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Insurance



General Class of Insurance Policy for SMI, SME and Others.

A. Policy

Fire Policy on Property / Asset / Factory

MAKING SURE YOUR SUMS INSURED ARE ADEQUATE

In Malaysia, all rates for fire, houseowner and householder insurances are tariff-regulated. This means all insurance companies use the same basic fixed rates, which are determined by:

  • the type of cover you seek
  • the trade or occupation carried out on the premises
  • the type of construction of your property
  • Insurers try to charge customers the correct premium, which is based on their assessment of the degree of risk involved. The premium is often worked out as a small percentage of the amount of coverage you have requested, or, the sum insured. Choosing the correct sum insured or insurable value is important to ensure that you are properly compensated in the event of claims. If you are under insure, then you have all along been paying a premium based on the lower valuation. However, if fire destroys your property, your claim may not be paid in full.

    For example:

    Loss or damage RM100,000 × Sum Insured RM150,000 ÷ Full Value of Property RM300,000

    The insurance company will compensate for losses according to this formula: Sum Insured (RM150,000) × Loss (RM100,000) ÷ Full Value of Property (RM300,000) The insurance company will only pay RM50,000.

    In this case,

  • the insured is inadequately covered because he chose to insure his property at RM150,000 and not at its full value of RM300,000
  • the property was under insured by 50% so the settlement payment would also be reduced by 50% correspondingly
  • as a result, the insured has to bear a proportionate part of the loss or damage, which is RM50,000
  • this procedure is known as the application of 'average'.
  • If a total loss was suffered, however, the insured would of course receive the full RM150,000 for which the property was insured. But, this would amount to only half of the real loss, since the property should have been insured at RM300,000 in the first place. Clearly, under-insurance is a dangerous and false belief that you are saving money through lower premium.

    Goods In Transit Insurance

    INSURANCE THAT CARRIES WEIGHT

    Most probably you have never given all those goods you carry across town, on lorries or in cars, a second thought. But if they legally belong to you, then you will need to insure them.

    Goods in Transit Insurance is too easily overlooked by the manufacturers, wholesalers, retailers and service industry personnel who so badly need them. If you thought such goods were included in a Comprehensive Motor policy, you would be mistaken!! Although cover under a Commercial Vehicle policy does extend to include the accessories and spare parts of the vehicle insured, it does not cover goods carried.

    Trading nations naturally depend greatly on Marine Cargo Insurance and Air Freight Insurance to protect their exports and imports. Such cover usually operates in a "warehouse to warehouse" basis.

    However, gaps in policy cover can and do occur. In the case of imports, for example, the Marine policy may cease once the goods have been discharged from the vessel. Extending the existing cover beyond this point may prove difficult. Under such circumstances, an insurer would probably wish to inspect the goods thoroughly before assuming the risk, in case loss or damage has already occurred during the shipment.

    In the case of exports, the buyer of the goods may wish to effect his own insurance, or he may well be obliged to do so anyway by the laws of his own country. He would then most likely accept responsibility on an FOB (Free On Board) basis. This means that the seller should insure the transit risk but only up to the point when the cargo is loaded on board the vessel, that is, from factory to on board ship. If you send regular consignments of such goods, an "open cover" facility can be arranged. This automatically grants you cover under the terms of your policy subject to your declaration of actual insured values during a predesignated insurance period

    Machinery Breakdown Insurance

    ONLY A MACHINE??

    Any businessman would be well aware of the devastating effect a fire can have on his operations. As a result, he will usually insure accordingly.

    But few truly understand the far-reaching effects machinery breakdown or damage can have on a business. A machinery breakdown in a factory means a drop in output. Damage to key or large machines can bring a rapid halt to production, which cannot be resumed until the equipment is repaired. And breakdown or damage can cost a lot more than just what is needed to repair the machine.

    To speed up repairs, you may have to incur substantial unbudgeted expenses such as the purchase of spare parts, air freight bills and weekend or night-shift labour costs incurred during the installation of the new parts.

    Production costs may increase as you pay more in wages if employees must work overtime to keep production going. If the breakdown puts you out of business temporarily, revenue will also suffer.

    The protection the factory owner needs against such contigencies is called a Machinery Insurance policy.

    Products Liability Insurance

    SPECIAL COVER FOR MANUFACTURERS

    A Products Liability policy is essential cover for local manufacturers and suppliers. Most of these policies protect the insured against his liability at law for injury to third parties, or for loss or damage to third party property, arising our of any product sold or supplied by the insured.

