General Insurance. Introduction Analyse general insurance contracts: –the perils that are covered, –the excluded perils, –the extensions and warranties.

General Insurance

• Introduction

• Analyse general insurance contracts: – the perils that are covered, – the excluded perils, – the extensions and warranties that are

applicable – avoidable pitfall.

• Nature of General Insurance Contracts• General insurance contracts

– short-term contracts, – renewable by mutual consent at the end of the terms. – issued for a term of one-year or less. – the dynamic nature of risk prompts insurers to reassess the risk

• insurer to vary the premium and other terms and conditions; • the insured take up the new proposal or place the risk elsewhere.

• Utmost good faith - providing material information. – material changes must be duly and promptly notified to the insurer

concerned; – failure to do so might void an ensuing claim.

• Contracts of indemnity. – the insured value determined at the end of the contract. – make sure the insured does not profit from insurance.

• Provided the total loss paid does no exceed the sum insured, the contract is not terminated by a claim. – further claims may be made.

• Risks may decrease over time, – brought about by the introduction of risk reduction procedures.

• Important Considerations in Managing a Client’s General Insurance Portfolio

• i). Contractual Features– What properties and what losses are covered?– What perils are covered and excluded?– Are the covered perils necessary?– Are the excluded perils financially insignificant?– Warranties and voidable claims– Impact of changes in the risks being covered

• ii). Excessive Premiums?– Over insurance– Not accepting suitable levels of self-insurance, i.e. deductibles– Insuring with insurers who charge uncompetitive premiums

• iii). Claims notification and settlement• A clear understanding of:

– Precedent conditions– Subsequent conditions – Needed documentation for claims processing.

• iv). Underinsurance– Improper assessment of probable losses; and in the extreme, not insuring a

major risk – Excessive self-insurance– Excessive risk taking

General Insurance Contracts• Property Insurance Contracts

– Fire Insurance– Consequential Loss Insurance– Householders and Houseowners Insurance– Burglary Insurance– *Personal Accident Insurance– *Miscellaneous Accident Insurance – *Fidelity Guarantee and Bonds Insurance– *Engineering Insurance- – *Aviation Insurance– *Marine Insurance

• Motor Insurance Contracts– Act only Cover– Third Party Bodily Injury and Property Damage Cover– Comprehensive Cover

• Liability Insurance Contracts– Public Liability– Directors and Officers Liability– Professional Indemnity– Product Liability

Fire Insurance Contracts• Perils Covered - Fire• Loss or damage to buildings and its contents, brought

about by:– Fire– Lightning– Explosion– Damage by water or other extinguishing agents used to put out

the fire– Damage resulting from gaining access to a fire– Smoke damage caused by fire

• If the building is insured on a replacement value basis– insured compensated or indemnified for the repair or

replacement costs• Or Current value basis

– take into account depreciation.

• Excluded Perils - Fire – Loss by theft during or after the occurrence of a fire.– Arson by the Insured.– Collapse of buildings.– Subterranean Fire.– War & Civil Commotion.– Radioactive contamination.– All forms of indirect (consequential) losses are

excluded. • rental can be included if specifically insured.

• Extensions - Fire• Special perils - not covered in a standard policy,

– may be covered subject to the insurer’s agreement and payment of an appropriate additional premium.

Fire Insurance Extensions.pdf

• Extent of Cover – Fire• Building and / or Plant and Machinery• Market valuation basis of assets.

– Market value -price the insured property may fetch in the market at the time of loss.

• Reinstatement value basis. – compensation amounts are derived by ignoring depreciation. – required to declare the reconstruction value or replacement

value of the building and/or machinery in the proposal form. – no enhanced or improved features– ensure that the replacement or reinstatement are carried out

within a certain period, usually one year• Stocks and Work-in-progress• Trading risks,

– stocks based on the purchase price of the raw materials. • Manufacturing risks,

– the purchase price of raw materials and the cost of production of finished and unfinished goods.

• Risk Factors - Fire

• Design and materials used in the construction.

• Building classifications :– Fire Insurance-Building Categorisation.pdf

• Other important rating factors – the location, age and purpose or the nature of

activities undertaken – claims history.

Consequential Loss (Fire) Insurance Contracts

• Subject to the existence of a fire (material damages) insurance.

• Provides cover against losses that follow from the destruction of physical assets covered under a normal fire policy. – Eg. a loss in goodwill that might have been nurtured

over time.• Protect the earning capacity

– making good the loss of profits, – enabling an insured to meet overheads and

consequent increases in expenditure.• Excluded Perils - Consequential Loss• Similar to those in the fire policy.

