Contractor's All Risks (CAR) Insurance Malaysia

A single monsoon flood can destroy months of construction work overnight. A crane failure can damage neighbouring property worth millions. A fire during hot works can gut a partially completed building. Without CAR insurance, the contractor bears the full financial cost of rebuilding.

Contractor's All Risks (CAR) insurance is project-specific coverage that protects construction works against sudden and unforeseen physical loss or damage from the first day of site mobilisation through the maintenance period. It's the core insurance every Malaysian construction project needs.

This page covers:

• What CAR insurance covers: Section I, II, and III explained
• Who needs CAR and when it's required by contract
• Premium calculation factors and typical rate ranges
• Standard extensions every contractor should request
• Common exclusions and how to close the gaps
• Malaysian contract form requirements (PAM, PWD, CIDB, FIDIC)
• The claims process and what to expect

Looking for machinery installation and commissioning coverage? See our dedicated EAR (Erection All Risks) insurance guide.

What Does CAR Insurance Cover?

CAR is structured in three sections. Each covers a different type of risk. Understanding the sections helps you identify where your coverage starts and stops.

Section I: Material Damage (Contract Works)

This is the core of the policy. Section I covers sudden and unforeseen physical loss or damage to the contract works, including permanent works, temporary works, and materials on site.

The design defect exclusion is the most misunderstood clause in CAR insurance. If a design flaw causes part of the building to collapse, CAR covers the resulting damage to other sound parts of the works. But it won't pay to fix or replace the defectively designed element itself. That professional liability exposure is covered by SPPI insurance.

Section II: Third-Party Liability

Covers your legal liability for bodily injury or property damage to third parties arising from the construction works. This is project-specific liability, separate from your ongoing business liability under CGL insurance.

Section II does not cover injuries to your own workers (covered by Workmen Compensation) or liability arising from use of motor vehicles on public roads.

Section III: Surrounding Property / Existing Property

Covers damage to property belonging to the principal (project owner) or existing structures at or near the construction site. This section is critical for renovation projects, factory extensions, and any works within or adjacent to occupied premises.

Without Section III, damage to an existing factory building caused by construction works next door would not be covered. The principal's existing property must be declared and valued separately.

Who Needs CAR Insurance in Malaysia?

Anyone with financial exposure to a construction project needs CAR coverage. But the specific obligation depends on your contract form and role in the project.

For a detailed guide on insurance requirements for Malaysian government projects, including PWD 203A clauses and CIDB compliance, see our dedicated article.

Malaysian Contract Forms and CAR Requirements

Different standard forms have different insurance clauses. Getting the CAR policy wrong relative to your contract can put you in breach.

Timing matters. Most contracts require CAR to be in place before site mobilisation or commencement. Delays in arranging insurance can hold up your project start date and bank drawdown. Start the insurance process as soon as you receive the Letter of Award. Read our construction insurance checklist for the complete pre-mobilisation requirements.

Premium Calculation: What Affects Your CAR Cost

CAR premiums are individually rated based on the project's risk profile. Understanding the rating factors helps you manage costs and provide complete information at quotation stage.

Typical rate ranges for Malaysian construction: Standard building construction (landed housing, low-rise commercial) ranges from 0.15% to 0.25% of contract value. High-rise construction typically falls between 0.20% to 0.35%. High-risk projects (marine works, tunnelling, hillsite development) can exceed 0.50%. A RM50 million factory construction project at 0.20% would cost approximately RM100,000 in CAR premium.

Get a CAR quotation for your construction project

Standard Extensions Every Contractor Should Know

The base CAR policy has gaps. Extensions plug them. Some are so commonly needed that experienced contractors request them as standard.

The 50/50 clause (DE 005) deserves special attention. Without it, if storm damage reveals a pre-existing construction defect that contributed to the loss, the insurer may deny the entire claim. With DE 005, the insurer pays 50% of the defective part's repair cost while covering 100% of the resulting damage to sound parts. This extension has saved contractors from catastrophic uninsured losses.