    Liability at law is the term used in such policies which covers legal liability as widely as can be managed. A point to remember, though, is the cover does not include moral liability. In other words, the insured will only be covered against accidental injury or damage. The policy will not cover the manufacturer who knows that his goods are defective but puts them on the market anyway.

    Public Liability

    INSURE AGAINST PUBLIC LIABILITY CLAIMS...THEY MAY BE HEFTY!!

  • On Monday, a customer walks into your business premises, trips over the carpet and badly injures his head.
  • On Tuesday, one of your salesmen visits a client and drops a box of samples on the purchasing manager’s foot, breaking a toe.
  • On Wednesday, a visitor whom you’ve served a cup of coffee accidentally laced with disinfectant, suffers food poisoning.
  • On Thursday, one of your employees accidentally starts a fire, which then spreads due to your negligence and finally burns down your neighbour’s premises.
  • On Friday, a burst water pipe leaks water into the computer system of the firm in the premises below you.
  • Sounds improbable? Actually, any of these unfortunate events could easily happen and inevitably, would result in claims against you or your company. But if you have taken out a Public Liability policy, you are probably protected depending on the terms of coverage of the policy.

    Contractor's All Risks Insurance

    A FIRM FOUNDATION FOR SAFETY

    Let's just say you own a piece of empty land and that you have the necessary permission to build on it. Chances are, you will not be the one to actually erect a building on the site. But, as a principal, you will appoint a contractor, who in turn may appoint sub-contractors to get on with the job.

    To begin with, foundations will have to be laid. This entails excavation work that leaves large, exposed holes in the ground. If these holes are carelessly left uncovered, the possibility of someone falling into one of them becomes quite high. Another potential worry is that the contractor may accidentally cut through cables or other underground services while digging.

    Once the building actually emerges above ground, the problems change. Note, they "change", not "go away".

    Now the biggest dangers are fire, storm, collapse or accidents befalling people on site. Like the workman who steps back to admire his work when he is standing on the edge of the uncompleted 10th floor or the crane driver who drops a heavy weight on a passing car.

    Marine Cargo Insurance

    TAKING CARE OF YOUR CARGO

    In these competitive times, manufacturers and traders are obliged to venture beyond their own shores to sell their goods and to remain profitable. That means more and more of them are shipping cargoes over longer distances.

    The farther your goods travel from home, the greater the risks and the less control you have over these risks. Your livelihood is suddenly dependent on the conditions of the ocean, the weather and a multitude of different people, all of whom naturally care less about your cargo than you do.

    The frustration of a cargo loss stems from more than just the value of the loss or the damaged goods themselves. It is more the inconvenience, the loss of goodwill and the hours that your staff must spend sorting things out. Those hours and the goodwill can never be recovered or compensated for, even if your cargo can.

    Fidelity Guarantee Insurance

    INSURING YOURSELF AGAINST DISHONEST EMPLOYEES

    You may think it would be unlikely that you would employ somebody who might be inclined to commit some kind of fraud. After all, you ask for references before employing anyone for a position of responsibility or allowing them access to your property.

    Furthermore, all your senior employees have been around for years and are completely trustworthy. As for the juniors, any dishonesty on their part will be detected and dealt with quickly, thanks to your efficient checking systems. It just cannot happen to you.

    The truth is, you should never be so over-confident. Even with the best security systems, the opportunities for theft are many. And employees are subject to temptation just like anybody else.

    Just think of the numerous occassions you've heard or read about people with unblemished reputations who have stolen from or defrauded their employers. In many cases, their actions may have been prompted by sudden emotional strain, illness or debt.

    The loss or damage resulting from the criminal acts of an employee is often underestimated. And it is, of course, your very trust in them, which breeds complacency, that gives trusted employees the opportunity to commit theft or fraud.

    Recent statistics point to an increase in such crimes. Worse, the growing use of computers has created a host of brand new opportunities for crime on a much larger scale.

    So, it may be a relief to know that you can insure against such disasters under a Fidelity Guarantee policy, which guards against loss due to fraud or dishonest acts committed by your employees. It pays you for direct pecuniary losses you suffer as a result of your employees' dishonesty.

    Computer Insurance

    TAKING THE RISKS OUT OF COMPUTING

    If you run a modern business, you will know that computers are no longer a luxury. They are a day-to-day necessity on which you may have become increasingly dependent. This, unfortunately, makes you and your business extremely vulnerable.

    After all, why do people buy business computers? Mostly for increased efficiency and productivity, speedier operations, cost savings and the execution of jobs that would not otherwise be possible. At the end of the day, we expect these machines to increase our profits.

