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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME

INSURANCE & TAKAFUL HANDBOOK

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First Edition April 2010

© 2010 Institut Bank-Bank Malaysia

All rights reserved. No part of this publication may be reproduced or transmitted in any material form or by any means, including photocopying and recording, or stored in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication, without the written permission of the copyright holder. Written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. Application for permission should be addressed to Institut Bank-Bank Malaysia.

Published by Institut Bank-Bank Malaysia (35880-P) Wisma IBI, 5 Jalan Semantan Damansara Heights, 50490 Kuala Lumpur Tel: 603-20956833 (General Line), 603-20938803 (Qualifications), 603-20958922 (CPD) Fax: 603-20952322 (General Line), 603-20957822 (CPD) Website: www.ibbm.org.my E-mail: [email protected]

The development and production cost for this handbook is subsidized by the Staff Training Fund

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Foreword
The Financial Sector Talent Enrichment Program is an industry-driven post graduate initiative of the financial services industry. Deriving from an idea promulgated by the Governor of Bank Negara Malaysia, Tan Sri Dato‟ Seri Dr Zeti Akhtar Aziz, FSTEP was established in September 2007 to address the shortage of skilled talents in the financial services sector. The program aims to produce highly trained young professionals for the financial services industry. Insurance and Takaful in Malaysia is a fast-changing and dynamic industry with new developments taking place all the time. The development the Malaysian domestic economy would also need to change to a more productive structure that is more innovation-driven and knowledge intensive. The role of the financial sector therefore will also evolve from being an enabler of growth to becoming an important catalyst and driver of economic growth and development. This will create increased demand for highly trained and competent workforce to serve the financial industry. FSTEP therefore was established as part of the overall talent development initiatives to contribute to the process of building and expanding a sustainable pool of talent to best serve the present and future needs of the industry. FSTEP occupies a unique niche within the financial services industry, providing a training programme to equip participants with the essential knowledge and skills as well as to nurture them to become well-rounded individuals to support the growth of the industry. Through active collaboration of industry players, training modules were designed to blend technical knowledge and personal development insight, which enables participants to optimise their learning through a mix of classroom training based on case studies, complemented by hands-on exposure through on-the-job training. In writing this handbook, the author adopted an approach to comply with the syllabus of the financial services stream, as outlined by FSTEP. As such, the handbook will serve to augment the teaching and learning process to bring about maximum impact on the participants of FSTEP. FSTEP participants should review the handbook material prior to every class to expedite and maximize their understanding of the subject. We wish to register our appreciation to IBBM, the author, the reviewer and many others for the selfless contribution to this handbook and for their unwavering advice in steering the handbook to successful completion.

FSTEP Management March 22, 2010 Insurance and Takaful Author: Reviewer: Mohd Sukri Salleh Hamidon Abu Bakar
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Table of Content
1 INTRODUCTION TO INSURANCE 1.1. Introduction To Insurance 1.2. What Is Insurance? 1.3. How Insurance Works? 1.4. Function Of Insurance 1.5. Classes Of Insurance 1.6. Historical Aspects Of Insurance 2 INSURANCE INDUSTRY IN MALAYSIA 2.1. The Insurance Market 2.2. Other Markets Components 2.3. Organization Structure 2.4. Centralization Vs. Decentralization 2.5. Insurance Related Institutions 3 NATURE OF RISK AND RISK MANAGEMENT 3.1. Concept Of Risk 3.2. Related Concepts 3.3. Basic Categories Of Risk 3.4. Method Of Handling Risk 3.5. Risk Management 3.6. Characteristic Of Insurable Risk 4 REGULATION OF LEGAL ASPECTS AND INSURANCE 4.1. Law Of Contract 4.2. Essentials Of An Insurance Contract 4.3. Defective Contract 4.4. The Insurance Act 1996 4.5. The Insurance Regulations 1996 4.6. The Companies Act 4.7. Other Related Acts -Insurance Practice 4.8. Other Related Directives

7 7 7 9 11 11

13 14 15 17 17

18 19 19 21 22 28

30 30 32 32 37 40 40 41

5 INSURANCE AND TAKAFUL PRODUCTS 5.1. General Insurance 5.2. Life Insurance 5.3. Takaful

42 73 82
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Table of Content
6 MARKETING OF INSURANCE AND TAKAFUL PRODUCTS 6.1. Principles And Concepts 6.2. Marketing Fundamnetal And Distributions System 6.3. Types Of Takaful Business 6.4. Takaful Vs Conventional 7 UNDERWRITING 7.1. Introduction To Underwriting 7.2. Characteristic To Physical & Moral Hazards 7.3. Basic Principles Of Underwriting The Main Classes Of Insurance 7.4. Rating 7.5. Premium Payment 7.6. CBC Regulation 8 CLAIMS 8.1. Overview And Introduction To Claims 8.2. Notification of Loss 8.3. Settlement Of Claims 8.4. Recoveries For Reinsurance, Co Insurer, Subrogation And Contribution 8.5. Repudiation Liability By Insurers 8.6. Average Claim 8.7. Claim Settlement Agreement 8.8. Disputes 8.9. Post Settlement Action 9 MOTOR INSURANCE CLAIM 9.1. Motor Insurance Claim Procedures 9.2. Motor Insurance Claim Products 9.3. Documentation 10 NON MOTOR CLAIMS 10.1. Public Liability Insurance 10.2. Fidelity Guarantee Insurance 10.3. Personal Accident Insurance

87 89 91 95

96 96 97 98 100 101

102 102 103 104 104 104 104 106 106

107 108 109

111 114 116

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Table of Content
11 CUSTOMER SERVICE 11.1. Insurance Industry and the Consumer 11.2. Self Regulation 11.3. Purpose of Regulation

118 118 119

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1. INTRODUCTION TO INSURANCE
1.1. Introduction To Insurance 1.2. What Is Insurance? 1.3. How Insurance Works 1.4. Function Of Insurance 1.5. Classes Of Insurance 1.6. Historical Aspects Of Insurance

1.1. INTRODUCTION TO INSURANCE
Being exposed to various kinds of risks in our daily lives and activities, we are actually enduring Ourselves with the consequences of misfortune which are normally inevitable. This had leaded us to face with different types and nature of losses. The common question normally lingering in our mind is: “What kind of arrangements can be made to overcome or reduce the loss of this unexpected misfortune?” Realizing the facts that all forms of loss cannot be made good or be expressed in a pecuniary term such as the emotional trauma, arising from the death of the loved one, we cannot allow ourselves to be claimed away without any specific device of compensation which at least could reduce the impact of financial loss. One such possible arrangement whereby the financial loss in consequence of an unfortunate incident such as fire, death, sickness etc can be overcome is through the purchase of „insurance‟.

1.2. WHAT IS INSURANCE
It can be defined as: “An economic institution based on the principle of mutuality, formed for the purpose of establishing a common fund, the need for which arises from chance occurrences of nature, whole probability can be fairly estimated.” In general, the essential features of insurance are:     It is an economic institution It is based on the principle of mutuality or co-operation Basic objective is to accumulate fund to pay claim resulting from the operation of specific risks Only certain risk can be insured against and those occurrences can be confidently estimated with certain degree of accuracy.
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1.3. HOW INSURANCE WORKS?
Insurance is a process through which losses suffered by few is spread to and borne by many. In modern practice, insurance is a medium through which the financial burden of misfortune is transferred from the insured to the insurer. In general, any person who has legal right in financial interest in a property may insure under the contract of insurance if as a result of loss or damage he will suffer financial loss. An insurance contract is an agreement or promise that is legally enforceable between two parties. As an example, the insurer and insured whereby the insurer in return for a consideration (premium) agrees to undertake for a stated length of time (period of insurance) to indemnify the insured up to an agreed amount (sum insured) for the value of such defined property (property insured) if damaged by an insured peril. A contract of insurance is a contract of indemnity (excluding Life and Personal Accident Insurance) and the aim of this principle is to put the insured in the same financial position as he was before the misfortune occurs. The sum insured must be fixed at a level which will provide an adequate compensation at the time of loss. The cost of insurance would be normally depending on the scope of cover required and if additional risk needed, additional premiums need to be paid by the insured. In summary to describe the mechanism of insurance, is to understand the concept of:i. Risks pool Pooling of risks which is achieved by having losses experienced by the unfortunate few compensated by the contributions of others. For example, the premium of the many who are exposed to the same risks As an illustration for this concept in Figure 1.1 let us assumed for example in house owner or a term life insurance portfolio, which consists of 1000 houses of identified value of RM 100 000 each or 1000 life assumed its identified capital sum and a premium of RM200 is charged for each life assured per year.

FIGURE 1.1.

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House owners/ Term life #1 #2 #3 . . . #999 #1000

Premiums Claims RM 200 RM 200 RM 200 . . . RM 200 RM 200 1000 X RM200 = RM 200000

Expenses & Other Outgoes Profits

The contribution from the 100 house owners or life assured resulting in the creation of an insurance fund of RM 200000. The insurer uses this amount of money to pay for claims, expenses of management and other outgoes, such as commission, tax etc. the balance then if any will constitutes to the insurer‟s profits. ii. The law of Large Number Insurance is a device for spreading loss of a few among many can only work when insurers are able to underwrite a large number of similar risks when insurers are able to underwrite similar risks, the law of large number operates. The law of large number states that as the number of loss exposures increases, the predicted loss tends to approach the actual loss. Although the law of large numbers is a simple concept, the following requirements need to be fulfilled: Large number of similar exposures  Large exposures must be independent  Random or chance occurrence of loss

1.4. FUNCTION OF INSURANCE
The various functions of insurance can be outlined as follows;  Primary Functions The primary function of insurance is to act as a risk transfer mechanism. Through insurance, the individuals/business, enterprise/public, authorities/association can transfer their financial consequences of the risk to the insurers in return for paying a premium Without insurance, these individuals/business, enterprise/public, authorities/association will have to cope with the risks. In particular, they will face the uncertainty as to when a

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peril will occur and if it occurs how much would it cost. Through insurance, they are able to substitute a known cost for an unknown event involving an unknown cost.  Secondary Function  Releasing funds otherwise tied up in reserves Through the purchase of insurance, business enterprises and others are able to avoid the necessity of freezing capital to provide financial protection against losses. The fund released would be available for investment.  Stimulate business enterprise The risk transfer mechanism provide by insurance has made possible and has helped to maintain the present day large scale industrial and commercial organizations. Such large enterprise could not have started without the transference of many of their risks to the insurers.  Insurance also stimulates business in other ways:  It facilitates financing of property by banks and other financial institutions  It facilitates overseas trade  Remove fear and worry Insurance helps to remove fear and worry for losses of individuals and business executives. The removal of fear and worry of such losses helps to establish confidence and improve personal efficiency of business executives.  Reduction of losses Insurers help to reduce both in frequency and severity through their actions and recommendation in rating, survey, inspection and salvage activities.  Savings By protecting the individual against unforeseen events, insurance provides a climate in which savings are encouraged. Life insurance (endowment assurance) is often used as a means of savings.  Social benefits Insurance benefits the society indirectly through;  Compensation paid by insurers to insured which reduced the cost of social services  Workers of a factory destroyed by fire might have to face unemployment had the factory been uninsured. Associated Functions  Investment of funds Insurers accumulated large funds which they hold as custodians and out of which claims are met. These funds are usually invested (to earn interest/income) in the public and the private sector.  Invisible exports Insurance can contribute considerably to a country‟s balance of payments as an invisible export. For example, whilst Britain is a net exporter of insurance, Malaysia is a net importer of insurance.  Source of employment The insurance industry in Malaysia has generated numerous employment opportunities.
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1.5. CLASSES OF INSURANCE
The fundamental principle underlying insurance business is the pooling risk. Therefore, it is important to broadly classify insurance business into two types commonly termed as:    Life Insurance General Insurance

Life Insurance It is defined as a contract which pays an agreed sum of money on the happening of a contingency (event) or of variety contingencies, dependent on human life. Normally the cover for life insurance contracts is arranged to provide cover against the following forms of risks:  Premature death  Continuous stream of income during retirement- old age  Sickness or Disability General Insurance General Insurance contracts can be arranged to provide cover against the following form of risk to insured and third parties for damages arising in respect of;  Motor vehicles  Marine and aviation  Products or goods sold



DIFFRENCES BETWEEN LIFE AND GENERRAL INSURANCE LIFE INSURANCE Event is certain Can only be cancelled by the insured Long term contract Not subject to principle of indemnity GENERAL INSURANCE Event is uncertain Can be cancelled by either party Term of one year Subject to the principle of indemnity

1.6. HISTORICAL ASPECTS OF INSURANCE
The earliest beginning of insurance was marine Insurance. Merchants used sea as their source of trade attempted to minimize their losses which resulted from the perils of the sea by spreading the losses amongst all who were similarly engaged. Many ships safely arrived in port in the normal course of events and only few suffered losses. The many who were successful thus contributed to overcome the suffering of those who were unsuccessful, such as the misfortune of the unfortunate few was borne by the many through the payment of premium into a common fund.
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Later on, this had further developed into the existence of specialist group that managed the fund and providing specific rate which occurred in the different types of marine adventure. Life Insurance on the other hand came much more in the later date together with other forms of modern insurance, all of which worked on the principle of spreading the losses of the few over the fund created by the contribution of many. The year 1706, marked the emergence of the Amicable Society for a Perpetual Assurance. The most important development of Life Insurance was the use of mortality Table in conjunction with compound interest rates practiced by the Equitable Assurance in 1762 through the application of level premium system. In Malaysia, however insurance business started through the British trading firms and Agency Harrison, such as Harrison and Crossfield, Bonstead and Sime Darby during the 18 th and 19th centuries. After the independence in 1957, concerted efforts were made to introduce domestic insurance companies. Later in 1960s, there was growth of a few life companies in the country. However, many of them had to wind up much earlier due to unsound operation, and inadequate technical background. With this unhealthy development, through the government‟s intervention, the first Insurance Act – Insurance Act 1963 was enacted. The Act later was replaced by the 1996 Insurance Act and becomes the principal legislation governing the conduct of all insurance business in Malaysia today.

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2.

INSURANCE INDUSTRY IN MALAYSIA
2.1. The Insurance Market 2.2. Other Markets Components 2.3. Organization Structure 2.4. Centralization Vs. Decentralization 2.5. Insurance Related Institutions

2.1. THE INSURANCE MARKET
Insurance market refers to the facilities for buying and selling insurance. In a broad sense, insurance as a generic product would include private insurance, government insurance and Takaful Business.

 MAIN COMPONENTS OF INSURANCE MARKET
Like any other market, the market for private insurance comprises the following main components:  Buyers The buyers include individuals, business enterprise, associations, societies and public enterprises.  Sellers  Private insurers  Takaful Operators  State Insurer – SOCSO  Captive Insurance Companies  A parent company forms a subsidiary company to underwrite certain of its insurable risks.  Obtain the full benefit of the group‟s risk control technique by paying premiums based on its own experience, avoid the direct insurer‟s overheads and obtain a lower overall risk premium level at a lower cost.  Intermediaries They are the middlemen in the insurance market. They comprises of agents and brokers.  Agents An agent is a person who represents an insurance company in the performance of any functions covered by the terms of agency agreement. Depending on the terms of the agency agreement, an insurance agent maybe authorized to solicit insurance business,

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collect premiums and issue cover notes on behalf of the insurers. Insurance agents are remunerated through payment of commission.  Brokers An insurance broker is an agent who acts on behalf of the insured. His job is to advise his clients on the most suitable covers at the most economic cost. Brokers are expected to have in depth knowledge of insurance and therefore are subject to professional liability. In addition to advising clients and placing business on their behalf, the broker helps in presenting claims and getting them settled. Brokers are remunerated through payment of commission by the insurers. Commission rates paid to brokers are higher than that paid to insurance agents.

2.2. OTHER MARKET COMPONENTS
 Service specialist They provide support services to the insurers and the insured.  Engineers Engineering firms are generally retained by insurance companies to report on risk or claims on boilers, pressure vessels, lifts, cranes, etc  Marine and cargo surveyors They are specialists appointed by insurers to survey ships and cargoes that have been damaged and to report on the cause and extent of loss.  Loss adjusters They are independent parties appointed to survey any loss that has occurred. They investigate the cause and extent of the loss and report their findings and recommendations to the insurers who would then decide whether the loss is covered and if so, the amount of compensation required.  Loss assessors They are generally employed by insured when it is difficult to assess the extent of the loss. The assessor does not deal with claims. He is a specialist in calculating loss settlement figures.  Reinsurers Insurers frequently reinsure or cede all or part of the risks underwritten by them so that the burden of paying claims, particularly those involving large amounts, will be shared by the reinsurers. Reinsurance, therefore, is the insurance when insurers purchased to cover risk, they assumed. An insurer can purchase reinsurance from the following:  A locally incorporated reinsurance company – Malaysian National Reinsurance Bhd (MNRB)  Local reinsurers who underwrite some reinsurance business together with direct business  Foreign professional reinsurers.

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2.3. ORGANIZATION STRUCTURE IN THE MALAYSIAN INSURANCE INDUSTRY
There are various organization formed by the industry players to formulate specific task and code of conduct of market business. The organizations formed are as follows:  Persatuan Insurans Am Malaysia (PIAM) The PIAM is an associated of general insurance (in accordance with the Insurance Act 1996) which has been approved by the Minister. Therefore, the membership of PIAM is compulsory for all general insurers in Malaysia. The main objectives of PIAM are;  To establish a sound insurance structure in Malaysia  To collect and circulate information and statistics relating to general insurance business  To make rules, regulations, tariffs and by-laws in consultation with The Director General of Insurance (DGI) for implementation by the members. PIAM also took initiative to form the Fire Prevention Association Berhad whose main objective is to undertake research on fire losses and fire loss minimization. PIAM also makes efforts to minimize losses in other fields like motor accident.  MITBA MITBA was formed to represent the brokers operating in Malaysia. It acts as a guide for its members for practicing broking in a professional manner both in conventional and takaful aspects.. The body also represents its members for co-operation with other bodies, associations and authorities to serve the interests of its members.  Association of Malaysian Loss Adjuster (AMLA) AMLA was formed to manage those engaged in the profession of loss adjusting who are employed in insurance adjusters‟ companies licensed under the Insurance Act 1996. Its main objective is to advance the study and profession of Loss Adjusters and to promote the profession by compelling the observance of strict rules of professional conduct members of the Associations.  Life Insurance Association of Malaysia (LIAM) The Association represents Life Insurance Companies operating in Malaysia. It serves as a regulatory organization for trade as well as a centre of interaction of views with its members. LIAM also associates itself with insurance education and represents the life assurance companies for discussion with the government on insurance legislation and related matters. Other associations;    Actuarial Society of Malaysia National Association of Malaysia Life Insurance Agents Fire protection Association of Malaysia Bhd.

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INSURANCE INSTITUTIONS
 Motor Insurers Bureau (MIB) The Road Transportation Act 1987 requires vehicles users to be insured for liability for personal injuries to other road – users. The intention is to ensure that all injured victims will get compensation from the negligent drivers. However, the injured party would have no recovery or little likelihood of recovering in the following circumstances:  Where the negligent driver is not covered by a motor insurance policy  Where the driver and therefore his insurer cannot be traced, as an example in hit and run cases  When the insurer had gone into liquidation.  Insurance Mediation Bureau(IMB) The establishment of IMB in Malaysia has been initiated by PIAM. The objective is to provide an alternative procedure to resolve disputes arising out of policies of personal insurance. The IMB however does not deal with third party claims. The bureau has the power to make awards up to RM100 000. Such an award will be binding upon the members against which it is made. However, it will not be binding on the policyholder and if rejected, the policyholder‟s legal rights are unaffected. The policyholder may seek remedy in a court of law if he is dissatisfied with the decision of the IMB. *currently this is taken by Financial Mediation Bureau (FMB)  Unplaced Motor Pool The main objectives of the UMP was to render a kind of social service by providing at a reasonable cost of insurance coverage to certain classes vehicles which the traditional insurance market is not willing to insure in view of its adverse claims experience.  The Malaysian Insurance Institute (MII) It is the only full time insurance training institute and its conducts both the basic and advanced level courses and examination in insurance for those engaged in the insurance industry. Some of the objectives of the Institute are:  To provide and maintain a central organization for promotion of efficiency, progress and general development among persons engaged or employed in the insurance industry.  To encourage and assist in the study of any subjects relating to any aspect of insurance business.  To form a library for the purpose of the Institute  To offer money of prizes for essays or research in any subject relating to insurance.  To conduct professional insurance examinations.