Householders and Houseowners Contracts

• Scope of CoverScope of Cover• Houseowners - cover for BUILDINGS (Private Dwelling).• Householders cover for CONTENTS within the Private Dwelling.• Section 1 Section 1 Loss or damage due to

– Fire, lightning, thunderbolt and subterranean fire– Explosion– Aircraft or other aerial devices and/or articles dropped there from – Impact damage caused by road vehicle, horses / cattle not belonging insured.– Bursting or overflowing of domestic water tanks, apparatus or pipes – Theft by actual forcible and violent breaking into and out of building.– Hurricane, cyclone, typhoon, windstorm– Earthquake, volcanic eruption – Flood caused by earthquake or volcanic eruption or by hurricane, cyclone,

typhoon• Section 2Section 2

– Loss of rent –loss or damage by the above perils– Public liability –legal liability up to RM50,000.00.

• Extensions – Householders & Houseowners• Subject to the insured’s agreement and payment of additional premiums :• Peril % Additions• Riot, Strike & Malicious Damage - 0.010%• Subsidence & Land slip - 0.081%• Plate Glass not exceeding - 0.050% on the total building

value• RM1,000 per piece in value• Non-occupancy in excess of 90 days - 0.050% per month on

total Sum Insured• Full theft - 0.250%• Additional Rent Insurance - 5% loading on increased limit

to 15%• The following perils may also be covered:

– Removal of debris resulting from an insured peril– Damage due to trees, shrubs, plants and lawns; – Costs incurred in loss assessment;– Collapse of building (from specific perils ) which might arise due to hidden decay,

hidden insect or vermin damage, weight of contents, weight of rain on a roof, defects in materials during construction;

– For rented property, damage to landlord’s furnishings ; and– Damages to building additions and alterations in the course of carrying out

improvements to the insured property.

• Extent of Cover – Householders & HouseownersExtent of Cover – Householders & Houseowners• Building, the amount insured - the market value of the property insured.

– Reinstatement value basis, the amount insured - cost of reconstruction.• Contents are to be insured on the market value.

• Rating Factors – Householders & HouseownersRating Factors – Householders & Houseowners• Moral risks• Household goods and personal effect valued > 5% total sum insured must

be declared.• All Household goods or personal effects must be insured and not just

selected items.• Full theft extension must not be extended unless with the Company’s

approval.• Jewelleries or personal effects > RM3,000, official receipt must be

submitted • Total value of gold, jewelleries and furs must not exceed 1/3 of the total sum

insured. • Excluded PerilsExcluded Perils • Building other than Class 1 construction for householder policy• Building located on slope or on top of hills or in flood prone and windstorm

area• Contents with large amount of jewellery, antiques, work of arts, stamps and

coins• Building which are not occupied

Burglary InsuranceBurglary Insurance• Scope of CoverScope of Cover• Loss by theft consequent upon actual forcible and violent breaking

into or out of a building• Damage to the property insured and premises as a result of theft• Access to premises using original/duplicate keys can be covered

under a “Full theft extension clauses” with additional premium.• PremisesPremises• Confined within the Insured’s building excluding any yard, garden,

out-building.• Property InsuredProperty Insured• Stock in trade belonging to the Insured• Goods held in trust or on commission.• Trade fixtures, fittings and utensils, office equipment and furniture• Rating: Rating: • Full Value BasisFull Value Basis• Adopted when there exists a possibility of the entire insured

property being stolen at anyone event . – subject to “Average” all property to be insured– will not be fully indemnified if the property is under insurance.

First Loss BasisFirst Loss Basis• If not possible for the entire insured property to be stolen at anyone

event. • The rate on the amount represent the maximum potential loss - Subject

to at least 10% of the total value of the stock. • Required to declare the correct total value at risk, as average will apply if

there is under declaration of the total value.

• Rating BasisRating Basis• selected rate x Sum Insured. • selected rate based on the experience of the Underwriter :-• the attractiveness of the property insured• the security of the premises• the location of risks• the portability and disposability

All Risks Insurance

• Wider protection than that under houseowner and householder insurances.

• Taken out on particularly expensive items such as jewelry, cameras, expensive designer clothes, paintings, antique furniture and work of art.

• Typical considerations : -– excluded perils– the situation or geographical location where cover is provided– evidence of value at purchase of jewellery and the requirements

for their safe keeping– methods of indemnification of losses– under insurance and policy averaging– effect of claim payments on the sums insured during the period

of insurance.

Motor InsuranceMotor Insurance

• Scope of CoverScope of Cover• Act coverAct cover• The minimum cover required ( Road Traffic Ordinance) is death or injury to

third party as a result of the negligence of the insured. The amount covered is unlimited.