    KNOW WHAT YOU STAND TO LOSE

    Simply losing the use of a damaged computer is a mild inconvenience compared to what else you may suffer. Obviously the immediate consequences of a computer crash would be:

  • damage to the computer hardware itself
  • loss of data stored in the computer
  • increased costs
  • loss of your usual income
  • No doubt you have already wisely insured your hardware against obvious risks such as fire. Fire cover on computers can be extended, for an additional premium, to include other perils such as explosions, storms and burst pipes.

    But computers are extraordinarily expensive and delicate and vulnerable to damage. In fact, as most insurers will testify, damage can be caused not only by any of the perils already mentioned but also by all manner of human error, such as spilt drinks.

    Some of the most difficult causes of computer crash to control are also the most unlikely…mice eating through cables, or vibrations shaking the whole building, for example.

    Other usual causes of claims include the failure of essential air-conditioning equipment and the sort of short circuit that will damage the machine but causes no fire.

    Personal Accident Insurance

    BUYING YOURSELF A LITTLE PEACE OF MIND

    Man has always lived in fear that injury brought about by accident would cause him suffering, both physically and financially. He can seek to provide for himself and his family, in such an eventuality, by effecting Personal Accident insurance. Personal Accident (PA) cover pays an agreed-upon amount of compensation if the insured person is injured or killed in an accident. It does not usually cover the consequences of illness or disease.

    The majority of PA policies are 24-hour policies, covering accidents occuring any time, any place. If misfortune strikes at work, benefits are payable in addition to any Workmen's Compensation scheme.

    TYPES OF COMPENSATION

    Different types of compensation are paid for different types of injury:

  • Lump sums are payable for accidental death or permanent disablement such as loss of sight or a limb. The cover given is normally 24 hours a day. The age limit is usually set between 16 to 65 years.
  • Most accidents, however, disable you for only a short period so weekly compensation will be paid for a specified length of time. PA policies typically make payments for up to 104 weeks. These weekly sums can be payable either for total disablement or for partial disablement. This is an important consideration since you may not be able to work full-time until you have completely recovered from the accident.
  • You can extend the policy to protect you against the cost of medical treatment following an accident, up to an agreed-upon limit.
  • IF ACCIDENTS HAPPEN AT WORK

    The consequences of accidents in the work place is an important consideration for employers and managers. If one of your employees suffers an accident on the job, the immediate result would be a drop in output. To make up for this, the employee's colleagues will have to share his workload. The injured employee's personal contacts and personally-initiated business opportunities may also start to fade.

    Dealing with job-related accidents costs money, particularly if you are paying the injured employee part of his salary as well. Such payment may be required under the terms of his employment agreement. Or, you may voluntarily make such payments because you are a caring and responsible employer. Personal Accident insurance can compensate in cash for any losses of this kind.

    Medical Insurance

    YOU GET WHAT YOU PAY FOR

    All around the world, there is a rising demand for immediate access to the best medical attention. Insurers realise this, and as a consequence, you may be constantly bombarded with an enormous variety of medical insurance schemes'normally without knowing if the coverage is adequate until it is too late (when the time comes for you to claim). So what sort of cover should you really be looking for? That old rule - you get what you pay for - is most certainly true of Medical Insurance.

    HOW MUCH COVER DO YOU NEED?

    A good Medical Insurance policy does not come cheap. This is particularly so if you want to cover up to a high limit, with few restrictions on hospital accommodation, types of treatment or on your choice of doctor or hospital.

    For anyone living in Malaysia, we recommend an insurance cover of RM50,000 annual limit as an absolute minimum – medical cost inflation has far outstripped the rising cost of ordinary living. And, you only have to pay slightly more on your premium to get a limit of RM100,000.

    If you travel overseas, especially to the United States, you may well need even higher coverage. Most international Medical Insurance policies offer annual coverage of RM250,000 or more.

    TYPES OF COVERAGE

    A close look at many policies, especially those sold by direct mail, reveals that you only receive ‘hospital cash’ – a token payment for each day spent in hospital, simply intended to assist in meeting those additional household expenses when you or a member of your family are hospitalised. You are still left to pay your own hospital bill.

    You must always check the fine print on your medical policies. For instance, some policies require you to contribute to the cost of treatment. Deductibles in some cases can be used as a method of keeping premium costs down.

    The most exciting item you can request on your policy is the recently popularised emergency medical evacuation provision which offers to fly you out of the country where you have fallen ill, normally to the nearest place with good medical facilities. This is very important if you travel a lot, or live in countries with less than acceptable medical facilities.

    PRE-EXISTING ILLNESS

    Very few policies will cover you for an illness or injury which occured or began, before you took out the policy. Most other policies will not pay for treatment of pre-existing illness unless you have been clear of them for two years.