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2.4. CENTRALIZATION VS DECENTRALIZATION
When an insurance company organized its department on a functional basis, the function and decision making tend to be centralized at the head office. When this happen, the branches will merely act as sales outlets and the headquarters will handled the underwriting, policy drafting, renewals, claims and accounting works. The advantages of centralization including the uniformity in practice and economics in administration. The disadvantage of centralization is the slow service which results from the administration being remote from the customers such as delay in quotation given to customers. Decentralization usually results in prompt service rendered to customers. In addition, a decentralization organization may be in better position to satisfy needs of customers because „locals‟ tend to understand local condition better. However, the disadvantage of decentrali zation is the duplication of resources, particularly when each branch performs all the basic functions. More importantly, branches may be overloaded with routine work, instead of concentrating on selling which is the principal function of branches.

2.5. INSURANCE RELATED INSTITUITONS
In the related development, there are also other supporting institutions which function merely to strengthen and broadened the market business. The institution may include the following;  Reinsurance companies  Mutual Indemnity Association  The government

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3.

NATURE OF RISK AND RISK MANAGEMENT
3.1. Concept Of Risk 3.2. Related Concepts 3.3. Basic Categories Of Risk 3.4. Method Of Handling Risk 3.5. Risk Management 3.6. Characteristic Of Insurable Risk

3.1. CONCEPT OF RISK
Risk and uncertainty may lead to severe pecuniary losses and our instinct of self-preservation and security resulted to insurance. Insured cannot prevent the insured risk from occurring but can only provide financial compensation should the event occur.

DEFINITION OF RISK
Risk is defined as uncertainty of (financial) loss as a result of unexpected event. Uncertainty implies doubt about what is going to happen in the future. In the context of financial loss, the individual or organization would experience uncertainty in the area of:     Whether or not a loss will occur Whether the loss will take place How severe it will be if it occurs How many time it might occur in a year.

LEVEL OF RISK
  Frequency of loss – How often will the loss occurs Severity of loss – How severe wills the loss be once it has occurred? (size of loss)

The relationship between frequency and severity is when there is a high frequency of low severity incidents and a low frequency of high severity incidents such as in household fire, there are many small incidence compared to very few cases where the houses are completely destroyed.

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3.2. RELATED CONCEPTS
Before we consider the other aspects of risk, it is important to distinguish risk from the following concepts:    Loss A reduction or disappearance of economic value Peril Cause of loss Hazards A condition that increases the chance of loss  Physical Hazard Physical condition that increases the condition of loss  Moral Hazard A character defect in an individual that increases the chance of loss  Morale Hazard A character defect in an individual that increases the chance of loss with the knowledge that insurance exists.

3.3 BASIC CATEGORIES OF RISK
Risk can be defined into two major categories:   Fundamental and Particular Risks Pure and Speculative Risks

 Fundamental risk Affects the entire economy of large number of persons/ groups within the economy. It affects either society in general or groups of people, and cannot be controlled even partially by any one person. Such risk is present in the forces of nature and the economy, since the outcomes of, say, the weather (flood, typhoon etc) or inflation or mass unemployment is beyond individual influence.  Particular risks on the other hand, refers to those future outcomes that we can partially (through not predictably) control; it arises from individual decisions to drive a motor vehicle, for instance, to own property, or even to cross a road. Since particular risks are the responsibility of individuals, each person must live with their consequences of their own actions or choice (responsibility of individuals). Fundamental risks, on the other hand, are generally regarded as the domain of society and government.  Pure risk exists when there is both possibility of loss or no loss. For example, the owner of an automobile faces the risk associated with a potential collision loss. If collision occurs, the owner does not gain, so the owner‟s financial position remains unchanged. Other examples include risk of damage property resulting from fire and risk of premature death.
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 Speculative risks exist when there is possibility of profit, loss or no loss. For instance, investment in a capital project might be profitable or it might prove to be failure. Other examples include investment in stock market or real estate, venturing into business and betting in a horse race. In addition to the difference outcome, pure risks are normally predictable because it is easier to apply the Law of large numbers to such risks. This also implies that pure risks can generally be handled by insurance techniques whilst speculative risks are rarely insured.

3.3.1 TYPES OF PURE RISKS
Certain pure risks are associated with substantial financial losses and they can be categorized into three major types;    Personal risks Property risks Liability risks

 Personal Risks Personal risks are those risks directly affecting an individual. There are four major types of personal risk;  Risk of premature death Premature death often gives rise to great financial losses;  Loss of human value The present value of the family‟s share of the decreased breadwinner‟s earnings  Additional expenses incurred such as medical expenses of last illness, burial costs, probate costs and death duties  Risk of old age The major risk associated with old age is the possibility of insufficient income during retirement. The problem of insufficient income may be aggravated by early retirement and inflation  Risk of poor health The risk of poor health is mainly associated with;  Large medical expenses  Loss of earned income  Risk of unemployment The major risks associated with unemployment are:  Loss of earned income  Depletion of accumulated financial assets

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 Property risks There are three main types of loss associated with the destruction or theft of property  Direct loss Damage to property by a peril. For example, Mr. A‟s house destroyed by fire. The direct loss suffered by Mr. A includes for example the loss of value of the house as a result of fire (peril)  Indirect loss A loss in consequence of a direct loss such as property damage. For example, loss of profit as a result of business interruption following damage to the business premises. When a factory is damaged by fire, the production will have to be stopped. This will result to loss of profit. Therefore, the indirect loss is the loss of profit or income which in consequence of the fire loss.  Extra expenses Extra expenses incurred as a result of the loss. For example, if the owner of the above factory rents another building to resume business as usual, he needs to incur additional cost of renting such building. Therefore, the additional cost of getting or renting a temporary premise at an alternative site is an example of extra expenses.  Liability risks A court of law may order you to pay substantial damage to the person whom you have injured.

3.4. METHOD OF HANDLING RISK
Basically there are four methods of handling risks:  Risk avoidance  Loss control  Risk retention  Risk transfer  Risk avoidance Given a choice, most people would avoid risk. For example;  A manufacturer who is worried about product liability lawsuit arising from one of his products can avoid it by not manufacturing the product.  An individual who is worried about his health arising from cancer of the lung can avoid smoking.  Loss control By reducing the frequency of loss, by the use of fire resistance material in the construction of building to help prevent fire loss. Loss control measures handle risk by;  Loss Prevention By reducing the frequency of loss, by the use of fire resistance in the construction of building to help prevent fire losses.
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 Loss Minimization By reducing the severity or amount of loss, by installing an automatic fire sprinklers system may helps to reduce the amount of fire losses when fire occur.  Risk retention This involves the retaining of risks by an individual or organization. When risks are retained, losses incurred are borne by the party retaining the risks. Risk retention may be planned or unplanned. When risk retention is planned, risks are retained deliberately. Unplanned risk retention involves retaining of risks unknowing.  Risk Transfer This involves the transferring of risks to an organization or individual. When a risk is transferred, loss will be paid by the organization or individual to whom the risk is transferred. There are two ways of transferring risks;  Insurance Contract Example: A house owner can transfer the loss incurred when his house is destroyed by fire entering into a fire insurance contract.  Non Insurance Contract Example: A supermarket can transfer potential liability arising from the sale of defective product by entering into agreement whereby the manufacturer agrees to compensate the supermarket from any liability arising from the defecting product.

3.5. RISK MANAGEMENT
Risk management can be defined as a systematic approach to identifying, measuring and controlling risks that can threaten assets and earnings of oneself, a business or the organization. It is a general management function that seeks to assess and address the causes and effect of uncertainty and risk on an organization. The purpose of risk management is to enable an organization to progress toward its goal and mission in the most direct, efficient and effective path, 3.5.1. OBEJECTIVE OF RISK MANAGEMENT The objective of risk management can be looked from two different perspectives;  Before loss  Reduce the impact of loss should it occur  Reduce fear and worry by having contingency plan  Required by law  After loss  Ensure the survival of the organization  Ensure the stability of earnings of the organization  Reduce the impact of losses to organization society
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3.5.2. RISK MANAGEMENT PROCESS 1. IDENTIFYING POTENTIAL LOSSES 2. EVALUATING POTENTIAL LOSSES 3. EXAMINING ALTERNATIVE RISK MANAGEMENT TECHNIQUES 4. IMPLEMENTING THE RISK MANAGEMENT PROGRAM 5. CONTROLLING/MONITORING THE PROGRAM  Identifying Potential Losses Identification is the first step of risk management and is known to be the most important process. Risk identification is the process by which an organization is able to learn of the areas in which it is exposed to risk. Identification techniques are designed to develop information on sources of risk, hazards, risk factors, perils, and exposures to loss. Losses can be classified as those that can result in:  Direct damage  Indirect or consequential loss  Liability  Loss of keys persons Loss exposures can be identified and determined through one or a combination of the following means:  Questionnaires  Interviews  Financial statements  Flow charts  Personal inspection/observation  Evaluating Potential Losses Risk measurement evaluates the likelihood of loss and the value of loss in terms of frequency (referring to the number of times the loss occurs) and severity (referring to the maximum size of loss exposures) For example: A supermarket is an entity that experiences high frequency of losses. Losses that fall in this category would be shoplifting of small items such as chocolate bars or snacks. We very seldom hear of supermarket being close down because of that. However, should that happen, then that would be an example of loss with high severity. Losses with high severity may not necessarily be a direct damage, such as property loss. An indirect damage such as liability lawsuit may cause the company to close down permanently. For example. A car manufacturer producing faulty brakes may cause injuries and death to its user. The victims may sue the manufacturer for the losses sustained. The amount awarded by

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the courts may be very substantial that the manufacturer may even have to declare the company as bankrupt Therefore, in evaluating the potential losses, the following steps should be observed;  Estimating the frequency and severity for each type of loss exposure and ranked it according to their relative importance. High loss exposures will be given priority.  Estimating relative frequency and severity of each loss exposure as the selection of appropriate technique will depend on this.  Examining Alternatives Risk Management Techniques There are two main ways to classify the Risk Management techniques. There are;  Risk control (preventing losses from happening)  Risk Avoidance  Loss Control Loss prevention Loss reduction  Separation  Contractual Transfer  Risk Finance  Retention/Assumption  Captive Insurer  Insurance  Risk Control Risk control efforts help an organization avoid a risk, prevent loss, and lessen the amount of damage if a loss occurs, or reduce undesirable effects of risk on an organization.  Risk Avoidance Risk is proactively avoided or abandoned after rational consideration (that a certain loss exposure is never acquired, or an existing loss exposure is abandoned. For example: a manufacturer may cease the production of a defective product to avoid a lawsuit. This is the best way to deal with such loss exposures. However, some risks are unavoidable. In other words, although risk avoidance may be chosen as an option in handling certain risks, the exposures of losses cannot be eliminated entirely. Therefore, in some cases risks avoidance is not practical or feasible.  Loss Control Designed to reduce both frequency and severity of losses by changing the characteristics of the exposure so that it is more acceptable to the firm. It can be divided into two namely; Loss Prevention Loss prevention programs seek to reduce the number of losses (frequency) of losses. This method is selected when the benefits outweigh the cost involved.

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Loss Prevention  Reduce Frequency  Examples: Hazards Flooding Smoking Drunk driving

Imposed by law Imposed organization

by

Loss prevention activity Dams, water resource management Ban on smoking, except in restricted areas Prohibition, enforcement of ban, prison sentence

Loss Reduction Loss reduction is designed to reduce or lower the severity of losses, should it occur. A sprinkler system is a classic example of loss reduction effort, because fire is required to active the sprinklers such a system does not reduce the probability of loss. Instead, a sprinkler system reduces the amount of damage if a fire occurs. The loss reduction method is used in two circumstances:  Before loss An example of a loss reduction measure implemented before a loss is the installation of fire alarm.  After a loss An example of loss reduction measure implemented after a loss is the salvage efforts in the restoration of a building burnt down by fire.  Separation This method involves the dispersal of the firm‟s assets in several locations instead of confining it to one major area. This measure will reduce the impact of losses should a major disaster occurs. For example, an automobile producer has its manufacturing and assembly plant away from its administrative and corporate office. In the event of a fire, the company will be able to focus its efforts to a more confined area instead of trying to save everything. The location of each building must be properly planned so as to minimize losses.  Contractual Transfer This is a risk transfer mechanism other than insurance. It refers to the various methods other than insurance by which a pure risk and its potential financial consequences can be transferred to other party. Examples:  Incorporation – Where the owner of the company transfer the risks to corporation by registering the company  Leasing Contract – An agreement where the owner or landlord transfers the risks to the tenants  Hedging – An agreement to buy or sell a commodity at a certain price to avoid losses due to price increase or decrease.
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 Hold- harmless Agreements – An agreement between a retailer and a manufacturer whereby the later agrees to bear losses due to the manufacture of defective products thus relieving the retailer of any liability. Some advantages and disadvantages of contractual transfer can be summarized below: Advantages Disadvantages o Can transfer potential losses that are o If the party whom to who the loss is commercially uninsurable transferred is unable to pay the loss, the firm is still responsible o Often cost less than insurance o Not necessarily cheaper than insurance if discount are taken into consideration o Potential loss shifted to a party who is o Ambiguity in contracts drafted may not in a better position to exercise control. hold in court.  Risk Financing Risk financing measures are methods involving generating funds to pay for these losses.  Retention In some companies, losses are retained. In other words, the company will bear the consequences of the loss. Risk or loss exposures are normally assumed or retained when their impact and consequences are not too great or in cases when no other methods seem feasible. In an organization, the ability to assume a risk depends on one‟s financial ability.  Self – Insurance and Captive Insurers Self insurance implies that the organization sets up a pool of fund to retain its loss exposures. Adequate financial arrangement has to be made in advance of the occurrence of losses. The number of loss exposures must be large enough to ensure the mechanism of insurance to be operative. One approach to self-insurance involves the use of a captive insurance company. A captive Insurance company is an entity to write insurance arrangement for its parent company.

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Advantages and disadvantages of setting up captive insurance in the organization are as follows: Advantages Disadvantages o Cash flow advantages – no outflow of o Possible higher losses- since insurance funds in terms of premium payments companies have been in the business for a long time, organizations that assume its own risks will lose the expert guidance of insurance companies in loss prevention and claim settlements o Save money – if insurance is still o Possible higher expenses- organizations sought out, then the organization will that assume/retain its own risks must still be able to lower its cost since some ensure that competent workforce is risk are retained hired to manage the risks and administer its fund. The organization may eventually have to incur high costs in hiring and training these workers. o Lower expenses – sizeable savings in the form of reduced administrative expenses, commission brokerage, etc.  Insurance Insurance is a risk financing method of transferring the financial consequences of potential accidental losses from an insured firm or family to an insurer. This method is used when the organization feels that it is more economical and beneficial to transfer the risk to another party. Transferring the risk to another party involves a contractual agreement whereby the other party assumes the risk and is liable for the loss in the event of loss. In an insurance contract, the party exposed to the risks pays the premium to the insurance company. In return, the insurance company agrees to pay a stated sum on the happening of certain risk specified in the contract.

 IMPLEMENTING THE RISK MANAGEMENT PROGRAM
The management must select the best and most cost effective risk management program. The selection of risk management program may be based on two (2) factors:  Financial criteria – whether it will affect the organization‟s profitability or rate of return  Non – financial criteria – whether it affects the growth of the organization, humanitarian aspects and legal requirements. In ensuring effective implementation of the program, attention should be devoted to the following considerations:  Issuing a Policy Statement The policy statement outlines the risk management objectives of the firm as well as company policy with respect to treatment of loss exposures. It is important that all the employees in the organization be made aware of this policy and they accept the policy statement
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 Drafting a Risk Management Manual The Risk Management manual describes in detail the risk management program. The manual can be used as a tool for training new employees who will be participating in the program.  Co-operation with other Department Co-operation with other department within the firm are extremely important in identifying pure loss exposures. For examples:  ACCOUNTING: Internal accounting controls can reduce employee fraud and theft cash  MARKETING: Accurate packaging can prevent liability law suits. Safe distributions procedures prevent accidents  PRODUCTION: Quality control can prevent production of defective goods, and so prevent liability law suits.

 CONTROLLING/ MONITORING THE PROGRAM
The risk management program must be monitored and controlled systematically. It must be periodically reviewed to ensure that the techniques employed are still suitable and they satisfy the current conditions.

3.6. CHARACTERISTIC OF INSURABLE RISKS
Not all risks are capable of being insured. Risks that are uninsurable must fulfill certain characteristics. The main characteristics are as follows:  Pecuniary / Financial Value The risk must involve a loss that is capable of financial measurement where monetary compensation is capable following a loss - risk of damage to property, the financial measurement is cost of repairs.  Homogeneous Exposure There must be a large number of similar risks before any one of that number is capable being insured. There are two reasons for this:  Enable the insurer to predict losses more accurately  If there are only few risk exposures, each one would have to contribute a very high amount for the loss to be met from the contributions.  Pure Risk Only In general, only pure risks are insurable as insurance cannot be used to make gain. A speculative risk involves loss. Gain or no loss, therefore are not insurable  Particular Risk In general risks, only particular risk are insurable insurance if they satisfy other criteria of insurable risk.

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 Fortuitous A fortuitous is one that is accidental and unintentional. Insurance cannot function properly and efficiently if losses are internally and fraudulently brought about by the insured.  Insurable Interest The existence of insurable interest in contracts of insurance is one of the main factors that differentiate insurance from gambling.  Legal and Not Against Public Policy The object of insurance must be legal and not against public policy. A shop engaged in smuggling or a wager on a life is not an insurable risk because such risk is of an illegal nature. Fines and penalties imposed by law are not insurable because it is against public policy to provide insurance for such events.

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4.

REGULATION OF LEGAL ASPECTS AND INSURANCE
4.1. Law Of Contract 4.2. Essentials Of An Isurance Contract 4.3. Defective Contract 4.4. The Insurance Act 1996 4.5. The Insurance Refgulations 1996 4.6. The Companies Act 4.7. Other Related Acts –Insurance Practice 4.8. Other Related Directives

4.1. LAW OF CONTRACT
All contracts are governed by the general principle of the law of contract as specified in the contract Acts 1950.

DEFINITION OF A CONTRACT
A contract may be defined as a legally enforceable/ binding agreement made between at least two parties. The phrase “legally enforceable” means that disputes relating to the agreement may be referred to a court for settlement.

4.2. ESSENTIALS OF CONTRACTS
An agreement will be enforced when the following essential elements exist. The absence of even one is fatal to the enforcement of the contract. The essential of the contract requirements are:  Intention to create legal relationship  Offer and acceptance  Consent  Consideration  Legal capacity to contract  Legality of the contract

 INTENTION TO CREATE A LEGAL RELATIONSHIP
It is essential that parties to an agreement intend to be legally bound; otherwise there would not be a contract between them. It may be inferred from terms of the agreements, conduct and surrounding circumstances. Thus, insurance agreements are presume to be legally binding on the insured and insurer.

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 OFFER AND ACCEPTANCE
An offer is a firm proposition put by one person (the offer or) to another person (the offered) coupled with an intention that it shall become binding as soon as it is accepted by the person to whom it is addressed. Thus, the proposition must be firm and capable of acceptance before it can be classified as a contractual offer. Acceptance is the unconditional assent by one party to the terms of the offer. For an acceptance to be valid there must be;  A fact of acceptance  Communication of acceptance In general insurance, a person usually makes an offer when he proposes for insurance and the insurer concerned is deemed to accept the offer if he agrees to provide the proposed insurance. In some instances, the insurer may not accept the proposal but may offer to provide insurance on a different term. This constitutes a counter- offer from the insurer. In such circumstances, the acceptance may be made by the insured. In contrast, the offer of life insurance usually comes from the insurer while acceptance is made by the insured.