• Third party coverThird party cover• Act cover + Indemnity for liability for damage to property belonging to third

parties• Third party, fire and theft coverThird party, fire and theft cover• Act cover + Third party cover + Indemnity in the event that the insured vehicle is

stolen or damaged by Fire.• ComprehensiveComprehensive• Widest form of cover. Act + Third party coverage + physical damage to the insured

vehicle and its spare part following accidental collision + other perils specifically covered in the policy.

• Classes of motor insuranceClasses of motor insurance• The 3 classes of motor insurance under the Motor tariff are: -• Private motor car• Motor cycle• Commercial vehicle• Sum AssuredSum Assured• Proposer’s estimate of the vehicle and its accessories and reflect the market value.• Depreciation must be taken into account.

• RatingRating• Subject to ICAGIB (Inter-Company Agreement General Insurance

Business), premiums subject to Motor Tariff.

• Private Motor CarPrivate Motor Car• Comprehensive premium is calculated based upon• - sum insured• - the cubic capacity of the car• Third party premium - just need to know the cubic capacity of the car .

• Commercial vehicleCommercial vehicle• Exact type of vehicle must be known. Comprehensive premium is calculated

based on: -- sum insured, tonnage, Business permit • For third party cover, the sum insured need not be known.

• Motor cycleMotor cycle• The comprehensive premium is calculated based on:• - the cubic capacity of the vehicle• - the sum insured• - whether for single or all riders or commercial usage• third party premium - sum insured need not be known and the premium is

tariffed.

No Claims Discount System.

• Experience Rating• No Claims Discount System.• The premium payable may be reduced if you have no-

claim-discount (NCD) entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy during the preceding 12 months of policy.

Period of Insurance DiscountAfter the first year of InsuranceAfter the second year of InsuranceAfter the third year of InsuranceAfter the fourth year of InsuranceAfter five or more years of Insurance

Discount25%30%38 1/3%45%55%

• Cash before coverCash before cover• Under the Insurance Act 1996, all motor transactions are

subject to "Cash Before Cover" or CBC basis.• This means that the premiums must be paid before a

motor insurance cover note or policy can be issued.

Underwriting ConsiderationsUnderwriting Considerations

Insurance policy • With the implementation of e-cover note in 2005, insurance

companies will transit motor insurance information electronically to the Road Transport Department (RTD) and you will receive confirmation slip containing details of your motor cover as confirmation of the purchase of your motor insurance. Thereafter, within one month, you should receive:

• the Schedule which shows your name and address, details of the vehicle, the sum insured (for comprehensive and third party fire & theft policies), the period of insurance, the policy number, your NCD entitlement, premium breakdown, excess and named drivers;

• the certificate of insurance which shows your name, vehicle model, registration number and cubic capacity, period of insurance, authorised drivers and limitations of use; and

• a motor policy which shows the terms and conditions of cover provided by your insurance company.

• Windscreen cover may be granted at inception of cover – Cover is requested during the currency of the Policy, a survey

must be conducted. – Additional premium at 15% of windscreen value

• Passengers liability cover • Payment of an additional premium of 25% of the premium

charged for the third party cover. • Seating capacity in excess of 4 passengers, an amount of

RM10.00 per passenger after the 4th passenger would be charged

• Medical expenses and personal accident cover are excluded. • Extended coverage by payment of additional premium of

RM20.00 per person

• Strike, riot, civil commotion cover - granted with additional premium of 0.30% of the sum insured.

Extensions to basic coverExtensions to basic cover

Public Liability Policy

• Indemnifies an insured – in respect of legal liability to third parties for death,

bodily injury (including illness), – any loss of or damage to the property, in the process

of carrying out the business.

• Liability insurance – protects the insured’s assets – pay for a legal defense in the event of a lawsuit, – pay medical and/or property claims that is found

legally liable, up to the limits– purchased as part of a package policy or a separate

policy

• Perils Covered – Public Liability

• indemnify the insured within the Limit of Liability in respect of: -

• a) All sums, shall become legally liable to pay for compensation in respect of – accidental bodily injury to, any person, – accidental damage to property caused on or

about the premises stated in the Schedule.

• b) All costs and expenses of litigation recovered by any claimant or claimants.

• Additions to Standard Covers – Public Liability

• Fire and explosion other than boiler or pressure vessel explosion.

• Food and drink poisoning.• Social and sporting activities.• Temporary visits overseas.• Plant and machinery.• Non-owned vehicles.• Loading & unloading• Employees’ actions.• Guests’ actions.• Directors and employees actions.

Professional Indemnity Policy

• Protect a professional as a result of alleged neglect, error or omission on the part of the insured or his employee.

• Professional capacity is seen by clients as an expert. – Clients will sue if they received sub-standard service.

• Perils Covered – Professional Indemnity• Cover legal costs incurred

– with prior permission of the insurer.