    Some make their judgement of what is pre-existing when the complaint arises, so if you did not know you had that complaint when you signed up for the policy, you may be left unprotected. Some insurers assess your medical history by means of a detailed proposal form and provide a list of what the policy will not cover in advance.

    Motor Vehicle (Private / Commercial)

    SAFE DRIVING CAMPAIGNS AREN'T ENOUGH

    All vehicle owners know they must buy motor insurance. But many are not clear about what needs to be covered or what protection is most suitable. We will try to clarify this.

    ACT POLICY

    First, the law requires you to have liability insurance for an unlimited amount to protect you against claims made against you by third parties for bodily injury. But the law in Malaysia does not yet require you to insure against your legal liability for causing damage to property. A motor insurance policy which covers the minimum legally required of it is known as an Act policy but few people take out such a limited form of cover.

    THIRD PARTY ONLY

    More common is a basic protection known as Third Party only, which covers your liability for both bodily injury and third party property damage. Who exactly is a third party? Well, you the insured are the first party, your insurers are the second party to your insurance contract and anybody else is a third party. The maximum value of claim that insurers will pay for private car, commercial vehicle and motorcycle insurances in the event of third party bodily injury is unlimited. For third party property damage, the amount of claim payable in Malaysia is restricted to RM3,000,000 for any one event. This amount can be raised in special cases. And if you are operating heavy vehicles or hazardous load carriers such as fuel tankers, you should discuss with your agent to have the RM3,000,000 ceiling raised.

    THIRD PARTY & THEFT

    The insurance described so far does not offer you any protection for damage to your own vehicle. The next cheapest cover is Third Party Fire & Theft, often called TPF&T cover. As the name implies, this extends the Third Party only to include loss or damage to your vehicle caused by fire or thieves, including damage caused to the vehicle while thieves are driving it. TPF&T cover may be suitable for people with low-value vehicles or for those forms of accidental damage, such as collision.

    NO CLAIM DISCOUNT (NCD)

    A "No Claim Discount (NCD)" is a reduction in the next year's premium the insurance company 'rewards'you with for not making a claim during the current year. The discount varies depending on the type of vehicle and number of claim-free years.

    You will lose all of this discount if you make any claim under the policy, regardless of fault or blame on your part. This is why the glass and radio extensions make good sense. It would be silly to risk losing a large discount for a relatively small claim.

    Travel Insurance

    MAKE IT YOUR TRAVELLING COMPANION

    Too many people are prepared to take the risk of leaving the country without first being insured. Our own calculation is that less than 10% of holiday travellers take out any insurance cover, let alone adequate protection.

    You do not necessarily have to take out separate coverage for each trip. First-class Medical Insurance can be arranged for you and your family on an annual basis covering you both at home and abroad. But make sure this includes coverage for emergency evacuation – medical expertise in many countries is not as good as you may need. For serious accident or illness, it may be necessary to evacuate you to a good medical facility. That can be very costly business.

    Another important aspect of travel insurance is luggage and personal effects. Today’s annual personal policies extend parts of this coverage on a worldwide basis but the extent needs to be carefully checked.

    Everyone is strongly advised to take out a package travel policy, available through their normal insurance adviser which includes the following minimum covers:

  • Medical expenses, including emergency evacuation. US$50,000 should be the minimum amount of cover sought. This should be doubled if you are travelling to North America because of the extremely high cost of medical treatment there. Cover should also include emergency dental treatment and additional accommodation and travelling expenses that may be incurred due to illness. If you are travelling with a friend or relative, the cover should be extended to include any additional expenses you may incur if you have to stay on to take care of your companion.
  • Personal accident. There are so many schemes currently being offered, through either your employers or even credit card companies, that you may well have enough existing coverage. A package travel policy will top up that amount over and above your other arrangements.
  • Personal luggage and money. Most policies cover modest amounts for luggage and money. If you use traveller's cheques, you greatly minimise the risk and therefore do not need extensive cash cover. By a similar token, jewellery is best left at home or in a bank safe when you are on holiday. If you insist on taking it with you, it should be insured on a worldwide annual policy against All Risks.
  • Personal liability. Any personal liability you may incur by injuring another, or causing damage to other people's property by your actions.
  • Cancellation/curtailment. Reimbursement of irrecoverable deposits, etc, for transport and accommodation that you booked but are unable to use due to death of, illness of or accident to yourself, a travelling companion or close relative.
  • Other covers are sometimes thrown into a package policy, for example, travel delay or delayed baggage benefit. Those tend to be small and perhaps not quite so relevant in Asia as in Europe where air traffic chaos make flight delays the norm on summer charter flights.