 CONSENT
Parties to the agreement must agree upon every material term of the agreement. When this happens, the parties to the agreement are said to be “consensus ad idem” (meeting of mind) there is no consent by the parties if the contract is entered as a result of mistakes, misrepresentation, duress and undue influence.

 CONSIDERATION
Parties must give consideration before an agreement can be legally binding. In general and life insurance contracts, the insured‟s consideration is to pay or promise to pay premium. However, in the cash-before-cash cover policies such as motor policies, the insured‟s consideration is to pay premium accordance with the laws of Malaysia which is to pay premium to his insurer on the day his is given insurance cover. The cash -before- cash cover principle does not apply in General Insurance and Life Insurance businesses.

 LEGAL CAPACITY T CONTRACT
A party to insurance must have legal capacity to enter into a contract. Everyone except minors and people unsound mind has legal capacity to enter into a contract. However in Insurance Act 1996, section 153 provides that minor who has attained the age of 16 may affect a life policy on his own life or on the life on another in which he has an insurable interest. Minor aged 10-16 may also affect a life policy with the written consent of his parent or his guardian.

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 LEGALITY OF A CONTRACT
An agreement should be created for a legal purpose. It should not promote things which the laws disapprove. An agreement which is illegal or against public policy would not be legally binding. For example, an insurance policy providing indemnity against fines imposed by a statue or court of law.

4.3. DEFFECTIVE CONTRACT
When contracts are tainted by defects at the time when they are being made, their validity may be questioned. Contracts tainted by defects may be void, voidable or unenforceable depending on the nature of the defects.  Void Contract A void contract is one which legally does not exist. It is nothing more than a mere agreement and the court will not enforce it. An insurance contract which lacks any one of the essential elements mentioned earlier is an example of a void contract. Another example is an insurance contract affected without insurable interest. Voidable Contract A contract is voidable if one party to the contract is given the option to consider the contract void. A voidable contract will remain valid and in force until the aggrieved party exercises the option to treat it void. Example of a voidable contract is one which a party to the contract has breached the duty of utmost good faith. Unenforceable Contract An unenforceable contract is a contract which is neither void nor voidable but cannot be enforceable through a court of law. Unenforceable contracts are result of failure to comply with legal formalities such as the need for certain contracts to be evidenced in writing. An example of an unenforceable contract is a Marine insurance contract which is not in writing (section22 of Marine Insurance Act 1996 requires a marine insurance contract to be in writing)





4.4. THE INSURANCE ACT 1996
The law that governs the insurance industry in Malaysia is the Insurance Act 1996 (Act) which came into force on 1 January 1997. The Act is supplemented by the Insurance Regulations (Regulations) and specifications which prescribe the details of mandatory requirements contained in certain provision of the Act. The main purpose of regulations includes:  The protection of public interest By ensuring that the insurer is financially solvent and able to meet its obligations to its policy owners and claimants
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The promotion of fairness and equity To ensure that insurers, insurance brokers and adjuster (collectively known as licensees under the Act) are fair and equitable in their dealings with their clients and claimants.



The fostering of competence By insisting on a high level of professional competence and integrity of insurers, insurance brokers and adjusters.



The fostering of competence By insisting on a high level of professional competence and integrity of insurers, insurance brokers and adjusters.



The playing a development role By encouraging the insurance industry to take an active part in the economic development of the country.

 SCOPE OF REGULATION
 Part I : Preliminary Part I deals with matters such as the definitions of terms used in the 1996 Act and empowers Bank Negara Malaysia (BNM) with all the functions conferred on it by the 1996 Act. In addition, the Governor of BNM shall perform the functions of BNM in its behalf and BNM may authorize an officer of BNM or appoint any other person to perform any of its functions.  Part II : Licensing of Insurer, Insurance Broker and Adjuster Part II provides for the licensing and revocation of licensing of persons carrying on insurance, insurance broking or loss adjusting business. Among the requirements are provisions to regulate the paid up capital of a licensee, that a broker or adjuster has to be conducted by a company. Part II also lays down the responsibilities of a licensee in order to protect policy owners‟ interest during the period of winding down the business.  Part III : Subsidiary and Office of Licensee Part III deals with subsidiary and office of insurance companies, insurance brokers and adjusters. It requires these parties incorporated in Malaysia to obtain the prior written approval of BNM before they can establish in or outside Malaysia. (Section 35-37)

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Part IV : Insurer Fund and Shareholders‟ Fund Part IV requires an insurer to establish separate insurance fund for its Malaysian and foreign policies and for its life and general business as well as to maintain adequate assets in its insurance funds to meet its insurance fund liabilities. It also regulates the manner of withdrawal from the insurance fund, valuing assets and determining liabilities, maintenance of solvency margins as well as registering of policies and claims. (Section 38-57)



Part V : Direction and Control of Defaulting Insurer Part V provides for the setting up of an early warning system. An insurer which is just complying with the minimum solvency margin but having adverse business results or which is deficient in solvency margin is required to notify and submit to BNM a plan to improve its financial condition. (Section 58-65)



Part V1 : Management of licensee Part VI makes it necessary to secure the approval of the Finance Minister (in the case of an insurer) and BNM (in the case of an insurance broker and loss adjuster) before a person can enter into an agreement or arrangement to acquire or dispose of any interest in shares of more than 5% in an insurance company, an insurance broker firm or a loss adjusting firm incorporated in Malaysia. This part also requires an insurer, an insurance broker or a loss adjuster to seek and obtain BNM‟s approval before appointing a director or a chief executive officer. A director, chief executive officer or manager to be appointed must be a „fit and proper person‟ and also a resident in Malaysia during the period of his appointment. (Section 66-73)



Part V1I : Auditor, Actuary and Accounts Part VII deals with matters relating to the auditor, actuary and accounts of licensee. The 1996 Act also places a responsibility on the licensee, its director, controller or employee to co-operate with the auditor and appointed actuary by furnishing information requested by them and by ensuring that the information furnished is complete and not false or misleading. (Section 74-98)



Part V1II : Examination Part VIII makes provisions with regard to the examination of insurers, insurance brokers and loss adjusters. BNM is accorded the power to examine, from time to time without giving prior notice, the document of these companies, or their agents, in or outside Malaysia. It also empowers BNM to examine the directors of these companies or their agents, the policy owners or any person whom BNM believes to be acquainted with the facts and circumstances of the case.

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Part IX : Investigation, Search and Seizure Part IX provides for an employee of BNM or any other person to be appointed as an investigating officer. The powers accorded to the investigating officer include entry, search, seizure, detention and examination of suspects and their business associates.



Part X : Winding Up of Insurer Part X deals with matters relating to the winding up of an insurers, including the provision that liabilities other than preferential debts under the Companies Act 1965, to the extent that they are apportioned to the insurance fund.



Part XI : Transfer of Business Part XI provides explicitly for the need for BNM‟s approval to be obtained on any scheme of transfer of an insurer‟s business prior to its submission to the High Court. An insurance broker or an adjuster is also prohibited from transferring its business whether wholly or partly without the prior approval of BNM.



Part XII : Provisions Relating to Policies Part XII makes provisions relating to policies issued by insurers. It has retained most of the provisions of the 1963 Act, supplemented with a number of new provisions. Among the new provisions are:  The requirement for insurances of liability to be purchased in Malaysia unless otherwise approved by BNM.  The control over the sale of new life products which has been tightened whereby life insurers are now required to lodged with BNM particulars of a new life policy before offering the life policy to the public.  General insurers or an association of licensed general insurers are prohibited from ado[ting a tariff of premium rates, policy terms and conditions for a description of policy which is obligatory applicable to a general insurer, except with the approval of BNM  A policy owner is allowed to return a life policy within 15 days after its delivery, without having to give any reason and the insurer has to refund the premium subject to the deduction of medical examination expenses it has incurred.  The condition that a policy owner has to object to specific terms and conditions of the life policy to be eligible for a refund or premium as contained in the 1963 Act has been removed to make it easier for the policy owner to obtain a refund.  The duty on the part of a proposer for insurance to disclose matters which would affect the decision of the insurer for his underwriting consideration.

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 The entitlement of a policy owner who surrenders his policy are more well defined under the new law  The provision for the payment of a minimum compound interest rate of 4% per annum or such other rate as may be prescribed on the amount of life insurance or personal accident death benefit policy moneys upon the expiry of 60 days from the date of the insurer‟s receipt of the claim intimation until the date of payment. 

Part XIII : Payment of Policy Moneys Under a Life Policy or Personal Accident Policy Part XIII provides for the expeditious payment of policy moneys under a life policy or a personal accident policy. It also provides for a creation of a trust in favour of a nominee who is a spouse, child or parents of the policy owners (in the case of an unmarried policy owner only), for a nominee who is not a spouse, child or parent of the policy moneys as an executor and not solely as a beneficiary, for the claim of an assignee and pledge to have priority over the claim of a nominee and for the payment of policy moneys where there is no nomination.



Part XIV : Insurance Guarantee Scheme Fund Part XIV provides for the establishment and utilization of the insurance guarantee scheme fund (IGSFs). It authorizes BNM to establish separate IGSFs for Malaysian life policies and Malaysian general policies and sets out the amounts payable into these funds.



Part XV : Miscellaneous Part XV sets out certain rules to govern the conduct of business by an agent, insurance broker and other intermediary involved in insurance transactions as well as they responsibilities of a life insurer under a group policy where the policy owner has no insurable interest in the lives of the persons insured.



Part XVI : General Provisions Part XVI contains general provisions most of which relate to powders given to BNM to facilitate its administration of the 1996 Act.



Part XVII : Offences The provisions relating to offences are contained in Part XVII of the 1996 Act. It provides for a general penalty of RM500,000 and/or imprisonment for a term of a six months for any offence committed where no penalty is expressly provided. There is also a provision in relation to fraudulent entries in books, documents and policies. A director, controller, officer, partner or person concerned in the management of a corporate entity shall be liable for offences committed by the corporate entity. Similarly, a corporate entity shall also be liable for the action of its director, controller, employee or agent. All offences under the 1996 Act are deemed sizeable offences.
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4.5. THE INSURANCE REGULATIONS 1996
The Insurance Regulations (Regulations) is basically supplementing the Insurance Act 1996 (Act) which came into force on 1 January 1997.  SCOPE OF REGULATION  Part I : Preliminary This part cited the name of the insurance regulations and its commencement date.  Part II : Insurance Qualification Section II(2)(a) of the 1996 Act provides that a person may use the word „insurance‟, „assurance‟ or „underwriter‟ or any of its derivatives by way of appending to his name an insurance qualification conferred on him by a prescribed body, where the qualifications so appended is followed with the initials of the name of that body. Part II of the Insurance Regulations 1996 prescribes the names of the various bodies, which included institutes of actuaries, the Malaysian Insurance Institute (MID and qualifications of certain institutes identified in consultation with MII)  Part III : Minimum Paid-Up Share Capital or Surplus of Assets over Liabilities Part III prescribes the minimum amount of paid-up share capital, surplus of assets over liabilities, or paid-up share capital unimpaired by losses required to be maintained by insurance companies, insurance brokers and loss adjusters.  Part IV: License Fee Part IV prescribes the license fee for insurer, insurance broker and adjuster. It also prescribed the annual fee for insurer.  Part V: Withdrawal From Life Insurance Fund Application Surplus of a single life insurance fund Surplus for non-participating policies Deficit in life insurance fund  Part VI: Valuation of Assets Application Immovable property Corporate securities Loans Malaysian Government Security or other bonds Deposit and negotiable instruments of deposit
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Amounts due from reinsurer or ceding company Outstanding premiums Investment income Furniture and fitting, etc Other assets  Part VII: Provision For General Insurance Claims Application Provision for outstanding claims Recognition of a claim Provision for a claim Provision for incurred but not reported claims Review of provision for incurred but not reported claims Provision for reinsurance recovery  Part VIII: Reserve For Unexpired Risks (General Business) Application Interpretation Reserve for Malaysian general policies Reserve for foreign general policies  Part IX: Margin of Solvency Application Transitional Separate margins of solvency Margin of solvency in insurance fund Annual determination of margin of solvency Margin of solvency for life business Margin of solvency for general business Margin of solvency for foreign professional reinsurer Statement of margin of solvency  Part X: Register of Policies and Register of Claims Register of policies Register of claims  Part XI: Guarantee and Security for Credit Facility Application Credit facility secured by immovable property Credit facility secured by a pledge of shares
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Credit facility secured by a life policy Prescribed person Part XII: Minimum Criteria of “A Fit and Proper Person” Minimum criteria of “a fir and proper person” Criteria for a director of licensee Criteria for a chief executive officer or manager of licesee Discretion of the Bank  Part XIII: Valuation of Life Business Liabilities Application Verification of data on business in force Minimum valuation basis Withdrawal of policy from insurance fund Credit for reinsurance Bank may approve basis of valuation  Part XIV: Inspection Fees Inspection fees  Part XV: Assumption of Risk Application Interpretation Assumption of risk Payment to general insurer  Part XVI: Surrender of Life Policy Application Extension of a life policy Surrender value disclosure to proposer Determination of surrender value Minimum surrender value Surrender value at life insurer‟s discretion Variation of basis for surrender value

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Part XVII: Election for Paid-Up Policy Application Paid-up policy Variation of basis for paid-up value Policy to remain in force



Part XVIII: Home-Service Life Policy Application Interpretation Implication of insurer‟s agent or employee filling in proposal form Premium receipt book



Part XIX: Miscellaneous Repeal

4.6. THE COMPANIES ACT 1965
The Insurance Act, 1996 is the principal piece of legislation which the insurance companies have abides by. Besides the Insurance Act, another legislative control on insurance companies is the Companies Act, 1965. The principal requirements of the Companies Act affecting insurance companies can be summarized under the following headings: a. Preparation and submission of annual accounts and the accompanying statement b. The method valuing assets and the provision for depreciation c. The method of valuing liabilities

4.7. OTHER RELATED ACTS –INSURANCE PRACTICE
    Road Transport Act 1987 Offshore Insurance Act 1990 Workmen Compensation 1952 Foreign Worker Compensation

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4.8. OTHER RELATED DIRECTIVES
    JPI /GPI2 Consolidate Knock-For-Knock Agreement (KfK) Cash Before Cover (CBC) ICAGB

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5. INSURANCE AND TAKAFUL PRODUCTS
5.1. General Insurance 5.2. Life Insurance 5.3. Takaful

5.1. GENERAL INSURANCE
General Insurance provides cover against risks usually not covered by life assurance and are usually made for a period of one year or less. At the end of the period, it is renewable by mutual consent of the insured and insurer. Besides that, general insurance contracts are contracts of indemnity. The aim is to place the insured in the same financial position as that occupied before the occurrence of the insured risk, subject to maximum limits of the insured amounts. A payment of a claim does not terminate a general insurance contract. Meaning to say is more than one claim can be made in each year of insurance. In general insurance, the insured risk may not increase with duration. In fact, may decrease due to better safety measures taken by the insured. For example, installation of water sprinklers. General insurance contracts can be arranged to provide cover against the following forms of risk to the insured and/or third parties in respect of:    Lost or damage to property ego to motor vehicles, ship, building, stock-in-trade Legal liability caused by products or goods sold or the process carried out Death or injury to a person by an accident

The basic principles of General Insurance are as follows:      Insurable Interest Utmost Good Faith Subrogation Contribution Indemnity

5.1.1. INSURABLE INTEREST
Insurable interest can be defined as the right to insure arising out of legally recognized financial interest which a person has in the subject matter of insurance. For example, a thief could not insure the goods he stole because he does not have a legally recognized financial interest in the goods.

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In general, insurable interest must exist at the time of inception of the insurance contract and at the time of loss for all classes of insurance except:  Life insurance where insurable interest must exist at the time of inception  Marine insurance where insurable interest must exist at the time of loss Application of insurable interest:  Life Insurance;  Everyone has insurable interest in his or her own life  Husband and wife have mutual insurable interest on each other‟s life  A parent has insurable interest on his/her child‟s life



Property Insurance  The owner of a property has insurable interest to the extent of the value of the property owned  An agent has insurable interest on property belonging to his principal or which he has insurable interest.  Liability Insurance  A person clearly has an interest in potential liability he may incur plus the legal costs and expenses but he cannot insure his fines arising from his criminal acts.  Reinsurance  An insurer has insurable interest in the risks accepted by him as he will be prejudiced by him as he will be prejudiced if the subject matter of insurance is damaged by a peril insured against. An insurer is therefore entitled to reinsure those risks accepted by him.

5.1.2. UTMOST GOOD FAITH (UGF)
The duty of UGF is a positive duty (of the insured) to disclose fully and accurately all material facts that he (the insured) knows or ought to know, whether asked for or not (by the insurer) A material fact is defined as a fact which would influence the PRUDENT UNDERWRITER in accepting the risk or fixing the premium. For example: While excessive alcohol consumption of proposer may be material to a proposal for a motor or personal accident insurance, the same fact is not material if the proposal is for marine insurance. The materiality of a fact also depends on the circumstances surrounding a proposed risk. Thus, the fact relating to excessive alcohol consumption may not be a material fact in motor insurance proposal if the proposer is always chauffeured driven. The duty to disclose material facts last until the completion of the insurance contract. Therefore if changes in the material facts occur after they have been intimated to the insurer but before the completion of the contract, the proposer is required to notify the changes to the insurer otherwise the contract would be voidable. The duty of disclosure will terminate upon the inception of the contract. Occasionally the duty disclosure may be extended and may continue throughout the currency of the contract by a policy condition.
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For example: In the personal accident policy whereby a policy condition provides that the insured should inform the insurer of any change in address and occupation. Failure on the part of the insured to disclose such changes entitles the insurer to avoid the contract. UGF is breached if the duty of disclosure is not observed. It happens when a proposer knows or is reasonably expected to know a material fact and he either:  Fails to provide the insurer with information relating to the material fact  Misrepresent a material fact such as providing the insurer with incorrect information relating to the material fact.  When the insured fails to disclose a material fact, the breach of UGF is termed as a non disclosure  If he misrepresent a material fact, the breach of UGF is termed as misrepresentation  When any breach of UGF is committed the contract is voidable irrespective of whether the breach is committed innocently or fraudulently. However, fraudulent non disclosure and misrepresentation may further entitle the insurer to sue for damage.

5.1.3. SUBROGATION
Subrogation in the context of insurance can be defined as taking the rights belonging to an industry by the insurer after the latter has indemnified the insured. The rights belonging to the insured may include: those right against third parties who are also liable for the loss which is the subject of the claim and the right of the insured in the salvage. There are 4 ways in which subrogation rights may arise:  Subrogation arising from tort When a tort, for example an act of negligence, committed by a 3rd party damages or destroys a property insured under a policy, the insured would have a right to be indemnified under the policy. If the insured decides to recover his loss under his policy, the insurer will have subrogation right against the 3rd party.  Subrogation arising out of contract The insured may have incurred a loss which is not only covered under a policy, for example; a money policy. The insured therefore may be able to recover his loss from either the insurer or the security company. If the insured decides to recover his loss from the insurer, the insurer may exercise the right of the insured to recover under the contract with the 3 rd party security company.  Subrogation arising out of statue Occasionally a statue may grant a person a right to recover a loss from a3rd party. For example, the Innkeepers Act 1952 provides that a hotel guest may recover from the hotel owner the value of the goods lost whilst in the custody of the hotel. If the insured decides to recover his loss from his insurer, his insurer may exercise the insured‟s right under the statue against the hotel.
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 Subrogation arising out of salvage Salvage is the wreckage of an insured object. Legally the salvage belongs to the insured. However, if the insured wishes to be paid on a total loss basis, the insurer may take over his right in the salvage.

