When Did You Last Check What It Would Actually Cost to Rebuild Your Factory?
Here's a number worth sitting with: in early 2026, the price of building a factory in Malaysia rose by roughly 12.59% in a matter of months, according to CIDB data shared with the National Economic Action Council. Not over a decade. Not even over a year. A double-digit jump concentrated in a few months, driven largely by fuel costs.
If your sum insured, the figure your insurer agreed to pay out if your building is destroyed was set before that jump, it's now quietly wrong. Not wrong in a way that shows up on your renewal notice. Wrong in a way that only becomes visible the day you file a claim and find out the payout doesn't cover what it actually costs to rebuild.
Why Are Building Material Costs Rising in Malaysia?
The single biggest driver has been diesel. Malaysia's construction sector runs on roughly 1.4 billion litres of diesel a year, and a large share of that — the off-road machinery used for earthmoving, concrete mixing, and lifting which doesn't qualify for subsidised fuel. When the West Asia conflict pushed diesel prices up, every concrete truck, crane, and excavator on a job site got more expensive to run, and that cost flowed straight into the price of building.
Does This Actually Affect My Insurance, or Just New Construction?
It affects your insurance directly, because your sum insured is meant to reflect what it would cost to rebuild your property today: using today's material and labour prices — not what it cost when the policy was first written. Fire and Industrial All Risks (IAR) policies are priced and paid out against that rebuild figure. When material costs climb 12% in a few months and your sum insured hasn't moved, the gap between what you're insured for and what it actually costs to rebuild gets wider every renewal you let pass without a review.
A sum insured that was accurate three years ago isn't a guess that's slightly off today — it's a number calculated for a cost environment that no longer exists.
What Happens If I'm Underinsured When I Claim?
Most commercial property policies in Malaysia carry an average clause, which means an underinsured claim doesn't just pay out less it pays out proportionally less across the entire claim, not just the gap. If your building is insured for 70% of its true rebuild cost, a partial loss doesn't get paid at 100% up to your sum insured; it gets scaled down to roughly 70% of the claimed amount. On a factory fire that damages machinery, stock, and structure together, that shortfall can run into hundreds of thousands of ringgit money that has to come out of the business, not the policy.
Whose Job Is It to Catch This Inside the Company?
It's rarely any one person's job by default, which is exactly how the gap goes unnoticed for years. In most SMEs and manufacturers, the sum insured sits in a renewal file that gets rubber-stamped annually, without anyone being specifically responsible for questioning whether the figure itself is still right.
A few roles are naturally positioned to catch it, if someone puts it on their list:
- The building or business owner ultimately carries the financial consequence of underinsurance, and is usually the one who approves any change in premium so the decision to revalue sits with them even if they didn't initiate the question.
- The financial controller or finance manager is often the one who sees the renewal invoice and the premium line each year, making them well placed to ask "has this figure actually been checked against current rebuild costs," rather than just approving the same number again.
- The general manager or operations manager usually knows about renovations, extensions, or new machinery brought into the building — exactly the changes that make an old sum insured wrong, and information the insurer or valuer won't know unless someone tells them.
- Whoever manages the insurance relationship day-to-day (sometimes the same person as above, sometimes an admin or procurement lead) is the one who should be fielding the three-year revaluation reminder and actually scheduling it, rather than letting it sit in an inbox.
If none of these roles has this on their calendar, it's worth assigning it to one of them explicitly — that's usually the difference between a revaluation that happens and one that gets talked about once and forgotten.
Who Should Be Reviewing Their Sum Insured Right Now?
Quick Risk Check — this applies to you if:
✗ Your factory, warehouse, or commercial building's sum insured hasn't been reviewed in the last 3 years ✗
You've renewed your fire or IAR policy on the same figure without a fresh valuation
✗ You've done any renovation, extension, or equipment upgrade since your last valuation
✗ You're not sure whether your sum insured reflects reinstatement value (cost to rebuild) or market value (what the property would sell for) — these are not the same number
✗ Your business has grown and your building now holds more stock or heavier machinery than when the policy was first set up
✗ You've never had a professional valuer or your adviser walk through a revaluation with you
Key Terms Glossary
Average Clause (Underinsurance Clause) — A policy condition that reduces your claim payout proportionally when your sum insured is below the property's true rebuild value — not just for the shortfall, but across the whole claim.
Industrial All Risks (IAR) — A broad property insurance policy for factories and industrial premises, typically covering more perils than basic fire insurance but still priced against your declared sum insured.
Building Material Cost Index (BCI) — A government-tracked index (via DOSM and CIDB data) measuring how much materials like steel, cement, sand, and bitumen cost to build with, used as a reference point for how fast rebuild costs are moving.
Revaluation — A periodic review of your sum insured against current rebuild costs, typically done by a valuer or your insurance adviser, to make sure your cover keeps pace with construction cost inflation.
Bottom Line
Material costs don't move in a straight line, and a 12% jump concentrated in a few months is exactly the kind of shift that slips past a policy renewed on autopilot. The business owners who get caught out aren't ignoring their insurance they're trusting a sum insured figure that was accurate when it was set and has quietly stopped being accurate since. This is also why Karwai Risks proactively reaches out to clients every three years to revalue their buildings it's not a sales exercise, it's making sure the number on your policy still means something the day you need it.
If you can't remember the last time your factory or warehouse's sum insured was actually reviewed, that's reason enough to get in touch - Karwai Risks can walk through a revaluation with you, no obligation.