Common Exclusions and How to Close the Gaps

Every CAR policy has exclusions. Knowing them upfront prevents surprises at claim time. Most gaps can be closed with complementary insurance products.

For a detailed breakdown of CAR exclusions, read our CAR insurance exclusions guide. Understanding what's excluded is just as important as knowing what's covered.

Claim Scenarios: How CAR Responds in Practice

In all these scenarios, you must: notify your broker and insurer within 24-48 hours, preserve the damage scene for inspection (take photos immediately), and avoid commencing repairs until the loss adjuster has assessed the damage (except emergency measures to prevent further loss).

The Claims Process

Information Your Broker Needs for CAR Placement

Submit your project details for a CAR quotation

FAQ

Is CAR insurance compulsory in Malaysia?

There is no law mandating CAR insurance. But virtually all construction contracts in Malaysia, both government (PWD, JKR) and private (PAM, CIDB), require it as a contract condition. Without CAR, you can't mobilise to site or receive progress payments.

How much does CAR insurance cost?

CAR premiums are typically 0.15% to 0.35% of contract value for standard building construction. A RM30 million housing project at 0.20% would cost approximately RM60,000. High-risk projects (marine, tunnelling, hillsite) can exceed 0.50%. Rates depend on project type, location, duration, and contractor experience.

Does CAR cover my construction equipment and machinery?

Not automatically. Contractor's plant, tools, and equipment are excluded from the standard CAR policy. You can add them as an extension, or purchase a separate Contractor's Plant and Machinery policy. For valuable equipment like tower cranes and excavators, a dedicated CPM policy usually provides better coverage.

What happens if my project is delayed beyond the policy period?

CAR policies have a fixed construction period. If your project overruns, you must request a policy extension before the original period expires. Failing to extend leaves you completely uninsured for the overrun period. Your broker should track project timelines and initiate extensions proactively.

Can subcontractors be covered under the main contractor's CAR policy?

Yes. Subcontractors can be included as named insureds or covered under an "including all subcontractors" clause. This is standard practice in Malaysia and prevents coverage gaps between the main contractor's policy and subcontractor activities on site.

How does the flood deductible work?

Flood claims carry a higher deductible than other perils, often 1-2% of the total sum insured or a minimum amount (whichever is higher). In flood-prone areas, insurers may impose even higher deductibles or sublimits. This is a key cost consideration for projects in low-lying areas of Kelantan, Pahang, and Johor.

Does CAR cover defective workmanship?

Partially. If defective workmanship causes damage to other sound parts of the works, the resulting damage is covered. But the cost to redo the defective work itself is excluded. The 50/50 clause (DE 005) helps by splitting the cost of the defective part 50/50 between insurer and contractor.

What's the difference between CAR and EAR insurance?

CAR covers building and civil engineering construction projects. EAR covers machinery installation, erection, and commissioning projects. The key difference is that EAR includes full testing and commissioning coverage, while CAR focuses on structural construction risks. Mixed projects often need both.

Who arranges CAR insurance, the developer or the contractor?

It depends on the contract form. Under PAM 2018, the contractor typically arranges it. Under some government contracts, the employer may arrange it. The contract's insurance clause specifies who arranges and pays. Regardless of who arranges it, both parties should be named as co-insured under a joint-names policy.

How quickly can CAR be arranged?

For straightforward projects with complete information, a CAR policy can be issued within 3-5 working days. Complex or high-value projects requiring facultative reinsurance may take 2-4 weeks. Start the process as soon as you receive the Letter of Award to avoid delays to site mobilisation.

Foundation Conclusion

CAR insurance is the financial backbone of every construction project. The right policy structure, with appropriate extensions and adequate sum insured, turns a potential project-ending loss into a recoverable setback. Getting CAR wrong means getting your entire project risk programme wrong.

Foundation structures CAR programmes for Malaysian contractors from single-site residential developments to multi-phase industrial and infrastructure projects. We understand contract form requirements, underwriting risk factors, and how to negotiate the extensions that protect your project.

Talk to Foundation about CAR insurance for your project