5.1.4. CONTRIBUTION
Contribution can be defined as the amount which each insurer has to contribute to the cost of a loss when the total loss is covered by 2 or more insurers. According to the principle of contribution, an insurer who has indemnifies the insurers, may call upon the other insurers who are similarly liable for the loss to contribute towards the payment of indemnity. For example; Mr. Z insure his RM200 000 house with Insurer H for RM 200 00; Insurer M for RM 200 000 and Insurer T for RM 200 00. In the event of claim, let say the amount of loss is RM 90 000, insurer H,M, and T will apply the principle of contribution. Therefore each insurer will contribute RM30 000 with a proportion of 1:3 It follows naturally from the principle of indemnity that if the insured is allowed to recover from more than one insurer for the same loss, the insured would be recovering more than his loss. Like subrogation, the principle of contribution is evolved to support the principle of indemnity. Conditions apply only when the following conditions are fulfilled:  Two or more policies of indemnity exists  The policies must cover a common interest such as the loss related to an interest covered under the policies  The policies must cover a common peril which gives rise to the loss such as the loss must be caused by a peril insured under the policies.  The policies must cover a common subject matter. For example the loss must relate to a property that is covered under the policies  Each policy must be liable for the loss.

5.1.5. INDEMNITY
Insurance contracts promise „to make good the loss or damage‟. The objective of the principle is to ensure that the insured after being indemnified shall be either better or worse off than before the loss. The effect of the principle is to prevent the insured from making a profit out of loss. When the insured has measurable insurable interest, the contract of insurance will be a contract of indemnity. Examples include property, pecuniary and liability insurance contracts. Life Insurance and Personal Accident contracts are generally deemed to be non - indemnity contracts because the insured‟s insurable interests in such contracts tend to be unlimited.

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The four methods of indemnity used by insurers are: cash, repair, replacement and reinstatement. In general, cash is frequently used as a method of indemnity for liability claims and as well own property damage claims. Repairs, replacement and reinstatement are frequently used in association with own property damage claims. Repairs, replacement and reinstatement are frequently used in association with own property damage claims. There are two methods of measuring indemnity:  Total Loss There are two main methods of measuring indemnity used by property insurers;  Method 1 Reinstatement / replacement cost Less: allowance for new & better features  Method 2 Market value of a property similar to the one destroyed.  Partial Loss The measure of indemnity used is the cost of repair. The factors that limiting the indemnity are as follows:  Sum Insured When polices contain a sum insured or limit of indemnity, the insured cannot recover more than the sum insured or limit of indemnity even when indemnity is of a higher amount.  Average Condition Average is a device to combat under – insurance. If there is an average condition on a policy, settlement is subject to the formula below; SUM INSURED VALUE OF PROPERTY X AMOUNT OF LOSS

Average therefore reduces the amount payable to the insured such as the insured will receive less than indemnity. Theoretically the insured is considered the insurer for the proportion under- insured and therefore has to contribute the loss.  Policy Excess This is an amount of each every claim which is not covered. When a policy is subject to excess as in a motor insurance policy, the insured will receive less than indemnity. For example. An insured made a claim of RM5000 against his insurer for damage to his comprehensively insured car. The motor policy has an excess of RM1000. Assuming that the loss is covered under the policy, the amount payable to the insured will be RM 4000  Franchise When a policy is subject to a franchise, example a marine policy, the insured will be responsible for a claim which is below the franchise. If this amount exceeded the insurer will pay the full amount of claim.
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For example; an insured insured a loss of RM800 under a policy with a franchise of RM1000, would have to bear the loss. However if the amount exceeds RM1000, he would able to claim the whole amount. Policies which may pay more than indemnity are:  Reinstatement Policies In fire insurance, it is possible to arrange policies on building and machinery which will pay the cost of reinstating or replacing damaged premises and machines, without making any deduction for wear and tear  Agreed Additional Cost In fire insurance the insured may incur additional costs as a result of a fire. Example: Cost of removal of debris, architect‟s and surveyor‟s fees. These costs can be included in the cover and any payment for these costs by the insurer will amount to more than indemnity.  Valued Policies A policy in which the insured and the insurer agreed at the inception that the sum insured will represent the value of property and this amount will be payable in the event of a total irrespective of the value of the property at the time of loss. For example, such policies can be found in marine insurance.

5.1.6. THE CLASSES OF GENERAL INSURANCE BUSINESS
The main classes of General Insurance Business are covered under the following headings:  Fire Insurance  Motor Insurance  Marine Insurance  Liability Insurance  Miscellaneous Insurance Burglary Fidelity Guarantee Money Mobile Plant And Equipmnet Special “ All Risk” Plate Glass Personal Accident Employers Liability Workmen‟s Compensation Public Liability Engineering Insurance Surety Bonds

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FIRE INSURANCE
An agreement between the insurers and the insured, whereby the insurers having received premium, undertake to make good the financial loss suffered by the insured as a result of damage or destruction of the insured property by fire or other specified perils during a stated period. The function of fire insurance is to make good the financial loss suffered by an individual as a result of fire. Fire Insurance can never replace fire waste; it merely effects equitable distribution of such waste among all those who are insured. Subject matter of fire insurance is any kind of moveable or immoveable property having pecuniary value. Such properties include buildings, furniture, fixtures & fittings, household contents, plants, equipments & machineries, stocks and merchandise in premises, in the open or in transit. Subject matter of fire insurance contract is the policy holder‟s interest and financial in the subject matter of insurance. For example, if Mr. Z wishes to insure his house valued at RM 150 000 with insurance company GHJ, then the value of RM 150 000 would be the subject matter of Mr. Z‟s contract.

SCOPE OF COVER
A Standard Fire Policy cover is provided in respect of three perils:  Fire  Lightning  Explosion  Fire Fire is actual burning damage following ignition under accidental circumstances. Once there is a fire within the meaning of the policy, then various other types of losses come within the scope of the policy. For example; Damage during or immediately following a fire caused by smoke, scorching and failing walls. Damage caused by fire brigades in the discharge of their duties such as damage caused by water, damage caused by blowing up of property to prevent spreading of fire. Damage of property removed from burning building caused by exposure to weather, provided the removal was made in an endeavor to mitigate the loss. EXCEPTIONS „Its own‟ spontaneous fermentation Subterranean fire Riot or Civil Commotion
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Earthquake „Its‟ undergoing any process involving the application of heat

EXTENSIONS
Property can be damaged in other ways, and to meet this need a number of additional or special perils can be added on the basic policy. The fire policy can be extended to cover one or more of the following at additional premiums;              Riot, strike and malicious damage Aircraft damage Impact damage by road vehicles, horses and cattle Flood Electrical installation Loss of rent Removal of debris Architects‟ and surveyor‟s fees Sprinkler leakage Lightning All lightning damage is covered whether there is a fire or not Explosion There is a limited amount of cover only provided by a standard fire policy. The policy provides cover Explosions as follows;  Loss or damage by explosion of gas used for illumination or domestic purposes in building in which gas is not generated and which does not form part of any gas works, will be deemed to be loss by fire within the meaning of this policy.

HOUSE OWNER/HOUSEHOLDER POLICY
This policy provides a very wide cover to private dwelling house. A „Householders‟ policy can be issued on contents and a „House Owners‟ policy on buildings. The owner- occupier may request for the 2 policies in respect of both building and contents. The policy provides cover against:  Loss or damage to building and /contents caused by; Fire, Lightning, Thunderbolt, subterranean fire Explosion Aircraft Impact damage Bursting and Overflowing of Water Tanks Theft Storm and Flood Loss of Rent Insured‟s personal liability Riot and Civil Commotion
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 Legal liability of the insured to third parties arising from within the premises  Loss of rent following the damage of building contents by the insured perils  Other contingencies.

MOTOR INSURANCE
Motor Insurance in Malaysia is regulated by the Road Transport Act 1987 as amended from time to time. Part IV of the Acts provides that every motorist must insure, with an authorized insurer, any liability which he may incur in respect of the death of or bodily injury to a third party caused by arising out of the use of the motor vehicle or land implemented drawn thereby on a road. There are: o     are classes of motor vehicles which are exempted from the requirements of the Act, they Vehicle owned by; The government of Malaysia The government of the republic of Singapore The municipality or local authority A public body

*whilst the vehicle is being used for official purpose o Any vehicle at anytime when it is being driven for police purposes or on a journey undertaken for salvage purpose o Any vehicle at anytime when it is being driven by or under the direction of a road transport officer (JPJ) for the purpose of examining for testing a person who has applied for a license to drive o A motor vehicle in respect of which the owner has deposited with the Accountant General, the sum of RM 125 000. Various types of insurance have been devised to cater for the different types of vehicles on the road. These can be divided into the following;  PRIVATE CAR INSURANCE Cars of private types including three –wheeled cars and Station wagons used solely for social, domestic and pleasure purposes and for the business or professional purposes of the Insured.  MOTORCYCLE INSURANCE These include motorcycles with or without side-cars, motor scooters, auto cycles or mechanically assisted pedal cycle. The Tariff further sub-divides the motorcycle into;  Private motorcycle  Commercial motorcycle  Motorcycle used for hire  Motorcycles trade

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Main types of Motor Cover are;  Act Only Cover This form of cover provides the minimum form of indemnity required by the Road Transport Act 1987, also known as “Act” cover. The cover required in respect of; Legal liability for death or bodily injury to any third party person (excluding passengers) caused by arising out of the use of the insured motor vehicle on a road. Expenses reasonably incurred for hospital treatment for injured persons. It is now rare for such cover to be offered at the request of the policyholder, and the cover usually reserved for a situation where the risk is exceptionally poor or high.  Third Party Cover This form of cover provides act only cover plus for liability to third party property loss or damage caused by or arising out of the use of the insured motor vehicle on a road This is normally the lowest policyholder option and the cover will not be provided for loss or damage to insured vehicle and is restricted to; damage to property of third party legal liability for death and bodily injury to third party hospital and emergency treatment fees for injuries to third party It is often chosen by drivers who cannot afford the premium of a higher level of cover or because of the very low value of a vehicle or the vehicle‟s age has exceeded the acceptance limit for a comprehensive cover.  THIRD PARTY, FIRE AND THEFT COVER This policy provides cover for loss of or damage to the insured vehicle as a result of fire or theft. The theft and fire risk elements contribute to the rate sufficiently close to that charged for comprehensive and therefore, make it as not a worthwhile option.  COMPREHENSIVE COVER It covers both property and liability The coverage under this cover is divided into two main sections, namely; Section A – Loss or Damage to your vehicle Covers loss or damage to the motor vehicle and spare parts whilst thereon arising from;

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  



Accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear Fire, external explosion, self-ignition or lightning or burglary, house breaking or theft Malicious damage; In the event of partial loss, the insurance company can either provide indemnity by way of repair, replacement or cash payment In the event of total loss it is either the market value or the sum insured, whichever is less. Payment of reasonable cost removal to the nearest repairers in the event the vehicle is disabled as a result of an accident (the maximum limit is RM200) SECTION B - LIABILITY TO THIRD PARTIES

 Covers legal liability, including claimants cost and expenses in respect of death or bodily injury to third party and/ or damage to property belonging to third party  Legal cost and expenses incurred by Insured which is payable with insurers consent  Compensation payable is unlimited for injury claims but in respect of loss or damage to property (limited to RM3 million)

EXTENSIONS AVAILABLE
 Breakage of glass in windscreen or window (Comprehensive Policy Only) o Covers the cost of reinstating the damaged glass based on the amount insured. This extension terminates upon a claim.  Air conditioner/ Radio/ Tape recorder/ Car phone etc. ( Comprehensive Policy Only) o Covers loss or damage to the item insured, subject to the amount insured or market value, whichever is lower. This extension terminates upon a claim  Passenger Liability Cover ( All Policies) o Protects the Insured and the authorized driver against legal liability arising from death or bodily injury to the passenger while travelling in the vehicle.  Personal Accident To Unnamed Passenger ( Comprehensive Policy Only) o Provides compensation to passengers whilst mounting into, dismounting from or travelling in the motor vehicle as per a stated scale.

 MAIN EXCLUSIONS
 Any accident loss, damage or liability caused, sustained or incurred; outside the Geographical Area whilst motor vehicle is; o being used otherwise than in accordance with the limitation as to use o being driven by any other person than an authorized driver War Risks Contractual Liability Any accident loss or damage to any property whatsoever or any loss or expense whatsoever resulting or arising there from or any consequential loss Any accident loss or damage or liability directly or indirectly caused by or contributed to by or arising from nuclear weapons material
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   

MARINE INSURANCE
Marine Insurance is a contract of insurance whereby an insurer undertakes to indemnify an insured against losses arising from maritime perils. Maritime perils are perils consequent or incidental to navigation of ships such as perils of the sea – fortuitous accidental sea, collision, stranding, capsizing, heavy weather etc. and other incidental peril –fire, explosion on board a vessel, war, piracy, barratry, and incidental to navigation. Types of Marine Policy TYPE OF POLICY Marine Hull Policy Marine Cargo Policy Marine Freight Policy Marine Building Risk Policy Classification of Marine Insurance o Classification by subject matter insured  Hull and Machinery Insurance A policy that provides compensation to the insured for loss or damage to ship insured and also indemnified the collision liability of insured to 3rd parties. This insurance is usually taken by ship owners  Cargo Insurance A policy effected to provide compensation for loss or damage to goods during transit from seller‟s warehouse via sea transit to the buyer‟s warehouse. The insurance is effected either by the seller (shipper) or the buyer (consignee) depending on the sale contracted arranged. o Classification by duration of cover  Time policy Insurance cover is effective for a fixed period of time, usually 12 months. Hull and machinery Insurance is usually affected as time policy for duration of 12 months.  Voyage policy The duration of insurance is on per voyage basis. The cover is effective from commencement of voyage and terminates on arrival at destination (port to port cover). For example, a hull insurance is arranged to cover vessel, Bunga Raya, from Port Kelang to Bombay. The cover is for a voyage from Port Kelang to Bombay. Cargo Insurance is usually arranged as a voyage policy but the cover is extended to cover the land transits from seller‟s warehouse to port of loading and from port of discharge to buyer‟s warehouse, giving a „warehouse to warehouse‟ cover instead of a „port to port‟ cover in a standard voyage policy. SUBJECT MATTER OF INSURANCE Vessel, & limited collision liability Cargo ( goods carried on the vessel) Freight ( money/fee charged for carriage of goods by the vessel) Vessel Under Construction

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o Mixed Policy  This policy is a combination of time and voyage policy. For example, a vessel is insured on a voyage policy from Port A to Port B with an extension of cover for one month while the vessel is in Port B. Classification according to perils covered o Marine Risk A policy (hull, cargo or freight) which covers maritime perils but excludes war and strike perils o War and Strike Risk A policy (hull, cargo or freight) which covers war and strike risk only covers war and strike risk only and does not over maritime risks. Types of maritime losses recoverable from a marine Insurance o TOTAL LOSS  Actual Total Loss The subject matters (ship or goods) are totally destroyed or the insured is irretrievably deprived of them. Examples; total destruction by fire, sinking of the ship in deep water or capture by an enemy in the event of war.  Constructive Total Loss  There is constructive total loss if the cost of recovering and repairing the ship exceeds its value when recovered and repaired. The ship is not physically destroyed but is not economical to save and repair the ship. o PARTIAL LOSS Partial loss arising from accidental damage to the subject matter insured.  Ship: accidental damage such as fire damage hull structure, damage arising from collision between two vessels or damage to machinery on board of the vessel due to negligence of crews.  Goods: a partial loss may result from a complete loss of part consignment of the goods or damage to a part or whole causing depreciation in their value. o EXPENSES  Salvage Charge These are payable to people who voluntarily render service to save a ship or cargo in danger or peril. The salvage award may be made by agreement with the owners or insurers of property saved or by arbitration.  Sue and Labor Charges These are the expenses incurred by the insured or their servants in averting or minimizing loss or damage to ship or goods insured.

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CARGO INSURANCE
The perils covered under cargo insurance may be on an “all risk” or “specified risk” basis as given in the Institute Clause A, B, C. An “all risk” cargo insurance is one contain Institute Clause A which provides compensation to all accidental loss or damage to cargo insured during the period of insurance but subject to the excluded losses specified in the policy. This cargo insurance provides the widest cover and it also the most expensive. Cargo insurance containing Institute Clause B or C provides cover against loss of damage caused by insured perils specified such as fire, explosion, collision; stranding, capsizing etc. the cover is less expensive. The cover commences from the time the goods leave the Warehouse specified in the policy, continues during the transit (port of loading, sea voyage, port of discharge) and terminates when goods are delivered to the final warehouse at the destination. The duration of cover is identical for cargo insurance containing Institute Clause A, B and C.

LIABILITY INSURANCE
The main forms of liability insurance are:  Workmen‟s Compensation Insurance  Foreign Worker‟s Compensation Scheme  Employer‟s Liability Insurance  Public Liability Insurance  Professional Liability Insurance  Products Liability Insurance

 WORKMEN‟S COMPENSATION INSURANCE
Impose a liability on the employer to pay compensation on a prescribed scale to an employee who is injured or killed in an accident or due to illness or disease arising out of and in the course of employment The insurer will also indemnify the insured against all costs and expenses incurred with the insurer‟s consent in defending any claim for such compensation Employers should be encouraged to affect Workmen‟s Compensation Insurance for their employees unless they are covered under SOCSO.

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 FOREIGN WORKER‟S COMPENSATION SCHEME (FWCS)
All legal foreign workers (excluding expatriates) must be covered under a separate FWCS It requires every employer employing foreign workers to insure with the panel of insurance companies appointed under this order and to effect payment of compensation for injuries sustained from accidents during and outside working hours. The FWCS was created to protect the interest and welfare of all foreign workers in Malaysia. The policy provides for the payment of compensation benefits to a foreign worker who possesses valid employment document for personal injury sustained due to accident or disease contracted which arose out of or in the course of employment or if the death results from accident.

 EMPLOYER‟S LIABILITY INSURANCE
The policy provides protection to the Insured against his legal liability at common law of damages and cost bodily injury or diseases to employees arising out of and in the course of their employment. The policy is restricted to damages payable in respect of injury and does not pay for damage to an employee‟s property.

EXCLUSIONS
insured‟s liability to employees of contractors contractual liability injury sustained outside geographical area covered by policy liability under the Workmen‟s Compensation Ordinance 1952 war risks nuclear risks

 PUBLIC LIABLITY INSURANCE
The insurance is designed to cover the legal liability of the Insured in respect of accidental bodily injuries and/ or property damage to third parties arising in connection with the Insured‟s business. This policy also provides for all costs and expenses of litigation incurred with t he insurer‟s consent.

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EXCLUSIONS
Liability that can be insured under the Workmen‟s Compensation Policy, Employer‟s Liability Policy and SOCSO scheme Loss or damage to property belonging to the insured or under the insured‟s charge or control loss or damage to property associated with steam boiler or any boiler vessel or apparatus

 PROFESSIONAL INDEMNITY INSURANCE
Professional people may in their course of business cause financial or personal injury to their clients or others by their own neglect or error or perhaps even more importantly, by the neglect or error of their employees or partners. Examples of the type of professions afforded under the policy are solicitors, accountants, architects and surveyors, insurance brokers, doctors, dentists and other medical practitioners. The policy covers the Insured for breach of professional duty by reason of any negligent acts, negligent error or negligent omission committed by the Insured, their predecessors and any person employed by the Insured in their professional capacity. EXCLUSIONS o o o o o for libel or slander arising out of dishonesty, fraud, criminal malicious act or omission by the Insured, or his predecessors or employees arising from contamination by radioactivity which the insured is entitled to indemnify under any other policy



PRODUCT LIABILITY INSURANCE

Provides cover to a manufacturer or seller against his legal liability for death or injury or damage to property caused by defects in the goods supplied or sold by him. Examples of products that may give rise to product liability include electrical appliances, machinery, pharmaceutical products, cosmetics and toys. The cover includes legal costs incurred by the firm with the insurer‟s prior consent

EXCLUSIONS
o Injury to employees o Contractual liability unless such liability would have attached in the absence of any contract o liability arising in respect of wrong formula or specification of products o Loss or damage to products supplied or sold arising out of repairs or alteration works on the products.
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 PERSONAL ACCIDENT INSURANCE
Provides benefits in the event the insured person suffers bodily injury resulting solely and directly from accident by outward violent and visible means. The benefits provided under the policy are in respect of death, disablement and/ or medical expenses arising from the injury. The policy is usually extended to include a weekly benefit up to a maximum of 104 weeks or compensation if the insured is temporarily totally disabled due to an accident and a reduced weekly benefit if they are temporarily only partially disabled from carrying out their usual duties. This personal accident insurance is one of the two classes of insurance that are not governed by the insurance principle of indemnity. This means that the cover provided is a „benefit‟, not an „indemnity‟ and the pertinent points are: there can be no contribution from any other policy or compensated payment there is not subrogated right or recovery

EXCLUSIONS
The policy does not cover;  death, disablement or medical expenses caused by; war, warlike operations, strike, riot, civil commotion insanity, suicide or any attempt thereat venereal disease, infection or parasites  death, disablement or medical expenses sustained by the insured; while committing or attempting to commit any unlawful act

MISCELLANEOUS ACCIDENT
Burglary Fidelity Guarantee Money Mobile Plant And Equipmnet Special “ All Risk” Plate Glass Personal Accident Employers Liability Workmen‟s Compensation Public Liability Engineering Insurance Surety Bonds

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 BURGLARY
 Indemnifies the Insured against loss or damage to property insured by theft accompanied by the actual forcible& violent breaking into or out of the premises or nay attempt thereat.  Moral Hazard, both of the Insured and his employees is of great importance and a proposal should not be considered where there is the slightest doubt concerning this factor. Any likelihood or carelessness in the protection of the property or the security of the premises renders the risk undesirable.

