The status of zinc oxide (ZnO) arresters is directly related to the safety of power grids. However, as the service life of ZnO arresters increases, their insulation performance may decrease due to factors such as operating voltage and humidity, which can be identified through the measurement of leakage current. Tunnel magnetoresistance (TMR) sensors with high sensitivity, good temperature stability, and small size are excellent for measuring leakage current. This paper constructs a simulation model of the arrester and investigates the deployment of the TMR current sensor and the size of the magnetic concentrating ring. The arrester’s leakage current magnetic field distribution under different operating conditions is simulated. The simulation model can aid in optimizing the detection of leakage current in arresters using TMR current sensors, and the findings serve as a basis for monitoring the condition of arresters and improving the installation of current sensors. The TMR current sensor design offers potential advantages such as high accuracy, miniaturization, and ease of distributed application measurement, making it suitable for large-scale use. Finally, the validity of the simulations and conclusions is verified through experiments.