Fire Insurance Malaysia

Your warehouse catches fire at 3am. By the time BOMBA arrives, half the building is gone along with RM3 million in stock. Your fire insurance pays the claim. But six months later, a monsoon flood submerges your ground floor stock. You file another claim and discover: flood is not included in your standard fire policy. You never added the special perils extension.

Fire insurance is the baseline of property protection in Malaysia. Every commercial and industrial property needs it. But understanding what the baseline actually covers, and where it stops, is the difference between a paid claim and a denied one.

This page covers:

• What standard fire insurance covers (only 3 perils)
• Special perils extensions and what each adds
• The average clause and how underinsurance reduces your claim
• Fire insurance vs IAR and when to upgrade
• How the Malaysian tariff system works
• BOMBA fire certificate and its insurance impact
• Premium factors and how to reduce costs
• The claims process step by step

What Does Standard Fire Insurance Cover?

A standard Malaysian fire policy covers exactly three perils. Not five, not ten. Three. Everything else requires an extension or a different policy entirely.

That's the entire scope of a standard fire policy. No flood. No storm. No theft. No accidental damage. No burst pipes. No vehicle impact. If your factory loss doesn't involve actual fire, a lightning strike, or a domestic gas explosion, your standard fire policy does not respond.

Special Perils Extensions

Special perils extensions widen the coverage beyond the three standard perils. Each extension is purchased separately and adds to your base premium. Most commercial fire policies in Malaysia include at least some special perils, but never assume. Check your policy schedule to confirm exactly which extensions are included.

Flood is the most claimed special peril in Malaysia. If your property is in a flood-prone area (Kelantan, parts of Johor, Shah Alam industrial zones), confirm your flood sublimit and deductible are adequate. A RM100,000 deductible on a RM500,000 flood loss still leaves you recovering RM400,000, which is better than RM0 without the extension. For more on flood-related coverage, see our guide on fire insurance and flood coverage for factories.

What Property Can You Insure?

Fire insurance covers physical property at a specified location. Different property types may be insured under separate items within the same policy, each with its own sum insured.

Get a Fire Insurance Quote

The Average Clause: How Underinsurance Reduces Your Claim

The average clause is the most common reason fire insurance claims are reduced in Malaysia. It penalises you proportionally when your sum insured is less than the actual replacement value of your property. The penalty applies to every claim, even partial losses.

How the Average Clause Calculation Works

The formula is: Claim payment = (Sum Insured / Actual Value) x Loss Amount. If you are 50% underinsured, you receive 50% of every claim.

Common Causes of Underinsurance

For properties worth RM10 million or more, get a professional reinstatement valuation. Most insurers accept valuations up to 3 years old. The cost of a professional valuation is a fraction of what the average clause could cost you at claims time.

The Malaysian Fire Insurance Tariff System

Fire insurance in Malaysia operates under a tariff system. Rates are set based on two primary factors: your building's construction class and the occupancy (what business activity happens inside). Unlike IAR insurance which is freely market-rated, fire insurance rates follow a structured framework.

Indicative Fire Insurance Premium Ranges

These are base fire rates before special perils extensions. Adding flood, storm, and other special perils typically increases the total premium by 15-40% depending on location and perils selected.

Fire Insurance vs IAR: When to Upgrade

Fire insurance is the starting point. For many industrial operations, it's not the finishing point. The coverage gap between fire insurance and IAR (Industrial All Risks) determines whether common factory incidents are covered or leave you paying out of pocket.

When Fire Insurance Is Sufficient

• Simple commercial property under RM5-10 million total value
• No significant machinery or production processes
• Business can relocate or survive a short shutdown
• Low-value contents, basic storage only
• Standard office, retail, or simple warehouse occupancy
• Insurance purchased primarily for bank loan or lease compliance

When You Should Upgrade to IAR

• Total insured value exceeds RM10 million
• Heavy machinery or production lines that could be damaged by impact, water, or theft
• Business interruption from any cause (not just fire) would be severe
• High-value stock or perishable goods require all-risks protection
• Operations involve water systems, chemicals, or temperature-sensitive processes
• Single policy covering material damage + BI is preferred over multiple add-ons

The cost difference between fire insurance (with special perils and BI add-on) and IAR is often 20-40%. For a RM20 million factory, that translates to roughly RM5,000-15,000 per year in additional premium. The broader coverage, simpler claims process, and reversed burden of proof make IAR the better choice for most industrial operations.

Compare Fire Insurance vs IAR for Your Property

BOMBA Fire Certificate and Insurance

Your BOMBA fire certificate (Sijil Perakuan) and your fire insurance are connected. Some fire policies include a warranty requiring a valid fire certificate. If your certificate lapses and you have a fire, the insurer may dispute the claim on the basis of warranty breach.