SCOPE OF COVER
 Loss or damage to the property insured whilst contained in the premises  Loss or damage to the property insured of the Insured or his family members contained in his residence adjoining the Premises  Cover extends to property temporarily removed from the private residence for a period not exceeding 60 days.  Furs, Jewellery, Gold, Silver and Platinum and Articles are also covered whilst temporarily deposited in a bank or safe deposit or an occupied private residence in Malaysia.  The policy also covers damage to buildings of the Premises provided such damage would but for the insurance be the responsibility MAJOR EXCLUSIONS Act of Criminal Brach of Trust as defined in Penal Code Cheating by any person as defined under the penal Code Consequence of earthquake riot civil commotion Fire or explosion or which the insured against by a Glass Policy Loss Discovered during Stock Checking Theft or attempt in which there is concerned any member of the Insured‟s household, his business staff or any person lawfully on the premises.

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SUM INSURED/TYPES OF POLICY
1. Full Value Policies These types of policies are subject to the Average Clause. Thus, the proposer must insure his property to the full value so as to ensure adequate indemnity at the time of loss. 2. First Loss Policies These policies are allowed only in the case of business premises and where sum insured is substantial, of a reasonably high value and bulky nature thereby rendering a total loss a remote possibility. The sum insured must NOT NE LESS than the anticipated maximum probable single loss at any one time.

UNDERWRITING INFORMATION REQUIRED
1. Location/s or premises 2. For each location, full details of; - Occupation/s - Description e.g. shop, warehouse - Security e.g. type of alarm, method of signaling - Nature of contents - Construction of premises. 3. Sum Insured for each location on - Stock and materials in Trade - All other contents Additional Information - Previously surveyed, what recommendations were made and whether these were carried out. - Alternative basis of cover e.g. first loss and/ or excess.

4.

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FIDELITY GUARANTEE
- The policy is intended to protect the employer against fraud or dishonesty of an employee.

SCOPE OF COVER
The policy covers direct pecuniary loss the Insured may sustained through any act of fraud or dishonesty committed by the employee e.g. theft, misappropriation of funds or forgery. The loss must be sustained: i. During period of insurance ii. During the employee‟s uninterrupted service in Insured‟s employment iii. Discovered and notified to the company within twelve months of occurrence (discovery period)

MAJOR EXCLUSIONS
 Unexplained shortages  Losses discovered and notified to the Company after required period  Consequential loss TYPES OF POLICIES

1. NAMED BASIS

Provides cover on a named employee up to a specific limit of indemnity Provides cover on all employees for a specific limit of indemnity

2.FLOATING/BLANKET BASIS

SUM INSURED Two basis of fixing sum insured: 1. Limit of Liability Per Person Where the Insured can identify the areas that he may suffer pecuniary losses Basis 2. Limit in the Aggregate Normally issued for Blanket policies.

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UNDERWRITING CONSIDERATIONS/ INFORMATION REQUIRED
    Total premium of the Whole Account Does the insured have any other business with the Company? If so please give the details Name, duties, year of service and limit of indemnity of employees proposed for insurance Any of the employees proposed for insurance sign cheques, act as cashier and book-keeper pay out salaries  Frequency of cash and full audit?  What is the financial standing of the Company?  Past claims experience

MONEY
The policy is intended to protect any business against loss of money in transit or in premises by any cause unless otherwise excluded from the policy

SCOPE OF COVER
The policy covers loss of money by any cause whatsoever in the circumstances or situation described in the policy schedule; Section A Money in transit from Bank to premises for payment of wages, petty cash etc & vice versa Money in premises including in locked safe, drawers, cabinets or petty cash boxes, cash registers & the like On loss of or damage to safe/ cabinets/drawers

Section B

Section C

DEFINITIONS
“Money” means Coins, Bank Notes, Currency Notes, Cheques, Banker‟s Drafts, Bills of Exchange. Credit Card Sales vouchers, Postal Orders, Current Unused Postage Stamps and Revenue stamps all belonging to the Insured or for which he is responsible.

MAJOR EXCLUSIONS
Act of Criminal Breach of Trust as defined in the Penal Code Cheating by any person as defined under the Penal Code Fraud or dishonesty of employees unless loss discovered within 3 working days of occurrence Interruption of the Business or other consequential loss Loss due to error or omission Loss from an unattended vehicle Opening of safe or strong room by use of key unless under violence or threat of violence.
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SUM INSURED
It should be insured for the correct indemnity amount for all sections. UNDERWRITING CONSIDERATION/ INFORMATION REQUIRED Total premium of the Whole Account Does the insured have any other business with the Company? Adequacy of Security System Construction of premises Type of safe used and is it fire proof? Distance between premises and Bank Maximum amount carried and adequacy of protection Frequency of Carrying Method of Transportation How is the money carried/stored?

MOBILE PLANT AND EQUIPMNET “ ALL RISKS”
The policy is to cover Machinery and Equipment that are mobile which are not licensed for use on the road and which are not used on the road e.g. Forklift, tractors, cranes operating within a confined private sea.

SCOPE OF COVER
The Policy will indemnify the Insured against loss of or damage to the Equipment, its accessories & spare parts whilst thereon by: 1.Accidental collision, overturning, mechanical breakdown result in overturning, consequent upon wear and tear 2.Fire, external explosion, self ignition or lightning 3.Burglary, housebreaking, theft

MAJOR EXCLUSIONS
 Beyond Territorial Limit  Consequential loss  Dishonest act of Insured‟s employees or person whom Equipment is entrusted or press  Earthquake, volcanic eruption, subterranean fire, flood typhoon. Hurricane or other convulsion of nature  Excess stated in the Schedule  Explosion of any boiler or pressure vessel  Loss of accessories/ spare parts unless equipment is lost or damaged at the same time.

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SUM INSURED
Indemnity basis – cost of replacing the machinery less depreciation for wear and tear (Market value of equipment)

UNDERWITING CONSIDERATIONS/ INFORMATION REQUIRED
    Conditions and age equipment – should not exceed 5 years Competency of Authorized Operator Claims Experience Description of Equipment in terms of engine, no., manufacture and body type, horse power, year of manufacture, price paid 1. Where normally garaged/parked? 2. Usage of equipment e.g. whether used in construction or agriculture sites

SPECIAL ALL RISKS
The policy is intended to cover property in the open or within buildings that are not mobile e.g. office equipment, fixtures and fitting, machinery and equipment but excluding buildings and stock.

SCOPE OF COVER
The cover provided is against loss or damage from “All Risks” unless specifically excluded by the policy. There are 2 bases to affect cover as illustrated below;

(A) As Per our Standard Special “ All Risks” policy which covers the following perils Fire & Lightning, Theft Accidental Damage

(B) Against Selected Perils Only Fire & Lightning, Theft Accidental Damage

*Aircraft Damage Any of the perils marked with * as shown *Bush/ Lalang Fire under (A) *Earthquake and volcanic Eruption *Storm Tempest *Impact Damage *Bursting & Overflowing of water Tanks Apparatus pipes *Electrical Installation(B) *Strike and Malicious Damage

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MAJOR EXCLUSIONS
Perils stated above unless extended by payment of additional premium Breakage of glass or articles of brittle nature Cheating or Criminal Breach of Trust as defined in the penal Code Consequential loss or legal liability Deeds, bonds, bills of exchange , promissory notes, money or securities for money, medals, bullion, gold, precious stones, postage stamps, collection of stamps or coins, works of art, manuscripts or business books, plans patterns, models or moulds, drawings or designs, computer records, contracts or other documents unless specifically stated. Disappearance, unexplained or inventory shortage, misfiling or misplacing of information shortages in supply or delivery of materials or shortages due to clerical or accounting errors Faulty or defective design, material or workmanship Insured‟s willful act or negligence or any person acting on his behalf Interruption of water supply, gas, electricity or fuel systems Landslip, landslide, ground heave, subsidence, coastal and river erosion, convulsion of nature, subterranean fire, flood.

UNDERWRITING CONSIDERATIONS/ INFORMATION REQUIRED
    Situation of Property & Occupation of premises Construction of wall, roof and flooring List of Property to be insured & Sum insured Contingencies required

PLATE GLASS
The policy is for individuals or firms having large areas of glass fixed to the premises which are susceptible to damage.

SCOPE OF COVER
 Indemnify the Insured against accidental breakage of glass as described in the Schedule occurring during the period of Insurance up to the limit insured.  The company will also pay reasonable charges for the temporary boarding up of windows, doors or skylights necessitated as a result of the accidental breakage of any of the glass

DEFINITION
Breakage excludes any disfiguration or damage other than fracture extending through the entire thickness of the glass

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EXCLUSIONS
Breakage caused by fire, lightning, explosion, earthquake, riot, civil commotion. Broken or cracked glass Consequential loss Cost of removal or replacement of any fittings, fixtures or other obstruction to replacement Frames, framework of fittings Lettering, painting, embossing, silvering, ornamental work, bent, stained, beveled or moveable glass unless specifically insured

SUM INSURED
Replacement value of all the glass insured inclusive of the cost of any writing or ornamentation if required

UNDERWRITING CONSIDERATIONS/INFORMATION REQUIRED
 Does the proposer have other business with the company? If so, total amount worth  Location and occupation of premises  Is Premises undergoing renovation or adjoining premises undergoing renovation/  a. Dimensions of all individual panes b. Description of glass  plate glass, sheet glass  Sum insured of plate glass and ornamentation and writing

PERSONAL ACCIDENT
The intention of the policy is to provide compensation in the event of an accident causing death or injury to the person/s insured SCOPE OF COVER The policy covers the insured against BODILY INJURY caused by VIOLENT, ACCIDENTAL, EXTERNAL and VISIBLE MEANS resulting directly and independently of any other cause within 12 calendar months in DEATH or DISABLEMENT or EXPENSES as stated below: Death Permanent Disablement Capital Sum Insured Such percentage of BENEFIT B as specified in the Permanent Disability Scale Temporary Total Disablement from attending BENEFIT C per week during such to or following the Insured‟s usual business disablement payable up to 140 weeks or occupation Reasonable medical surgical hospital, The amount of such expenses but not nursing home and nursing expenses or exceeding BENEFIT D charges necessarily incurred TERRITORIAL LIMITS Cover is 24 hours and Worldwide unless specified otherwise.
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DEFINITIONS
1 2 „Bodily injury‟ „Violent‟ Injury to the body and excludes injury to feelings Implies the actual force used but also includes caused drowning, or the inhalation of poisonous gas and even chocking on food Something that is not expected or unlooked for mishap and Visible Any cause which is not internal and for purposes of insurance any external caused would be considered as visible

3 4

„Accidental‟ „External means‟

MAJOR EXCLUSIONS
Any pre-existing physical or mental defect or infirmity Committing any unlawful act or willful exposure to danger Intoxication by alcohol or drugs Pregnancy or childbirth Suicide or intentional self injury

EXTENSIONS
With Additional Premium 1. Amateur sports 2. Big game hunting 3. Motorcycling 4. Mountaineering Without Additional Premium 1. Disappearance & Exposure

UNDERWRITING CONSIDERATIONS/INFORMATION REQUIRED
Occupation  Provides details of types of business and exact description of the occupation as these indicate the full extent of the exposure involved  Particular attention must be given to the Proposer‟s occupation. Replies of „Businessman‟ or even „Manager‟ for that matter are not adequate to describe the occupation of a person. For example „ Businessman‟ should be expanded to read as “ Motor Workshop owner/ Operator” or “ Sole Proprietor of coffeeshop” etc
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Age Limits  New proposals – The age limit is from age 18- 65 years.  Renewal cases – The age limit is up to 70 years  For continuance of existing cover after age 70, the Insured is required to produce a statement from his doctor stating that he is bodily and mentally sound and free form physical infirmity before renewal is invited Benefit required Claims experience – Avoid proposal with bad claims experience Is there any other Personal Accident insurance in force? If so, please state amount and benefits insured.

RENEWALS
  No renewal should be accepted without the consent of the company when a claim has been notified If renewal notice has been issued and a claim is notified, the question of renewal will be reconsidered

ACCOMODATION RISKS
    Tractor drivers Lorry drivers & attendants Estates workers Sawmill workers

EMPLOYER‟S LIABILITY
The policy is intended to protect the employer against legal liability towards his employees who sustain injuries or diseases arising out of or in the course of employment. These categories of employees are those who are not registered with SOCSO or otherwise insured under a Workmen‟s Compensation policy.

SCOPE OF COVER
The policy indemnifies the Insured against his legal liability to pay: Compensation, claimant‟s costs and expenses in respect to injury for which he is liable AND All costs and expenses incurred with the Company‟s written consent

GEOGRAPHICAL AREA
Malaysia

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EXCLUSIONS
Accidental injury or disease sustained outside Geographical Area Compensation to be paid under Workmen‟s Compensation laws Employees of contractors Waiver of subrogation

EXTENSION
 Geographical area may be extended to Singapore pr Brunei upon payment of additional premium.

LIMIT OF LIABILITY
To be determined by the Court of Law but the Company shall be liable up to RM 10,000,000 anyone claim and in the aggregate during the period of insurance.

UNDERWRITING CONSIDERATIONS/ INFORMATION REQUIRED
Premium will be charged based on the occupation of employees and wages paid during the period The proposal form must be properly completed providing detailed descriptions of the works done by various employees.

WORKMEN‟S COMPENSATION
The policy is affected to comply with the Workmen‟s Compensation Ordinance which lays down rules and regulations for the Employer and his liability to insure the workers. The law also lays down the Scale of Compensation which an Employer is legally obliged to pay his employees or dependants as the case may be.

DEFINITIONS
Workman is defined as:  Any person who has entered into works under a contract of service or apprenticeship with an employer  Whether by way of manual labor or otherwise  Whether the contract is expressed or implied, or is oral or in writing  Whether the remuneration is calculated by time or by work done  Whether by day, week, month or any longer period

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Excluded from this definition are; Non – manual workers whose earnings exceed RM500 a month Casual workers A domestic servant Any person who is a member of the armed forces in Malaysia Any member of the family of the employer who dwells with him in the same house Earnings include actual money earned, any privilege or benefit being converted into money value  housing allowance, overtime payment and bonus payment excluding: Travelling allowances or concession Employer‟s contributions toward any provident or pensions fund Any sum to cover any special expenses incurred by reason of the nature of his employment.

SCOPE OF COVER
If the Insured is liable to his employee under Workmen‟s Compensation Ordinance or Common Law for accidents or occupational diseases arising out of and in course of employment, leading to death or disablement, the Company will indemnify the Insured against all compensation made to employee and all costs and expenses. If any of the above torts can be established, a workman has the option of either seek relief or compensation under the Ordinance or Common Law but not both. He can claim under Common law successfully if negligence can be attributed to the employer and the quantum is based on the decision of the Court in relation to the injuries sustained and loss of earning capacity. Under the Ordinance, compensation is payable regardless of who is negligent. MAJOR EXCLUSIONS Insured‟s liability to employees of contractors Employees who is not a “workman” within the meaning of the Ordinance

EXTENSIONS AVAILABLE
 Employees of sub-contractors by including their wages and declaring the name of the subcontractor in the title of Insured. Use Tariff Endt W60  Employees (non manual) who earn above RM 500, including wages - Use Tariff Endt W76  Domestic Servants - Use Tariff Endt W76A  In respect of contract works, the policy can be extended to indemnify to principal in like manner to the Insured but only so far as concerns the liability of the Principal to the employees of the Insured. Use Tariff Endt W230 or Endt A&B for Government Projects.

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UNDERWRITING CONSIDERATIONS/INFORMATION REQUIRED
    The business of the Insured must be clearly described The place of work is also important Past claim experience The proposal form must be properly completed providing detailed description of work done by various employees.

PUBLIC LIABILITY
The policy protects the Insured against legal liability in paying compensation for accidental bodily injury or property damage to members of the public due to the negligence of the Insured or his employees or defects in the premises, and legal costs and expenses happening in connection with the Business and occurring during the Period of Insurance

SCOPE OF COVER
Accidental damage loss or damage to property Accidental damage loss or damage to property Legal costs recoverable by any claimant from the Insured Costs and expenses incurred with written consent of the Company

EXCLUSIONS
 Bodily injury to members of the Insured‟s family or household or employee  Expenditure incurred in re-doing or making good any work which the Insured has contracted to do  Explosion of boiler or vessel operating under steam pressure  Fines, penalties or exemplary damages  Goods or containers sold, supplied, repaired, renovated, let on hire or handled by the Insured.

UNDERWRITING CONSIDERATIONS/INFORMATION REQUIRED
Details of premises owned or occupied Description of type of work and activities carried out in the premises Description of work undertaken away from premises or sub-contracted Number and earnings of persons engaged in business Limits of Indemnity insured.

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ENGINEERING INSURANCE
There are four principle headings under which plant may be grouped:  Boilers and pressure plant The category includes super heaters, economizers, steam baking ovens and any other pressure vessel. Indemnity is provided against damage to the boiler and surrounding property consequent upon explosion or collapse. Liability to third parties directly arising from the explosion or collapse of the boiler can be covered.  Engine plant This category includes steam-engines, gas and oil engines, diesel engines, air compressors and refrigeration equipment. Indemnity is provided against mechanical breakdown and damage surrounding property caused by flying fragments. Liability to third parties directly arising from the breakdown can be covered.  Electrical plant This category includes electrical motors, generators, transformers, turbines and the like. Indemnity is provided against mechanical or electrical breakdown. Liability to third parties directly arising from the mechanical or electrical breakdown can be covered.  Lifting machinery This category includes carne, hoist, passenger or goods lift and all lifting gear. This policy provides property damage and third party liability directly arising from breakdown.

SURETY BONDS
In contrast to fidelity guarantee, surety bonds guarantee losses arising not only from dishonesty but also failure to discharge duties properly. There are many types of bonds issued by insurance companies. The main types of surety bonds include:  Court Bonds A court bond guarantees losses arising from failure to discharge duties by performing/firm appointed by court. For example, when a person is appointed by a court to wind up an estate or handle the affairs of someone, it usually requires a bond to be issued. The bond guarantees any financial loss due to failure to perform duties by the appointed person.  Government Bonds A government bonds guarantee that certain person/firm will comply with the laws or regulations. There are a large number of different forms of government bond issued, but the most frequently encountered are Customs and Excise bonds. Customs are duties or taxes which are imposed upon goods imported or exported.

