The method md5 uses a custom and less secure challenge-response mechanism. It prevents password sniffing, and storing passwords on the server in plain text, but it provides no protection if an attacker manages to steal the password hash from the server, the MD5 hash algorithm is nowadays no longer considered secure against determined attacks.
To continue using the md5 encryption, change the method in pg_hba.conf file for all entries to md5 and restart the PostgreSQL database server services.