Fire protection is the biggest lever for reducing your fire insurance premium. A factory with automatic sprinklers, smoke detection, and a fire hydrant system can see premium reductions of 30-50% compared to an unprotected facility. The investment in fire protection systems typically pays for itself through lower insurance costs within 2-3 years. For a complete fire safety framework, see our guide on factory fire safety requirements in Malaysia.

Business Interruption Add-On

Standard fire insurance covers physical damage to your property. It does not cover the revenue you lose while your business is shut down for repairs. For that, you need a consequential loss (business interruption) add-on.

BI add-on for fire insurance only responds when the interruption is caused by a peril covered under the fire policy. If your fire policy covers fire, lightning, explosion, and special perils (flood, storm), then BI responds only to interruptions caused by those same perils. Under IAR insurance, BI responds to any insured loss, which provides broader revenue protection.

The Fire Insurance Claims Process

Maintain an up-to-date asset register with photographs and valuations. This single step speeds up fire insurance claim settlements by weeks. Digital copies stored off-site ensure records survive the fire itself.

What Your Broker Needs to Quote Fire Insurance

Get a Fire Insurance Quote

Frequently Asked Questions

Is fire insurance compulsory in Malaysia?

Not compulsory by law for all property owners. However, it is effectively required if you have a bank loan (banks require fire insurance as collateral protection), a commercial lease (most leases require tenant insurance), or strata property (the JMB arranges building insurance). For industrial premises, fire insurance is the minimum expected coverage.

Does fire insurance cover electrical fires?

Yes. A fire caused by faulty wiring, electrical short circuit, or overloaded circuits is covered under the standard fire peril. The policy covers fire regardless of how it starts, as long as it is accidental. However, damage from electrical fault without resulting fire (e.g., power surge that damages equipment but causes no fire) is not covered under a standard fire policy.

Does fire insurance cover flood damage?

Not under the standard policy. Flood requires a special perils extension which is purchased separately. Most commercial fire policies in Malaysia include special perils, but always check your policy schedule to confirm. Flood is the most commonly claimed special peril in Malaysia.

What is the average clause?

The average clause reduces your claim payment proportionally when you are underinsured. If your property is worth RM10 million but insured for RM5 million, you are 50% underinsured and will receive only 50% of any claim. The penalty applies to all claims, not just total losses. Avoid it by insuring at full replacement value.

How is fire insurance premium calculated?

Premium equals the tariff rate multiplied by the sum insured. The tariff rate is determined by your building's construction class (concrete vs timber) and occupancy class (what business activity happens inside). Special perils extensions, fire protection discounts, and claims history adjustments are applied on top of the base rate.

What is the difference between fire insurance and IAR?

Fire insurance covers only named perils (fire, lightning, explosion, plus optional special perils). IAR (Industrial All Risks) covers everything that isn't specifically excluded. IAR includes accidental damage, theft, water damage, and integrated business interruption. IAR costs 20-40% more but provides substantially broader coverage. For factories with total values above RM10 million, IAR is usually the better choice.

Does fire insurance cover business interruption?

Not automatically. You need a separate consequential loss (business interruption) add-on. This is purchased as an extension to the fire policy and only responds to interruptions caused by perils covered under the fire policy. If you want BI coverage for non-fire events, you need IAR insurance with Section II.

Can a tenant buy fire insurance?

Yes. Tenants should insure their own contents, stock, machinery, and tenant's improvements. The building structure is typically the landlord's responsibility. Check your lease agreement for specific obligations. Some leases require the tenant to insure certain items or contribute to the building's insurance costs.

What documents do I need for a fire insurance claim?

Police report, BOMBA incident report (if BOMBA attended), photographs of damage, proof of ownership (purchase invoices, delivery orders), professional valuation report (if available), inventory records, repair/replacement quotations, and financial statements (for BI claims). Better documentation leads to faster settlement.

How long does a fire insurance claim take?

Simple claims under RM100,000 typically settle within 1-3 months. Large fire claims with significant damage take 6-12 months, especially if business interruption is involved. Arson investigations or disputed claims can take longer. Request interim payments for large claims to maintain cash flow during the adjustment period.

Conclusion

Fire insurance is the baseline. Every commercial and industrial property in Malaysia needs it. But the baseline isn't always enough. Understanding exactly what your fire policy covers (three standard perils), what special perils extensions add, and where the coverage stops helps you make an informed decision about whether fire insurance alone is sufficient or whether upgrading to IAR makes sense for your operation.

Foundation helps factory owners, warehouse operators, property developers, and commercial tenants across Malaysia structure fire insurance programmes that match their actual risk. For industrial operations with complex risk profiles, we also advise on when upgrading to IAR provides better value than layering extensions onto a fire policy.