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Excise duties are those taxes which are imposed upon goods produced and consumed at home on manufacturers and others for special privileges granted by Customs and Excise The bond required is security by the Government for due payment of customs and excise duties, together with the proper performance of specified conditions in the carrying on of business in dutiable articles.  Contract Bonds These are used for construction purpose. The common types of contract bonds are:  Performance Bonds The performance bonds undertake to indemnify the principals against any failure on the part of the contractor to execute the contract works in accordance with the specifications and terms of the contract and within the time stipulated in the contract  Supply Bonds The bond indemnifies the principals in the event the materials, goods or products supplied by the contractor fall short of the standards set by the principals. A contractor must include a tender bond whenever he submits his tender or bid.  Tender Bonds The bond provides for payment to the principals of the amount guaranteed if the contractor fails to enter into a contract with the principals after they have accepted his tender or bid.

5.2. LIFE INSURANCE
Life Insurance contract is an agreement between the insurer and the insured whereby the insurer agrees to pay a sum of money to the insured or his beneficiaries on the happening of certain events in return for the premium payments. The events in this contract for which the payment are to be made can either be:  Death of the life insured  Upon maturity of the contract The insured, in return, pays a regular sum (the premium) to the insurer for a specified term or until the death of the life insured. The application of insurable interest to life insurance is quite straightforward. The insured needs only to have insurable interest at the time of affecting the life insurance contract Life Insurance is necessary because it can provide (among other things) the following benefits:  Income Fund In the event of premature death of the breadwinner, the proceeds from the life insurance policy can act as an economic buffer to the family as it can provide financial support to the deceased‟s family.  Education Fund An education fund can be met through the purchase of life insurance. An arrangement can be made whereby the policy will provide a lump sum when the child reaches age of 18 or 21.  Burial Fund
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Financial expenses are not substantial but they must settle immediately. The proceeds from the life insurance policy can be used to pay off these expenses  Retirement Fund Life insurance can be used to meet one‟s retirement needs. A person income is terminated or reduced upon retirement. To maintain the standard of living, one can obtain the money from the life insurance fund. An arrangement is made earlier with the insurer to have the life policy maturing at a specified of time, for example when the policy holder reaches the retirement age of 55 or 60.  Mortgage In the event the breadwinner dies prematurely, the outstanding mortgage will be met by the life insurance proceeds. This reduces the burden of the family members in coming up with payments to settle the outstanding loans.

 TYPES OF LIFE INSURANCE
The basic types of life assurance contracts are: Term The term insurance policy provides protection on the life of the individual for a specified number of years. Sum insured is only payable if death occurs within a specified number of years, nothing is payable if he survives till the end of the term. In other words, if the life assured survives the term, the policy will be expiring. Features;  Low initial premium due the fact that the protection is temporary  Protection for a specified period of time.  May be renewed for successive periods or may be converted to permanent contracts.  Premium increases with each new term.  A minimum cash value is available for term policies beyond duration of 20 years. Types of Term Assurance  Level Term Assurance  Provides level coverage or protection for a specified period or term, say 10 years, 20 years, or up to a specified age of the insured, say 55th birthday.  Sum assured payable upon death during term.  If survives, premiums will not be refunded.  Large protection or coverage for relatively low premium.  No or low cash value.  Individual or rider attached to a basic policy  RENEWAL TERM  Allows policy owner the option to renew the term policy at the end of the term.  No evidence of health is required.  Rate of premium is base on insured‟s attained age at the date of exercising the option. Limit the age, say 60 or 65 years or limit the number of renewals.  Premium is slightly higher than for a similar non-renewable policy.
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 CONVERTIBLE TERM  Allows policy owner the right to convert the term policy to a whole of life or endowment assurance during the term of the policy for the same amount.  Evidence of insurability is not required.  Premium rate for either whole of life or endowment assurance will be based on the age of the insured at the time of conversion.  Premium is slightly higher than normal level term assurance.  DECREASING TERM  The sum assured or coverage decreases each year over the term of coverage to zero coverage at the end of the term.  Single premium or premium usually remains level during the period of coverage. Endowment Provides for the payment of sum assured (and bonus if any) upon the death of the life insured during the term of the policy or upon the survival of the policyholder at the end of the term. For example, a 20 year Endowment policy provides payment of sum assured at the end of the 20 th year or if the insured dies within the 20 years period of endowment. This type of policy not only provides cover against death but also includes provision for savings. At the end of an agreed period of time, a lump sum is received. This amount comprises of the premiums paid plus bonuses.  PURE ENDOWMNET ASSURANCE  Pays a benefit only to those persons who survive a certain period of time, say 10 or 20 years.  Those who do not survive that period of time receive nothing.  Is the opposite of a term insurance policy. Features;  Insurance plus rapid cash accumulation  Higher premium than term or whole life insurance  You can arrange the policy to coincide with future events. Whole Life Provides for the payment of sum assured (and bonus if any) upon the death of the life assured upon reaching certain age such as 85, 90 or 100 years. Premiums payments are normally paid throughout life. However, there are policies which have a limited premium payment period. Features;  Protection for life  Fixed premium  Growing cash value  Higher initial premium than term assurance  Should be purchased with the intention of keeping for life or a long period of time.

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PERSONAL ACCIDENT INSURANCE
The policy provides benefits in the event the insured person suffered bodily injury resulting solely and directly from accident by outward, violent and visible means. The benefits provided under the policy are in respect of death, disablement and/ or medical expenses arising from the injury. In other words, Personal Accident Insurance 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. Depending on the type of injury, different types of compensation are paid. Lump sums, sometimes called capital sums, are payable for accidental death or permanent disablement, such as the loss of sight or leg.  Temporary Total Disability  Weekly benefits of RM8 per RM1,000 sum assured (75% of weekly earnings) subject to a maximum 104 weeks  E.g. if sum assured is RM50,000, max payable is RM400 per week  Temporary Partial Disability  Weekly benefits of RM2 per RM1,000 sum assured subject to a maximum of 104 weeks  If sum assured is RM50, 000, max payable is RM100 per week.  Medical Fees & Expenses  Reimbursement, up to RM20 per RM1000 sum assured.  E.g. sum assured of RM50,000, max reimbursement is RM1,000  Double Indemnity  Sum assured payable is doubled if accidental death while traveling in or boarding any public transport on land excluding taxis.  E.g. if sum assured is RM50, 000, amount payable is RM100, 000 o Exclusions and restrictions  War-related accidents, declared or not  Accidental caused by self-inflicted injuries-suicide, unsound mind  Accidents resulting from aviation activities other than as a fully licensed passenger  Accidents resulting from illegal activities  Pregnancy, childbirth, abortion or miscarriage, illness or any kind of venereal disease, AIDS, HIV, fits etc  Engaging in hazardous activities; mountaineering, polo, racing of any kind, winter sports, boxing, wrestling, martial arts unless previous consent of the company  Radioactivity from any nuclear fuel or waste  Expiry date - age 65 years

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HEALTH AND MEDICAL INSURANCE
The policy basically covers two aspects. There are; Disability income insurance Provides periodic payments when the insured is unable to work because of sickness or injury. The amount payable is normally a percentage of the insured‟s monthly income Medical expense insurance Pays for medical cost resulting from injuries or sickness. These include hospitalization charges, physician fees and other necessary expenses incidental to the injuries. The amount paid for each items is subjected to certain percentage of ach costs incurred up to a certain maximum amount.

BENEFITS
          Hospital and Surgical Benefits Room and Board Intensive Care Unit Surgical Fees Operating Theatre Anesthetist's Fees In-Hospital Physician‟s Visit Hospital Miscellaneous Services Pre-Hospital Diagnostic Test Post-Hospitalization Treatment

OUT PATIENT BENEFITS
     Emergency Out-Patient Treatment, Accidental Only Emergency Accidental Dental Treatment Ambulance Fees Cancer Treatment Kidney Dialysis

CASH ALLOWANCE  At Government Hospitalization  On Malaysian Highway Worldwide cover and 24 hours a day Deductible amounts- insured must pay before insurance company make any payments  Per cause by a single illness  Calendar year Exclusions & Limitation  Pre-existing conditions
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 Specified illnesses occurring within 120 days from date of coverage  Hypertension, diabetes and cardiovascular disease  All tumors, cancer, cyst, polyps, urinary stones  All ears, nose and throat conditions  Hernias, hemorrhoids, fistulae, hydrocele, varicocele  Endometriosis including disease of Reproductive system  Vertebro-spinal disorders and knee conditions  Waiting Period of 30 days for treatment of sickness  Treatment for any injury or sickness resulting from war or any act of war, criminal or terrorist activities, strikes, riots and civil commotion  Cosmetic surgery, routine eye or ear examination, hearing aids unless such corrective surgery is required due to accidental injury  Dental treatment or oral surgery unless due to accidental injury  Pregnancy, childbirth, abortion, birth control, sex changes, treatment of infertility, erectile dysfunction expenses  Voluntary confinement for physical health examinations not related to a disease or injury  Intentional self-inflicted injury, suicide, criminal act  Ionizing radiation or contamination by radioactivity from any nuclear fuel or waste  Preventive treatment such as vaccinations  Mental or nervous disorders  HIV, AIDS and VD related diseases  Expenses of non-medical nature, TV, telephones, radio etc  Any H & S expenses paid by other insurance organizations and under Workman‟s Compensation  Private flying other than as a fare-paying passenger in a commercial schedule airline  Not a citizen of Malaysia or reside overseas > 90 days

INVESTMENT LINK POLICY
 A life insurance policy where the protection and investment element is unbundled.  The premiums are used to purchase units in investment funds.  The policies values are directly linked to investment performance of the funds.  The values of policy are linked to units in a special unitized fund, and fluctuate according to the performance of investment.  The benefits are market value of the investment at time the benefits are paid.  The investment fund can be in equity, fixed income, bond, money market etc.  The investment funds may be managed internally or externally.  The insurance charges are deducted from the fund to pay for chosen insurance coverage.  Clear separation between policyholders and company funds. Advantages  Protection Flexibility, Level or increasing  Premium Flexibility, premium holiday, top-up  Investment Flexibility, a few investment funds to invest

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Disadvantage  Riskier, if stock market fails to perform well

How an investment-linked life insurance policy works?

Premiums / Top-UP
Allocated premium used to buy units from investmentlinked funds at offer price
Unallocated Premium ( Initial Charges)

Life Office
(To meet marketing and set-up expenses)

Investment Funds

• Surrender claim • Withdrawals • Death claim

Units belong to poliyowner

Cancel Units
(To pay mortality charge & policy fee)

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Investment-Linked Policy Level Cover – RM100,000
200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 35 40

55k
45k
45 50

20k
80k
55 60

110k
65 70 75
74

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Investment-Linked Policy Increasing cover - RM100,000
250000 200000 150000

100k
100000

100k
50000 0 35

75k
30k
40 45 50 55 60

110k

65

70
75

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5.3. TAKAFUL ISLAM IS AD DEEN
Muslims are supposed to adhere to Islamic Laws all the time and not just some of the time “O you who believe! Enter into Islam wholeheartedly” (Al-Baqarah : 208) “And if anyone fails to judge by the light of what Allah has revealed they are no better than wrongdoers” (Al-Maidah : 45) “This day I have perfected your religion for you, complete My blessing on you and approve Islam as the way of life for you” (Al-Maidah : 3)

Islam

AQIDAH Faith & Belief

SHARIAH Practices & Activities

AKHLAQ Moralities & Ethics

IBADAH Man-to-God Worship

MUAMALAT
Man-to-Man Activities

Political Activities

Economic Activities

Social Activities

Financial – Bank/Takaful

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SOURCES OF SHARIAH
Primary Source:  Qur‟an  the Qur‟an being a divine revelation is the supreme source of law for the Muslims  The Qur‟an lays down broad principles and rules covering the whole sphere of human life;  “We have neglected nothing in the book” (Qur‟an 16:89)  It is “a book there is no doubt in it - a guidance unto those who guard (against evil)” (Qur‟an 2:2)  Sunnah : the sayings, deeds and approval of Prophet Muhammad;

The Qur’an orders Muslim to also obey the Sunnah from the Prophet because sunnah explained the Quran‟s principle: Example: How to perform Solat.   “Whoever obeys the Messenger, he indeed obeys God” (Qur‟an 4:80) “O you who believe, obey God and His Messenger” (Qur‟an 8:20);

Secondary Source:  Ijtihad : independent judgment by : o Ijma‟  juristic consensus opinion;  The unanimous agreement of mujtahidin of the Muslim Community of any period following the demise of the Prophet Muhammad SAW on any matter. o Qiyas : reasoning by analogy;  The extension of Shariah value for the original case (asl) to a new case because the latter has the same (illah) effective cause as the former.

EVERYTHING THAT IS NOT PROHIBITTED IS PEMISSIBLE
   Nothing is haram except what is prohibited by a sound and explicit Nas from Allah”; Nas denotes a Qur‟anic verse or a clear, authentic and explicit sunnah; “And God hath made of service unto you whatever is in the heavens and whatsoever is in the earth; it is all from Him. So herein verily are signs for all who reflect” (Qur‟an 45:13);  “He (Allah) has explained to you what He has made haram for you” (Qur‟an 6:119);  other references (Qur‟an 31:20 & 2:29);  “The sphere of prohibited things is very small while that of permissible things is extremely vast”.  The Holy Prophet was reported to have said “God has enjoined certain enjoinments, so do not abandon them. He has imposed certain limits, so do not transgress them. He has prohibited certain things, so do not fall into them. He has remained silent about many

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things, out of mercy and deliberateness, as He never forgets, so do not ask me about them” (translation of a hadith reported by al-Darqutni);

 DIFFERENT LEVEL OF RULING
 Fardu or Wajib: an obligatory duty, the omission of which is punishable;  Mandub or Sunnat: an action which is rewarded but omission is not punishable;  Jaiz or Harus: an action which is permitted and the law is indifferent;  Makruh: an action which is disliked yet not punishable, but the omission is rewarded;  Haram: an action which is absolutely forbidden and punishable;

 DIYAT (BLOOD MONEY)
 A Pagan-Arab custom later adopted and refined with the advent of Islam;  Family of the saline chooses to accept monetary compensation instead of seeking vengeance;  Examples of compensation: o 100 camels (or 1,000 dinars paid over 3 years) for death; o 1/3rd for deep wound; o 5 camels for loss of hand, eye or tooth;  The whole community contribute to a common fund to help the killer pay the compensation;

 ISLAMIC LAW RELATING TO BUSINESS
 Does Islam permit doing business?  Freedom to contract;  Scholars‟ views on Insurance;  Objectional elements in the insurance contract : Gharar (uncertainty); Maisir (gambling); Riba (usury);

 GHARAR
 deficient clarity regarding the subject-matter;  open-ended contracts contain gharar;  presence of gharar may render the contract void depending on the degree - whether excessive, trifling or average?;  opinions on the tolerable level vary;  Islam objects if gharar leads to exploitation;  all gambling contracts have excessive gharar but not necessarily all gharar contracts are gambling;

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 FORBIDDEN CONTRACT
    Habal al-habalah : sale of the offspring of a still-to-be-born animal; Mulamasah : sale of fruits prior to ripening; Al-bayatayn fibayah : sale where two different prices are quoted; Bai‟ Al-hassat : a customer purchases cloth by tossing a piece of stone. The piece of cloth on which the stone falls is the one purchased;

 GHARAR IN SUMMARY
 Uncertainty (or lack of information) on the subject-matter being contracted with regard to: o its attributes (quality, specification); o its existence or availability; o its quantity (or price or both); o the time of completion and delivery;  Not uncertainty as to the business outcome but the subject-matter as this could lead to injustice / exploitation; The Insurance contract are said to be in gharar when:  according to Ibn Taymiyyah gharar occurs when one party takes what is due to him but the other does not receive his entitlement ;  gharar in insurance pertains to “deliverability” of the subject-matter; that is uncertainty as to: o whether insured will get the compensation promised?; o how much the Insured will get? o when the compensation will be paid?

 PROHIBITION OF GAMBLING
 according to Ibn Taymiyyah gharar occurs when one party takes what is due to him but the other does not receive his entitlement ;  gharar in insurance pertains to “deliverability” of the subject-matter; that is uncertainty as to: o whether insured will get the compensation promised?; o how much the Insured will get? o when the compensation will be paid?

 PROHIBITION OF USURY
 Although Islam permits trade, this must be done by mutual consent and without exploitation;  “O you who believe, devour not usury, doubling and quadrupling, the sum lent. Fear Allah and observe your duty to Him, that you may really prosper” (Qur‟an 3:130);

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 “they say „trade is just like usury‟ whereas Allah has permitted trade and forbidden usury” (Qur‟an 2:275);

 TYPES OF RIBA
 Riba Duyun – arising from debt Riba Jahiliah - penalty for failure to repay debt; Riba Qardh - excess agreed to at point of contract;  Riba Buyu -transaction of ribawi items Riba Fadhl - excess in weight, volume, quantity; Riba Nasiah - difference in time;

 GENERAL THEORY OF ISLAMIC INSURANCE
 The Shariah solution to the problem;  Concepts of : o Tabarru‟; o Takaful; o Mudharabah;  One working model;  The source of the objection;

 CONCEPT OF TABARRU‟
 Solution is to change the basis of thr contract from one of exchange to one based on tabarru‟;  Tabarru‟ is a donation with condition;  Tabarru‟ eliminates gharar, maisir & riba;  invest in Shariah approved investments;

 CONCEPT OF TAKAFUL
 “Kafal” means to take care of one‟s needs ;  concept based on solidarity, shared responsibility & brotherhood among members;  contributions made with intention of tabarru‟;  not an exchanged contract;  the operator does not own the fund but merely acts as its custodian;  surplus shared on mudharabah basis;  need to emphasise on the beauty of tabarru‟;

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6. MARKETING OF INSURANCE AND TAKAFUL PRODUCTS
6.1. Principles And Concepts 6.2. Marketing Fundamnetal And Distributions System 6.3. Types Of Takaful Business 6.4. Takaful Vs Conventional

6.1. PRINCIPLES AND CONCEPTS
A General Insurance Company does not operate in a vacuum. Its operations are influence by various external and internal forces. These forces influence the Persons running the company and the operation of the Company largely depends upon the Persons. Persons here refer to the Management who is accordance to their Human Element, Education Background, Experience and Institutions not only influence the way the Company is run but also its staff compositions. The marketing fundamentals are any business (General & Life Insurance, Takaful) must identify its customers. Then they should determine the types of products their customers want and distribute those products to its customers in a convenient, timely and economical manner. The marketing functions are major specialized activity or group of activities perform in the marketing of goods and services. The principles of marketing function are as follows:

Organization by Function
MD/CEO Corporate Actuary General Counsel

Accounting

Information System Human Resources Policyowner Underwriting Service

Marketing

Actuarial

Claims Administration

Investments

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Organization by Product/s
MD/CEO
Accounting Information System
Human Resources Individual Insurance Investment Group Insurance

Corporate Actuary General Counsel

Marketing Policyowner Service Underwriting Actuarial

Marketing
Policyowner Service Underwriting Actuarial

Claims Administration
Investments

Claims Administration
Investments

Organization by Territory
MD/CEO
Regional Headquarters
Accounting Law Human Resources Information Systems Actuarial

Corporate Headquarters
Accounting Information Systems Human Resources General Counsel Corporate Actuary Investments

Individual Insurance

Group Insurance

Marketing
Policyowner Service

Marketing
Policyowner Service

Underwriting Actuarial
Claims Administration

Underwriting Actuarial
Claims Administration

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6.2 MARKETING FUNDAMENTAL AND DISTRIBUTION SYSTEM
 Marketing fundamentals: Any business must identify its customers Determine the types of products its customers want Distribute those products to its customers in a convenient, timely and economical manner  Market-driven vs. Product-driven organization o Market-driven organization  Is one that is shaped by and responsive to the needs of the marketplace and the consumers  Determine the needs of its customers and satisfy those needs by developing and distributing appropriate products at competitive prices o Product-driven organization  Place great emphasis on selling sound products that they believed were needed by consumers  Sell products the company has developed  DISTRIBUTION SYSTEM  Ordinary agency system  Most common insurance distribution system, report to only 2 principals  Agency can be individual or company (corporate nominee)  Main activities include soliciting new business applications, collecting premiums, and provide services to policy owners  Remunerated by commission depending on the volume of its business including profit commission  PIAM has made a ruling that all general agents must undergo CPD training of 20 hours in a year, while for life agent, 30 hours per year  Home service system (life companies)  Sell policies and provide service only to home service insurance products policy owners who live in specified geographic areas  Each agent operates in a defined territory and responsible to collect renewal premiums from policy owners  Usually paid salary and also remunerated by commission  Brokerage system  Represent client‟s interest  Sell insurance products of more than one company  Usually provide competitive products at competitive price, put insured's interest first  Remunerated by commission on business solicited  Salaried sales distribution system  Personnel are salaried employees of insurance company, and to sell company products and provide services to their policy owners
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 Personnel may work either independently with agents or independently themselves  Often used to distribute group insurance products, and individual products  Direct response distribution system  Relies on advertisements, telephone soliciting and mailing to generate sales  Consumer purchase products directly from the company by responding to the company‟s advertisements, mailings, and telephone  No agents or staff visit customers to induce sales  Retail outlet system  Distributes insurance products by locating staff or agents in places where consumers generally shop, such as department stores

MARKETING OF TAKAFUL
Syarikat Takaful Malaysia does not adopt the agency for its channel of distribution. Instead the company employs the direct marketing method by establishing its own branch networks and „takaful desk‟ at the branch offices of the Islamic Bank at the district offices of the Pilgrimage Management Fund Board (a government statutory body)  Retakaful It should be noted that „retakaful‟ goes along with takaful business as it would not be possible for Syarikat Takaful Malaysia, however strong it is financially, to meet all the losses form it resources. In the case of Syarikat Takaful Malaysia, its Religious Supervisory Council has agreed that, in view of the necessity of retakaful of the company can enter into retakaful arrangement with the conventional insurance/reinsurance companies with the following conditions:  It should not receive any commission from its reinsurance and reinsure on net premium basis  It should not pay any interest on the premium reserve (takaful contribution) retained by from its reinsurer.  As Islamic insurance companies do not and cannot participate in the losses suffered by the reinsurers from their own business, Syarikat Takaful Malaysia cannot receive any profit commission from its reinsurers  It cannot receive inward retakaful cession from the conventional insurance or reinsurance companies.