    Now that you know what you should be looking for, just one last piece of advice on who you insure with. Although there are many reputable insurance companies and good quality policies on the market, it is sometimes advantageous to deal with an insurer who has an office or a claims-settling representative in the country you are visiting. That way, you can get on-the-spot advice in the event of a problem.

    B. Insurance Claims

    Why Claims Rejected?

    MAKING GENERAL CLAIMS -WHY SOME CLAIMS FAIL??

    How are claims processed? Why do some claims fail and what can you do to make your claim work? To begin, let's consider some typical damage claims. For convenience, we will restrict our comments to fire damage but they also apply to other types of loses such as burglary.

    KNOW YOUR RESPONSIBILITIES AS CLAIMANT

  • If misfortune strikes and you have to make a claim, the golden rule is tell your insurer immediately and confirm it in writing. This simple procedure protects your position and complies with the policy conditions. It also gives your insurer the best chance of settling your claim quickly. An insurer will want to settle your claim honestly, fairly and promptly because his reputation depends on it.
  • You must act as if you were uninsured. By this, we mean that you must take all reasonable precaution to minimise the extent of the damage, including taking steps to bring to task anybody who may have been responsible for the loss. This is well-established in legal precedents, although it may not actually be stated in your policy.
  • You may need to call the fire brigade or the police, or to take recovery action against a negligent party such as a careless workman or his employees. You may also have to call for experts to make emergency repairs so as to prevent any aggravation of the damage.
  • Putting a temporary cover over a hole in the roof to prevent rain from affecting previously undamaged property is a good example of a precautionary action.

    ASSESSMENT OF CLAIMS

    For smaller claims, your insurer may use its own staff to handle them internally. But for larger claims, a loss adjuster may be called int o make an independent assessment of the cause of the loss.

    A loss adjuster is a specialist whose job is to find out what really happened, and has to recommend to the insurer how much to pay in the particular circumstances. His presence entails detailed discussions with you, the claimant, in order to reach an agreement in principle on what would be an acceptable and realistic claim settlement.

    Stories abound of claimants who deliberately inflate their claims, in the mistaken belief that insurers will automatically reduce them anyway. This is not true in the case of reputable insurers. But no insurer would write out a blank cheque for a stranger any more than you would.

    The insurer needs to be satisfied that:

  • the loss was the genuine accidental result of an insured peril.
  • the property was insured for its full value, and
  • the amount claimed is reasonable, taking into account its depreciated value before the loss and the salvaged value after it
  • Insurers will usually dispose of the damaged property to offset the loss, or alternatively, sell it back to the claimant if the item has some sentimental value. Insurers may also adjust the claim to take into account "betterment" that is, when your insurer gives you a brand new item in exchange for a well-worn item.

    SETTLEMENT OF CLAIMS...WHAT HAPPENS IF YOU UNDER-INSURED?

    Insurance is generally a 'contract of indemnity'. Financially speaking, this means that your insurer will try to put you in the same position you were in immediately before the loss occurred. In other words, you cannot profit from your misfortune. The only real exceptions to this rule come when you have specifically insured an item on a 'reinstatement value' basis or when you have taken out certain special types of insurance such as Personal Accident Insurance or Marine Cargo Insurance.

    The amount of your claim and of your original insurance value are crucial factors. A question you have to ask yourself is: Was the sum insured on the items lost or damaged, and the total sum insured on all similar property, equal to or greater than the full value?

    If not, you have your first problem, because your insurer is entitled to reduce the amount payable in proportion to the degree of your under insurance. This is known in the trade as the application of the average. For example:

    Full Value RM1,000,000
    Sum Insured RM500,000
    Loss or Damage RM250,000

    The insurance company will compensate the insured according to this formula: Sum Insured (RM500,000) × Loss (RM250,000) ÷ Full Value (RM1,000,000) In this case, the insured is inadequately covered and will have to bear a proportionate part of the loss or damage. Since the sum insured is 50% of the full value of the property, the insurance company will only pay RM125,000, that is, only 50% of the RM250,000. Make sure your claim is reasonable amount. If it is deliberately way too high, then you risk being accused of fraud. Under these circumstances, not only will you get no compensation from your insurance policy but you may also risk criminal prosecution.


    C. Risk Management



    D. Legislation

    1. Insurance Act 1996
    2. Offshore Insurance Act 1990
    3. Occupational Safety & Health Act 1994
    4. Malaysia Deposit Insurance Corporation Act 2005
    5. Arbitration Act 2005
    6. Contracts Act 1950
    7. Specific Relief Act 1950
    8. Limitation Act 1953

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