperature Excursion

The primary chiller serving Cleanroom 2 suffers a compressor seizure at 2am. The backup chiller fails to auto-start due to a control logic error. Cleanroom temperature rises from 22°C to 35°C over 90 minutes before operators intervene. By then, 800 wafers in process have exceeded thermal specifications and are scrapped. 12 temperature-sensitive tools require recalibration.

* The WIP loss from temperature excursion is a grey area. Some insurers argue this is consequential loss from the MB event (excluded from IAR). Others accept it as sudden physical damage to stock. Your policy wording needs to address this explicitly.

** Tool recalibration after temperature excursion may not meet the threshold for "physical damage" under either EEI or MB. This is a common coverage dispute in semiconductor claims. The best approach is to negotiate a "recalibration extension" into your EEI policy at renewal.

P&E Programme Structure by Facility Type

Not all E&E facilities need the same insurance programme. A PCB assembly plant has very different risk characteristics from a wafer fab. Here's how to prioritise coverage based on your operation type.

OSAT and test facilities: don't forget the bailee's clause. You're holding your customer's wafers and chips. If a fire or equipment failure destroys their property, you're liable. Standard CGL excludes property in your care, custody, and control. You need a specific bailee's clause in your IAR or a separate bailee's policy.

Not sure which policies your E&E facility needs? Get a free P&E gap analysis

Common Insurance Mistakes in E&E Facilities

After reviewing hundreds of E&E factory insurance programmes across Malaysia, these are the mistakes we see most often. Each one creates a coverage gap that only becomes visible when you file a claim.

FAQ

What is the most important insurance policy for a semiconductor factory in Malaysia?

Electronic Equipment Insurance (EEI) is the most important policy because semiconductor facilities are dominated by high-value electronic and electrical equipment. EEI covers sudden unforeseen physical damage including electrical surges, operator errors, and internal faults that IAR and fire insurance exclude. Always pair EEI with ILOP (Increased Cost of Working / Loss of Profits) to cover production losses from equipment downtime.

How much does semiconductor factory insurance cost in Malaysia?

Total P&E programme costs range from RM150,000 per year for a small PCB assembly plant to RM10 million or more for a large 300mm wafer fab. EEI rates typically run 0.06% to 0.30% of the sum insured depending on facility type, fire protection, and claims history. The total premium depends on the sum insured, deductible levels, and coverage breadth.

Does IAR cover electronic equipment in an E&E factory?

Yes, IAR covers electronic equipment against fire, flood, and other named/all-risks perils. But IAR does not cover internal electrical faults, power surges, operator errors, or mechanical breakdown of the equipment itself. That's why E&E facilities need EEI in addition to IAR. The two policies work together: IAR for fire and external perils, EEI for internal and electrical causes of loss.

What is ILOP and why do E&E factories need it?

ILOP stands for Increased Cost of Working / Loss of Profits, and it's the loss-of-profits policy linked to EEI. When an EEI-covered equipment failure causes production downtime, ILOP pays for the lost revenue and additional costs to maintain operations. E&E factories need ILOP because production losses from a single major equipment failure can reach RM50 million to RM150 million, often exceeding the cost of the damaged equipment itself.

How should I insure wafers in process (WIP) in my fab?

Insure WIP under your IAR policy at the maximum aggregate value at any point in the production cycle, using graduated valuation by process stage. A bare wafer worth RM1,000 can be worth RM100,000 or more after processing. Calculate the total WIP by multiplying average wafer-in-process count by average value per wafer at the median process stage. Review and update this figure quarterly.

What's the difference between BI, ILOP, and MLOP for an E&E factory?

BI (Business Interruption) covers production losses from IAR-covered events like fire and flood. ILOP covers production losses from EEI-covered events like electrical surges and equipment faults. MLOP covers production losses from MB-covered events like chiller or compressor breakdowns. Each policy only triggers when its parent material damage policy responds. E&E factories need all three because production can stop from fire, electronic failure, or mechanical failure.

Do OSAT and chip packaging companies need different insurance from wafer fabs?

Yes. OSAT facilities have two unique risks: they hold customer-owned wafers and chips (requiring a bailee's clause), and they typically have lower equipment values but higher throughput volumes. The bailee's exposure can be significant because a fire destroying RM50 million in customer products creates liability that standard CGL excludes. The core P&E programme (EEI, IAR, MB, BI) is the same but with bailee's coverage as a must-have addition.

How long should my indemnity period be for semiconductor equipment?

At least 18 months for critical fab equipment, and 24 months for lithography systems and other long-lead-time tools. The indemnity period needs to cover equipment replacement time (6-18 months for fab tools) plus qualification and ramp-up time (2-4 months). Standard 12-month indemnity periods consistently underinsure semiconductor facilities.

Does insurance cover cleanroom contamination from an equipment failure?

It depends on the cause. If a fire causes contamination, IAR covers cleanup costs. If a chemical leak from an equipment failure causes contamination, coverage is split between EEI (equipment damage) and IAR (building/cleanroom decontamination). The grey area is when contamination damages other equipment or spoils WIP. Work with your broker to ensure policy wordings clearly address contamination scenarios and their coverage triggers.

Should my E&E factory use one broker for all insurance policies?

Yes. Using a single broker who understands P&E insurance for manufacturing ensures your policies work together without gaps or overlaps. When multiple brokers handle different policies, coverage disputes at claims time become far more likely. A coordinated P&E programme with one broker also gives you better negotiating power on rates because insurers prefer comprehensive programme placements.

Foundation Conclusion

Malaysia's semiconductor and E&E facilities are among the most valuable industrial operations in the country. The insurance programme needs to match the scale and complexity of these operations, with EEI and ILOP as the foundation, IAR and BI for fire and property perils, and MB and MLOP for the mechanical systems that keep cleanrooms running.

The cost of getting it wrong is measured in hundreds of millions. A single underinsured equipment failure or a missing ILOP policy can wipe out years of profit. Getting the right mix of P&E policies is not optional for E&E operations; it's a core business risk management requirement.

Talk to our P&E specialists about your semiconductor or E&E facility insurance programme