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6.3. TYPES OF TAKAFUL BUSINESS
The commercial activity of takaful is reflected in two basic types of business that it undertakes. As a composite company, Syarikat Takaful Malaysia for example, as prescribed in the Takaful Act 1984, transacts both types of takaful business. The types of businesses are as follows:  Family Takaful Business The plans generally are long term al Mudharabah contracts. Basically a Family Takaful Plan provides covers of mutual aid among its members or participants expressed in the form of financial benefits paid form the Family Takaful Fund should any of its members be inflicted by a tragedy. Family Takaful Plans are designed to serve requirements of both individual and corporate sectors. A Family Takaful Plan for the individual sector is a long term saving and investment programme. Apart from the benefit of enjoying investment profit, the plan also provides mutual financial assistance among its participants. Thus, the Family Takaful Plans would enable any individual to participate in takaful business with the following objectives: To save regularly for a fixed period with a view of creating a kind of retirement or long term contingency To invest with a view of earning profits in a manner acceptable to Syariah this in turn would lead to further accumulation of saving. To avail of cover in the form of mutual financial aid from payment of takaful benefits to heirs should a participant die before the maturity of his Family Takaful Plan

Takaful – Family Model
Tabarru – Donation defined as relinquished to form a part of mutual assistance

Mudharabah (investment) to form a part of the solidarity to share the profits accordingly

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 General Takaful Business For the General Takaful Business, the scheme usually on a short-term basis. These schemes provide protection in the form of mutual financial help to compensate its members or participants for any material loss, damage or destruction that any of them might suffer arising from a catastrophe, disaster or misfortune that might inflict upon his properties or belongings. The General Takaful Scheme are designed to meet the needs for both protection of both individuals and corporate bodies in relation to material loss or damage consequent upon a catastrophe or disaster inflicted upon properties, assets or other belonging of its participants.

Takaful – General Model
Tabarru – Donation defined as relinquished to form a part of mutual assistance Mudharabah (investment) to form a part of the solidarity to share the profits accordingly

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Framework of Takaful– Mutual Joint Guarantee


Takaful, a mutual joint guarantee based on the virtue of fairness, brotherhood and solidarity. Objectives – Mutual Cooperation based on Solidarity. “Insured” are Participants of the scheme who come together and jointly guarantee each other. (Tabarru) “Insurer” is the group of Participants who pool their resources to guarantee each other in that particular takaful scheme or plan
Takaful Operator (Mudarib) managing the takaful plan and investments for the participants.









 BASIC PRINCIPLES OF TAKAFUL APPLIED TO TAKAFUL
 A person who participates in any family takaful plan is called a participant. The family takaful plans have a defined period of participation. 15 years or 25 years (General Takaful is a short term – one 1 year plan)  The takaful company and the participant will enter into a long-term takaful contract, (Family) and a short term contract (General)  The takaful contract spells out clearly the rights and obligations of the parties to the contract. The participant is required to pay regularly the takaful installments in consideration for his participation in the takaful plan.  The person who wishes to participates in any family and or general takaful plan must first apply to the operator join the scheme.  A standard application form is usually used. Participants need to answer all questions and provide details in utmost good faith. The application form is the basis of the Takaful contract.  Participants may need to undergo medical check-up as required by the operator.  Takaful agent being an agent of the operator has specific roles to play in the application process. The agent shall assist the participant to complete the application form.  In general, the agent‟s roles are: (1) to ask questions posed in the application form to the applicant clearly and carefully to get the true and complete answer and (2) to observe the applicant‟s behavior and to inform the operator of any peculiarities that may affect the underwriting decision.  The participant will decide the amount of takaful instalments that he wishes to pay, but such an amount shall be subject to the minimum sum as determined by the company.

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 Each takaful instalment paid by the participant shall be divided and credited by the takaful company into two separate accounts, namely the participant‟s account and the participant‟s special account. A substantial proportion, for example, such as 93% of this instalment is credited into his participant‟s account solely for the purpose of his savings and investment.  The balance is credited into his participant‟s special account as tabarru‟ for the purpose of mutual help.  Mutual financial assistance such as takaful death benefits to fellow participants is paid from the participant‟s special account. What proportion of the takaful installment to be relinquished as tabarru‟ and credited into the participant‟s special account is determined based on sound actuarial principles.  The takaful instalment credited into these two accounts will be pooled as a single fund for the purpose of investment activities undertaken by the takaful company in a manner permitted by the Syariah.  Any profits generated from the investment shall be shared between the participant and the company in a ratio to be mutually agreed between the participant and the company in accordance with the contract of Al-Mudharabah. For instance, if the ratio agreed is 70:30 then the participant shall be entitled to 70% of the profits whilst the company shall be entitled to 30%  The participant‟s share of the profits shall be credited into his participant‟s account. With the accumulation of such profits, the balance in the participant‟s account will increase over a period of time  Products of Family takaful are mainly differentiated by the purpose or objective of the plan.  However, the insured peril in Family takaful plan is the participant‟s life itself.  Injuries and disablement to the participant can be included if the participant choose the respective riders in the protection plan. (the Insured peril of this rider is when he/she becomes hospitalized- for example)  Riders are additional benefits that participants can have by paying additional contributions. Eg. Total & Permanent Disability, Hospitalization & Surgical, Critical Illness, etc.  Participants cannot have riders‟ protection without having the basic family plan.  If a participant “surrenders” his takaful plan, the following takaful benefits shall be paid to him: The total amount of takaful installments paid by the participant during the period of his participation plus his share of profits from the investment of the takaful installments credited into his participant‟s accounts. The net surplus allocated to his participant‟s special account as shown in the last valuation of the participant‟s special accounts.  In the event that a participant is compelled to surrender or withdraw from the takaful plan before the maturity of his takaful plan, he shall be entitled to the surrender benefits.  The participant is entitled to receive the proportion of his takaful installments that have been credited into the participant‟s account including his share of investment profits. However, the amount that has been relinquished as tabarru‟ will not be refunded to him.

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6.4. TAKAFUL VS. CONVENTIONAL  TAKAFUL
Sources of laws are based upon Divine revelations (Holy Quran and Hadith) Community well-being optimizing operations for affordable risk protection as well as fair profits for the operator. Takaful contract specifies in advance how and when profit/surplus and/or Bonus units will be distributed. Initial capital supplied by Rabb al Mal (Participants) or paid in via premiums / contributions from participants. Coincidence of interests between policyholder and operator as appointed by participants. Losses retained within classes of business written and sole obligation of Participants. Right of insurable interest is determined by Islamic principles of Faraid (inheritance). Insured may not "profit" from insurance and entitled to compensation only for repair or rebuild or replacement. Agents are employees of the Takaful or indirect agents of the Takaful Operator and any sales commission should be disclosed.

 CONVENTIONAL
Sources of laws & regulations are set by state and man-made. Profit-motive, maximizing returns to shareholders. Profits and/or Bonus units to be returned to policyholders as determined by managers and Board of insurer. Initial capital supplied by shareholders. Separation of policyholder and insurer with differing interests Transfer of losses among insurance pools and from policyholders to shareholders. Right of insurable interest is vested in the Nominee absolutely in Life insurance. Insured may elect cost or replacement cost valuation and claim accordingly whether or not they chose to rebuild property. Agents and Brokers are typically independent from insurer and paid a fee from the premium charged to policyholders that is not disclosed.

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7. UNDERWRITING
7.1. Introduction To Underwriting 7.2. Characteristic To Physical & Moral Hazards 7.3. Basic Principles Of Underwriting The Main Classes Of Insurance 7.4. Rating 7.5. Premium Payment 7.6. CBC Regulation

7.1 INTRODUCTION TO UNDERWRITING
Underwriting can be defined as a process of assessment and selection of risks, and the determination of premium, terms and conditions. In any insurance plan, the insured is required to make a contribution known as premium into commons fund which is used to pay losses. To ensure that sufficient funds will be available to pay claims, the insurer must: Guard against anti selection Charge a premium that is commensurate with the risk transferred

7.2. CHARACTERISTIC TO PHYSCAL AND MORAL HAZARDS
 Physical hazards are a physical chance that increases the condition of loss. Examples of physical hazard include wooden construction of building and poor mechanical condition of a motor car. The following are some factors which may reveal physical hazards in various classes of insurance:  Fire Insurance  Type of construction  Height of building  Nature of goods stored  Motor Insurance  Cubic capacity  Age and condition of vehicle  Use of vehicle  Burglary Insurance  Nature of stock  Situation  Type of construction  Moral hazard is a character defect in an individual that increase the chance of loss. Examples of moral hazard include dishonesty, carelessness and unreasonableness. The following are some forms of moral hazards:  Carelessness  This is the most common form of moral hazard. It may arise from the insured himself, his employees or third parties
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 Unreasonableness  It arises during claims settlements when the insured attempt to make unreasonable demand for compensation.  Fraud  The deliberate destruction of faking a loss by the insured who is in financial difficulties  The exaggeration of claims amount with the intention of cheating the insurers.

7.3. BASIC PRINCIPLES OF UNDERWITING THE AIN CLASSES OF INSURANCE
 INDENTIFICTAION AND EVALUATION OF RISKS When a proposal is submitted for insurance, the underwriter will need to identify and evaluate the physical and moral hazards associated with the proposed risk. The information relating to the hazards can be obtained from the proposal from completed by the proposer. However, if additional information is required, the underwriter may take one more of the following actions.  Request for survey  Make direct inquiries  SELECTION OF RISKS In general, an underwriter will not reject a proposal unless the physical and/ or moral hazards associated with it are considerably bad so as render the risk uninsurable. However, he is less willing to accept risk with poor moral hazards because they are more difficult to deal with. For instance, when fraud exist, no increase in premium will be adequate to cover the risk.  DETERMINATION OF PREMIUMS, TREMS AND CONDITIONS Premium is the price for insurance. For the majority of classes of insurance, it is the premium rate per unit of coverage multiplied by the number of units of coverage required. The rate per unit coverage can be expressed either in term of RM X per cent or RM X per mile. The unit of coverage is measured differently according to the type of insurance. In determining the premium for risk, the underwriter should ensure that the arte charged reflects the degree of hazard and the total units of coverage required reflect the value of risk transferred; otherwise the premium charged will be inadequate to pay losses. When two risks of equal values are submitted for insurance, the risk with normal hazards will be charged a normal standard premium rate, while the risk with abnormal or poor hazards will be charged a higher premium rate. The terms and condition to be imposed will depend on whether the risk accepted presents normal or abnormal hazards. Risks with normal hazards are accepted on the standard terms and conditions for that class of insurance.

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Risks with abnormal hazards are acceptable subject to the following underwriting measures:  Risk Improvement Requires the proposer to undertake certain improvements such as installation of fire alarm on the risk before it is acceptable to the underwriter  Warranties These are imposed to control hazards and to ensure that additional/ new hazards are not introduced during currency of the policy  Exclusions Inserting a clause to exclude the insurer‟s liability from certain losses which otherwise and under normal circumstances, they should be covered under the standard policy cover  Restricted Cover The proposer is offered a lower insurance coverage than the one that he originally requested  Excess The insured is required to bear a specified amount or portion of every loss  Franchise Similar to excess, the insured will not be able to claim if the loss amount is lower than the franchise amount. However a contradict nary to excess, if the loss exceeded the franchise amount, the insured will not required the franchise amount. Apart from marine insurance, franchise is rarely used in general insurance.  CONFIRMATION OF ACCEPTANCE The insurer will usually issue a cover note or e-cover in the case of motor insurance, as evidence of temporary cover until the policy issued.  REINSURANCE AND CO-INSURANCE Reinsurance is an arrangement whereby the insurer reinsurance (cedes) the part of the risk assumed which is in excess of his retention to the insurers Co insurance is an arrangement between two or more insurers to share the original risk and each insurer is directly responsible for the proportion of the risk insured.

7.4. RATING
 Types Of Rating  Individual Rates When an underwriter determines the rate to be charged on each risk separately without referring to an established formula or manual, the rate determined is an individual rate. Individual rates which are determined by the judgment of the underwriter are known as judgmental rates. Judgmental rates are used when there is lack of a large number of similarly insured risks or credible statistics.  Class Rates Where there is a large number of a risk to be insured under a class of insurance, it is possible to classify the risk by certain characteristics into various classes.
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The main objective of classifying risks on the basis of similar characteristics is to establish a premium rate known as a class rate for that class of risks which will generate sufficient premium to cover losses arising from that class of risk. In practice, a class rate is determined for each class of risks. A class of insurance with numerous classifications will have numerous class rates. When class rates are compiled in a manual, the rates are known as manual rates. A class rate can be determined by using simple formula: Total Loss/ Total Value of Risk X 100 = Rate per RM100 Sum Insured  Merit Rates A merit rating plans is a combination of class rating and individual rating. When a risk is subject to merit rating, the underwriter will determine the class rate and then adjust rate upwards or downwards depending on the merits of the risk. The merits of the risk will be determined through the evaluation of physical factors associated with the risk. Merit rating is used in many classes of insurance including fire, motor, workmen‟s compensation and burglary insurance.  Gross Premium Rate The gross premium rate is made up off four components:  Pure premium rate  Expenses and commission margin  Contingency margin (provision for variation in losses)  Profit margin One of the methods for determining the gross premium rate is by making such additions required to provide for the other components to the pure rate. The additions required, referred to a s loading, for example, if the loading required for other components is 40%, the gross premium rate is determined by increasing the pure premium rate by 40% Gross Premium Rate = Pure Premium Rate x 140/100 The insurer has to carry out further investigations as to the level of expenses experienced, cost of capital, influence of competition and other similar factors, before arriving at a loading figure.  Tariff Rating The rating of fire, motor and workmen‟s compensation insurance is governed by their respective tariff formulated by PIAM. The main objective of a tariff is to ensure that price competition among insurers will not go below the economic level. Tariffs formulated by PIAM provide the following information:  A schedule of minimum rates for different classes of risk  Surcharges on special hazards associated with each class of risk  Discounts for various improvements on the risk  General rules and regulations governing the practice of insurance  Wordings for standard policy forms, endorsements, clauses, warranties, etc
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Fire Tariff The tariff applies to all insurance covering File whether issued in the Fire or Miscellaneous Department other than Engineering or Cargo Insurance except to extent otherwise provided. Among the tariff conditions are: Commission/ brokerage/ co insurance cost are standardized Risks are classified into various occupational hazards/ construction hazards and the respective rate stated in the tariff must be the minimum rates to be adhered to. Motor Tariff The agreement provide standard policy wording for each type of insurance cover, and general regulation pertaining to the computation of premium, transfer of interest policy, cancellation of policies, cover notes, certificates of insurance, extensions of cover available. This tariff only applies to any motor vehicle which is licensed for use on public road Cash before cover must be strictly observed whereby an insurance company can only issue cover notes or policies upon the insured paying the insurer. A no claim discount is allowed accordance with the scales and rules calculated on the net renewal premium for such part of the insurance as is renewed in respect of each vehicle.



7.5. PAYMENT OF PREMIUM PREMIUM WARRANTY – SIXTY DAYS PREMIUM WARRANTY CLAUSE
Under the ruling, the insured is required to pay premiums charged for the insurance within 60 days from the effective date of insurance cover. If the premium is not paid by the 60th day, the insurance cover will be cancelled from the 61st day and the insurer shall entitled to the pro rata premium for the period they have been on risk For the purpose of this warrantee, any payment received by the insurer and the onus of providing that unauthorized person its agent received the premium payable shall lei on the insurer.

The Premium Warranty states that: „Its fundamental and absolute special condition of this contract of insurance that the premium due must be paid and received by insurer within 60 days from the inception date of this policy/ endorsement/renewal certificates. If this condition is not complied with, then this contract is automatically cancelled and the insurer shall be entitled to the pro data premium of the period they have been on risk. Where the premium payable pursuant to this warranty is received by an authorized agent of the insurer, the payment shall be deemed to be received by the insurer for the purposes of this warranty and the onus of proving that the premium payable was received by a person. Including an insurance agent, who was not authorized to receive such premium shall lie on the insurer‟

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7.6. CASH BEFORE COVER REGULATIONS
The Insurance Regulation 1980 commonly known as „CBC” Regulations and was enforced on 1 November 1980. Presently, the regulation is applicable not only to Motor Insurance business but has also been extended to personal accident and travel insurance effectively from July 1, 2007 In the case of motor insurance, it has been prescribed by the law that motor insurance cover can only been issued by insurers on their agents on a CBC basis. This means that the premium must be paid before a motor insurance cover note or policy can be issued.

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8. CLAIMS
8.1. Overview And Introduction To Claims 8.2. Notification of Loss 8.3. Settlement Of Claims 8.4. Recoveries For Reinsurance, Co Insurer, Subrogation And Contribution 8.5. Repudiation Liability By Insurers 8.6. Average Claim 8.7. Claim Settlement Agreement 8.8. Disputes 8.9. Post Settlement Action

8.1. OVERVIEW AND INTRODUCTION TO CLAIMS
An insurance contract is a document with a promise to pay if certain events happen. Since paying of claims is what insurance is all about, the ultimate test of a responsible and efficient insurer is the promptness and fairness with which it compensates the economic loss of the insured‟s and effectively indemnifies them for third party liability.

8.2. NOTIFICATION OF LOSS
Immediate to notification of loss is expected Whenever a loss occurs, it will be a condition of most policies that the insurer be given notice of the loss immediately. Depending on the wording of the notification condition, notice may be verbal or written and it may require the insured to furnish full particular the loss occurs within a stipulated period. In addition to the requirement to notify the insurer immediately, the insured is bound by the duty of utmost good faith to act as if uninsured including taking steps to minimize loss. Checking coverage Once notice of loss is received the claim official makes a preliminary check to see if valid claim exists. When making a preliminary check on a claim, the claim officially may, among others.  Condition for a valid claim  Is the policy in force?  Has premium been paid?  Is the loss caused by an insured peril?  Is the subject matter affected by the loss the same as that insured under the policy?  Has notice of loss been given without undue delay? However, if the claim official finds that a claim does not exist, the claimant will be informed of the decision and settlement proceeding will not continue.
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Claim register According to Section 47 of the Insurance Act 1996, every insurer shall maintain an up to date register of all insurance claims immediately upon the insurer becoming aware of it. The insurer claims register serves as an official record of claims notified to the insurer. The claims register could be kept either in a card form or ledger form or even in computer print out forms, since the Insurance act has not indicated any specific form of this purpose. Investigation of the claim Insurers generally appoint loss adjusters to investigate and report on claims which are large and complicated. In general, claim investigation involves ascertaining the following  Existence of loss  Loss is caused by a peril insured under the policy  Loss does not fall within the scope of an exclusion of the policy  Subject matter affected by the loss is the same as is insured under the policy  The person making the claim is the rightful claimant  Any breach of condition/ warranties by the insured which may invalidate the claim Ascertaining the amount of loss Where property is damaged or lost, the amount of loss is ascertained from proof of the value of lost items or estimates of repair, replacement or reinstatement. Frequently, a solicitor will act on behalf of the claimant, while a claim official will act on behalf of the insured in the negotiation of the claim. When the solicitor and the claim official fail to reach an agreement, the dispute may be resolved by arbitration as provided under the policy. If the insured is not satisfied with the decision made by the arbitrator, he may go to court.

8.3. SETTLEMENT OF CLAIMS
When the insurer is satisfied that the claim is in order, settlement would be effected by;  Methods of setting a claim: o Cash-payment of claim by cheque o Repair o Replacement o Reinstatement When settlement is effected by cheque, it is important to ascertain that payment is made to right claimant. Documentary evidence is needed to determine the rightful claimant. In Marine Insurance, the claimant has to produce a marine policy which has been endorsed in his favor before payment would be made. In practice, a claimant is usually required to execute a proper discharge under the policy before settlement is affected by the insurer.

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8.4.RECOVERIES FROM REINSURERS, CO INSURERS, SUBROGATION AND CONTRIBUTION
The claim settlement process will also involve making appropriate recoveries from co insurers and or reinsurers, third parties under subrogation rights and other insurers under contribution rights if such right exists.

8.5. REPUDIATION OF LIABILITY BY INSURERS
Not every claim filed by an insured will result in payment because insurers may be able to repudiate liability on several grounds. These include:  There was no loss or damaged as reported  The loss or damage for which claim has been made was not caused by a peril or was excluded by the policy  The policy has been rendered void as a result out of a breach in condition or warranty

8.6. AVERAGE CLAIM
The amount to be paid when average applies can be arrived as follows:

Amount Payable = Sum Insured/ Value of property x Amount of Loss The principle of average is therefore applied to penalize the insured who has underinsured his property. When a loss is subject to average, the insured will be considered the insurer for the proportion underinsured and therefore has to contribute to the loss. It is the duty of the agent to recognize under-insurance in order to avoid disputes arising from the application of average.

8.7. CLAIM SETTLEMENT AGREEMENT
 MIB (MOTOR INSURANCE BUREAU) The MIB shall be interpreted under the Section of RTA 1987 as the bureau which has executed an agreement with Minister of Transport to secure compensation to 3rd party victims of road

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accidents in cases where such victims are denied compensation to the absence of insurance as required under section 90 of the same Act Authorized Insurer – a person lawfully carrying on motor vehicle insurance business in Malaysia who is a member of the Motor Insurance Bureau By making specified levels of insurance compulsory and limiting the ways in which insurers can escape liability to compensate, the RTA goes a very long way to establishing this deal. It is a general desire to ensure that innocent victims of road traffic accidents should not go uncompensated. However, where a motorist ignores the legal requirements to insure or where the defect in an existing insurance contract is sufficient for the insurer to escape responsibility under the RTA, some further safeguards are required. The remedies under the RTA rely upon there being a negligent person to sue, which would not be the case of hit and run accident.

 REVISED “KNOCK FOR KNOCK” AGREEMENT
Most motor insurance subscribe to the knock for knock claims settlement agreement whereby each insurer dealt with the damage to their own policyholder‟s vehicle, if such damage is comprehensively insured, irrespective of who was responsible for the accident. The knock for knock agreement works on the principles of swings and roundabouts with each motor insurer agreeing not to exercise subrogation rights against each other and if this is arranged on a long term basis, no one insurer will gain or lose from participation in such scheme. The agreement applies to damage being caused to vehicles in connection with which indemnity is granted against damage and or third party risks by parties here to: As a result of collision or attempt to avoid collision By the loading or unloading of a vehicle By goods failing from a vehicle The main provisions under the agreement are: The application of excess (if any) The arrangement excludes the following vehicles:  Any vehicle licensed or insured for the carriage of passengers for hire or reward, such as taxies, public buses  Any vehicle licensed or insured by the owner for purposes which include driving by a hire, such as chauffeur driven taxi The agreement shall not apply to loss or damage covered by a policy for Fire Only The agreement shall apply only to accidents for which indemnity is provided under Policies issued in Malaysia, Singapore and Brunei

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Knock for knock means a claim for damage to the vehicle by an Insured against his own insurer instead of the insurer of a 3rd party vehicle which shall not affect the Insured‟s NCD, if the insurer decides that the Insured is not at fault. Such determination or fault shall be at the discretion of the insurer.

8.8. DISPUTES
Dispute between claimants and insurers generally may involve one of the two issues:  The question of whether the insurer is liable  The quantum of loss, if the insurer is liable When dispute arises, it may be resolved through the following channels;  Negotiation If the disputes to a claim that has been rejected by the insurer, the claim official will try to explain why the claim was rejected. On the other hand, if the quantum of loss, the official may try to negotiate for an amicable compromise.  Arbitration Generally arbitration is preferred to litigation because the former is speedier and less costly than court action, and hearing is in private rather than open court.  Meditation It is also known as alternative dispute resolution process. The meditation process includes investigation of the complaint through the various sources based on the facts presented, having face to face discussion, having meetings with all the parties concerned or conducting an enquiry, taking into account the industry practices, consulting legal basis before a decision is made. The central person is the Mediator. At the meditation is not usual to present witness and it may be sufficient to produce copies of documents and correspondence. For complaints, disputes or claims involving financial loss, usually there shall be a limit set.

8.9. POST – SETTLEMENT ACTION
When a claim has been paid, the insurer may take one of the following actions:  Terminate the policy  Reduce sum insurance reinstate, if requested This rule however, does not apply to marine policies and policies where there is no sum insured for example glass policies, money policies and motor policies. When the sum insured under a policy is reduced by the amount of partial loss paid by the insurer, the insured will be underinsured if the sum insured is not reinstate. The insured would therefore be advised to reinstate the sum insured by payment of pro-rata premiums.

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9. MOTOR INSURANCE CLAIM
9.1. Motor Insurance Claim Procedures 9.2. Motor Insurance Claim Products 9.3. Documentation

9.1. MOTOR INSURANCE CLAIM PROCEDURES
A Motor Insurance Policy is a document containing a pledge by the insurer that they will indemnify the insured, subject to the terms and conditions of the policy, against loss or damage which may be sustained or liability which may maybe incurred at some future time. The primary objective of the agent is to give the policy holder satisfaction where reasonably possible with due regard to his/her wishes concerning repairs In the event of an accident occurring which may give rise to a claim, the following need to be attended to;Claim Form (Accident Notification Form) This form must be completed immediately upon notification of accident. It must give a full and accurate account of the accident including all details of whatever damages sustained by our client‟s vehicle as well as 3rd party‟s damaged and also injuries sustained by whosoever. Verification A check must be made against the policy file and proposal form to ascertain whether;  The policy is in force  The particular loss/damage in question or liability incurred covered  Any excess applicable  Detail of driver – age, type of license etc. Any important part of the claim form is „witnesses‟. The evidence of independent witnesses is generally more important. Claim File  Place, time and date of accident  How did the accident occur?  Any third party property damage or bodily injury?  Extent of damage sustained by insured‟s vehicle Police Report This document is a must as it helps to give a clear picture as to how the accident occurred, besides there is less possibility that the Insured will „make up‟ a story Windscreen damage Claim The Insured must submitted either a police report or two or three original colored photographs showing the damaged windscreen to substantiate his claim Own damage Claim
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Own damage claim should be surveyed by an independent adjuster who shall compile a detailed report, indicating the repairs to be carried out and the cost involved. All applicable excess should be deducted before the net amount is arrived Total Losses A total loss arises when a vehicle has been damaged beyond economic repairs A constructive total loss arises when the probable cost of repair exceeds the market value of the policyholder‟s estimate value, whichever the less. The Insured must surrender the following documents upon settlement of a Total Loss claim;  The original RMIV registration card duly endorsed  Te original certificate of insurance for cancellation  The original Insurance policy  The duly signed transfer for – MV3 form  A photocopy of the Insured‟s identify card  Discharge vouchers duly executed by the Insured and the Hire Purchase owners  Letter of withdrawal of ownership from HP owners  A complete set of key Contribution by policy holder When repairs result in betterment, the principle of indemnity dictates that the policy holder should make an appropriate „contribution‟ to the total cost Subrogation The insurers are given the right to conduct negotiation in his name and if necessary to exercise his rights in his name against other parties in diminution of their eventual loss. Third party injury (bodily Injury) An investigator is invariably engaged to conduct a thorough investigation of the accident to ascertain the extend of the Insurer‟s liability. Normally a third party claim is intimated a few months or years after an accident is still fresh in the minds of all parties concerned.

9.2. MOTOR INSURANCE CLAIM PRODUCTS
 What to do? A report must be lodged with the Police within 24 hours of the occurrence Obtain the names and address of the witness of the accident The damaged car must be towed or driven to the nearest approved workshop. Photographs of the damage should be taken and submitted together with the estimated cost of repairs If a third party vehicle is involved, note of registration number, make of the vehicle, the nature of damaged sustained and the Insurer concerned If a third party is injured, not the injuries sustained

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 What not to do? The insured should not instruct the repairs to commence repair works unless an inspection of damaged vehicle has been conducted by the Insurer‟s representative Under No Circumstances should the Insured admit liability without the Insurer‟s consent or answer any correspondence from the 3rd party or his representative either verbally or in writing The insured should not write „refer to Police Report” as an answer to any of the questions asked in the motor accident form. All questions must be fully and correctly answered. A full and detailed description must be stated in the said form.

9.3. DOCUMENTATION
 Windscreen Claim Duly completed motor accident report form Photographs of damage windscreen Copy of police report lodge by the Insured/ driver of vehicle if any Bills for the cost of replacement  Own Damage Claim Duly completed motor accident report form Police report lodge by Insure Estimate of repairs cost Photographs of damage vehicle Notice of intended prosecution issued by the police Copy of registration card Copy of Driving License of Insured/driver Copy of I/C of Insured /driver Photocopy of road tax disc Photocopy of certificate of insurance  Theft Duly completed motor accident report form Police report Original Certificate of Insurance and cover note for cancellation Full set of keys to vehicle Registration card Signed MV3 form Letter of Release of Ownership by HP Co, if HP is involved Copy Insured‟s identification card.

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MOTOR INSURANCE CLAIM FLOW CHART
OCCURENNE

NOTIFICATION TO INSURER OWN DAMAGE CLAIM THEFT CASES THIRD PARTY PROPERTY OR INJURY CLAIM

WINDSCREEN DAMAGE CLAIM

ADJUSTERS TO SUUURVEY

SUBMITS POLICE REPORT OR PHOTOGRAPHS AND BILLS

3 TO 6 MONTHS WAITING PERIOD. INVESTIGATION BY ADJUSTER

FORWARD ALL THIRD PARTY NOTIFICATION TO INSURER

APPROVAL INSURER

BY

OFFER BY INSURER

INSURER OFFER OF SETTLEMENT

INSURER TAKES OVER CONDUCT OF THE MATTER

CAR RELEASED TO INSURER AFTER REPAIRS

CLAIM PAID

CLAIM PAID

INSURER PAYS REPAIRER

INSURER REPUDIATES CLAIM

NEGOTIATION INSURER

WITH

FILE CLOSED

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10. NON MOTOR CLAIMS
10.1. Public Liability Insurance 10.2. Fidelity Guarantee Insurance 10.3. Personal Accident Insurance

10.1. PUBLIC LIABILITY INSURANCE CLAIM PROCEDURES  NOTIFICATION
 On receipt of the notification, ascertain whether insurer is on risk for the particular event and location  Get full details of the circumstances of the loss/accident for insurer to decide whether an investigation/ adjuster should be appointed  Send a claim form for the insured‟s completion.

 COVERAGE
Subject to proof of negligence by third party claimant, the insured will be indemnified against: a) All sums insured shall become legally liable to pay third party in respect of: Bodily injury/illness to any person Loss of/damage to property b) All costs and expenses of litigation Recoverable by third parties Incurred with the company‟s written consent

 DOCUMENTATION
 The third party claimant will need to prove that the insured, his servants or agents acting on his behalf have been negligent He will also need to prove the amount of his loss/extend of his damage/ seriousness of bodily injury sustained by submitting documentary evidence to this effect  Original police report  Photographs of the damage/injury sustained  Reports/ opinion by the experts Doctors Chemist Accountants Engineers Lawyers  The proof of cost incurred

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 To ascertain Insurance liability, the following documents should be obtained;  The claim from duly completed by the Insured  Adjusters/investigator‟s report  Statements from witnesses  Outcome of police investigations  Police photographs

 DEFENCES
To establish whether the insured was really at fault and whether there are any defenses available to him;  Every reasonable precautions have been taken  The accident was caused by latent defect which could not be discovered by ordinary examination  The injured person disregarded a notice of warning  The location/machinery that caused the accident was where the injured had no right of access  The accident was caused by an authorized act of a stranger  There was contributory negligence on the part of the injured.

 LIMIT OF INDEMNITY
Public liability policies are subjected to the following limits of indemnity a) Any one accident The maximum amount the company would be liable with regard to a particular event/accident b) Any one period The maximum amount the company would be liable to pay for all the claims which may occur within the policy period.

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PUBLIC LIABILITY CLAIM FORM CHART
OCCURENCE REPORT AUTHORITY TO POLICE

THIRD PARTY PROPERTY DAMAGE

THIR PARTY INJURY

BODILY

REPORT TO IMMEDIATELY

INSURER

INSURER INVESTIGATES CIRCUMSTANCES OF OCCURENCE

INSURER REPUDIATES CLAIM

ADVISED INSURED BOT TO ADMIT LIABILITY AND FORWARD ALL CORRESEPONDNCE TO INSURER

NEGOTIATES/INSURER MAINTAIN STAND

FILE CLOSED
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10.2. FIDELITY GUARANTEE INSURANCE CLAIM PROCEDURES
 NOTIFICATION Immediate notification must be given to Insurance Company as soon as a default by an employee comes to the knowledge of the insured. A police report must be lodge immediately and insured must extend fullest cooperation to the police authority to ensure conviction of the defaulter. Suspected employees should be suspended immediately to facilitate thorough investigation into the loss.  DOCUMENTATION Internal report on the circumstance of the loss Original police report Documentary evidence to substantiate the loss All necessary steps should be taken by the insured to recover whatever loss suffered from the defaulter. The insured should cooperate with the Police authority to ensure conviction of the defaulting employee.  PROCEDURES As soon as a default comes to the knowledge of the insured, the matter should be reported to the Insurance Company immediately A report must be lodged with the police The defaulting employees should be suspended from duties until investigation are completed when disciplinary action may be taken. In addition, all ones due to him should be withheld to minimize the loss. The Insured should take the necessary steps to seek recovery from the defaulting employee under the law so that the Insurer‟s right of recovery would not be prejudiced.

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FIDELITY GUARANTEE INSURANCE
OCCURRENCE/INCIDENT

IMMEDIATE NOTIFICATION INSURER DISCOVERY

TO UPON

ADJUSTERS APPOINTED TO INVESTIGATE

REPORT TO AUTHORITY

POLICE

ASSIST POLICE TO ENSURE CONVICTION OF DEFAULTING EMPLOYEE

INSUREE REPUDIATES CLAIM

SUBMIT ALL DOCUMENTS

RELEVANT

INSURER MAKES OFFER FOR SETTLEMENT

PURSUE RECOVERY FROM DEFAULTING EMPLYEE

NEGOTIATES/INSURER MAINTAIN STAND

INSURER PAYS INSURED

FILE CLOSED

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10.3. PERSONAL ACCIDENT CLAIMS PROCEDURES
 NOTIFICATION The policy covering the insured exists and in force The nature of injury is covered by the policy  CLAIMS DOCUMENTATION  Bodily Injury  Claim Form duly completed and signed  Original Police Report  Medical Report  Medical Chits  Original Medical Bills  Adjusters‟ Report  Police Report  Death  Claim Form duly completed and signed  Death certificate/ Burial certificate  Post Mortem report  Letters of Administration  Instruction from Pemegang Amanah Raya  Original Policy  Adjusters‟ Report  Police Report  ADJUSTERS Adjusters are usually sent for cases where there is death, suspicion of exaggeration of a serious injury, or where there is suspicious of fraud involved

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PERSONAL ACCIDENT INSURANCE CLAIM FLOW CHART
OCCURRENCE OF AN ACCIDENT IMMEDIATE TO INSURER BODILY INJURY NOTIFICATION FATAL ACCIDENT

REQUEST FOR MEDICAL REPORT AND OTHER RELEVANT DOCUMENT

REQUEST FOR POST MORTEM REPORT AND OTHER RELEVANT DOCUMENTS INSURER OFFER MAKE ADJUSTER SUBMIT REPORT TO INSURER

OFFER TO CLIENT

OFFER TO BENEFICIARY/ ADMINITRATOR

INSURER REPUDIATES CLAIMS

CLAIM SETTLED

NEGOTIATION/INSURER MAINTAIN STAND

FILE CLOSED

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11. CUSTOMER SERVICE
11.1. Insurance Industry and the Consumer 11.2. Self Regulation 11.3. Purpose of Regulation

11.1 . INSURANCE INDUSTRY AND THE CONSUMER
According to the International Consumer Movement, consumers have 8 basic rights and they include:  Right to satisfaction  Right to information  Right to choose  Right to basic goods and services  Right to be herd  Right to redress  Right to consumer education  Right to save and clean environment. The solvency „issue coupled with the problems of unfair trade practices and inefficient operations has generated adverse publicity for the industry and subsequently fueled consumer criticisms and pressures against the insurance industry. In this regard, the industry has, among other things, been criticized for:       Unreasonable delay settlement of claims Unfair claims settlement Operating at high marketing costs, collisions and price fixing Poor service Providing incomplete and false information resorting to pressure selling Lack of professionalism

11.2. SELF REGULATION
Self regulation has been introduced by the insurance industry with the two-fold objective to:  Instill discipline and promote healthy competition in the industry  Provide some element of protection to insurance consumers. For General Insurance business, the main associations: o PIAM o MITBA/IBAM o AMLA

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For Life Insurance, the main association is: o LIAM PIAM and LIAM are most actively involved in self regulation of general insurance business and Life Insurance business respectively. Other than rules and regulation which control the conduct of their members, the associations have initiated self regulatory measures such as the various Inter-Company Agreement and Guidelines. To instill a better level of discipline and professionalism in the work force in the general insurance industry, PIAM established a „Code of Ethics and Conduct‟ in 1991. LIAM has formulated a Code of ethics and Conduct for members companies and deals with the following aspects of life insurance business: o Life insurance selling o Life insurance practice

11.3. PURPOSE OF REGULATION
The main purposes of regulation include:  The protection of public interest o By ensuring that the insurer is financially solvent and able to meet its obligations to its policy owners and claimants  The promotion of fairness and equity o Ensure that insurers, insurance brokers and adjuster are fair and equitable in their dealings with their clients and claimants  The fostering of competence o Insist of high level of professional competence and integrity of insurers, insurance brokers and adjusters  The playing a developmental role o Encourage the insurance industry to take an active part in the economic development of the country.

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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
(a programme managed by Institut Bank-Bank Malaysia)

LEVEL 1, DATARAN KEWANGAN DARUL TAKAFUL 4, JALAN SULTAN SULAIMAN 50000 KUALA LUMPUR

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