• Extent of Cover – Professional Indemnity• A realistic view is taken of the potential damages and

legal costs. – under-insured – financially disastrous.

• Exclusions – Professional Indemnity• 1. Libel or slander• 2. Arising out of dishonesty, fraud, criminal or malicious act or

omission by the insured, or his predecessor or employees• 3. Resulting in contamination by radioactivity• 4. Claim from or is indemnified by any other policy.• 5. Infringement of patents and copyrights. • 6. Liabilities assumed by the insured by agreement. • 7. Loss of any document /data/ information, losses sustained

on account of time spent in investigation of cause of damage and claims for such losses sustained.

• 8. Deliberate, willful, or intentional non-compliance of any statutory provision.

• 9. Fines, penalties, punitive or exemplary damages or any other damages resulting from the multiplication of compensatory

damages. • 10. Any losses arising out of war and nuclear risks.• 11. Loss of use or loss due to delay.

Directors' and Officers' Liability Insurance Policy

• Designed specifically to meet any financial liabilities.

• The directors and officers are bound by duty towards the company itself, shareholders, employees, creditors, customers, competitors, members of the public, government and other regulatory bodies. – Any breach or non-performance in the duties can

result in claims of any wrongful act in their respective capacity.

• Directors’ and Officers’ Liability Exposures• Failure of supervision.• Inaccuracy in statements of financial accounts.• Lack of judgement and good faith.• Mismanagement of funds.• Mis-statements in prospectuses.• Allotment of shares.• Unauthorised loans or investments.• Failure to obtain competitive bids.• Imprudent expansion resulting in a loss.• Using inside information.• Unwarranted dividend payment, salaries or compensation.• Misleading statements filed with the stock exchange.• Misrepresentation in acquisition agreement for the purchase of

another company.• Wrongful dismissal of an employee.

• Perils Covered - Directors’ and Officers’ Liability Insurance

• Mergers, takeovers and divestment.• Liquidation.• Changes in control of shareholding.• Share issues.• Shareholder claims.• Misdeeds of co-directors.• Trustee accountability and responsibility.• Customs and excise allegations.• Administrative liabilities.• Termination of employment.• Disposal of old firm/ entry of new owners.• Miscellaneous litigation.

Product Liability Policy

• Legal liability to pay damages consequent upon a defective product being used in a contract.

• three types of product defects a company is faced : • a) Manufacturing or Production flaws,• b) Design defects,• c) Defective warnings or instructions.• Retailers are also subject to lawsuit for alleged negligence.• Indemnities and Extensions• Indemnity

– chosen by the insured – premiums will be based on this amount.– expenses of litigation.

• Extensions - product guarantee and product recall. • Exclusions• a) war risks • b) radioactive and related risks and • c) natural perils.• d) design defects and others viewed as business or trade risks

Workmen’s Compensation InsuranceWorkmen’s Compensation InsuranceWorkmen’s Compensation Ordinance 1952

– Employers are legally obligated to insure their employees– No longer applicable to employees who are SOCSO members

under the Employees Social Security Act 1969.Scope of CoverScope of Cover• To pay out death or injury benefits.• Also indemnify the Employer (Insured) if sued by employees for

negligence.DefinitionDefinition• “Workman” as defined in the Ordinance means any person who has

entered into or works under a contract of service or of apprenticeship with an employer whether by way of manual labour or otherwise.

• Persons are exempted from this definition: -• Non-manual works whose monthly earnings exceed RM 2,000.00• Casual Workers• Domestic servants• Armed & police forces• Any member of family of the employer who lives with him/her

Employer’s Liability InsuranceEmployer’s Liability Insurance• For those categories of employees not protected by the Workmen’s

Compensation Acts or SOCSO, • Scope of CoverScope of Cover• Indemnity to the Insured (the Employer) against liability at law for

damages and claimant’s cost and expenses in respect of bodily injury or disease sustained by any person arising out of and in the course of his employment in the business.

• An Employers’ Liability at law for accidents to his employee can arise out of the following: -

• His personal negligence• His negligence in failing to exercise reasonable care in providing

and maintaining suitable and safe plant.• His negligence in failing to exercise reasonable cares in providing

safe place of work• His negligence in failing to exercise reasonable cares in engaging

suitable and competent employees• Breach of employer duty laid on him • Sum InsuredSum Insured• The sum insured is based on the estimated annual wages of all the

employees.

• Personal Accident policies - by individual • Policies can also be issued covering groups of individuals.• Scope of CoverScope of Cover• Supplement to life insurance, it provides protection against death or

disability caused solely by violent, accidental, external, and visible means.

• on 24 hours basis, Worldwide. • Travelling by scheduled flights only is automatically covered.• Not a contract of indemnity, sum assured are payable irrespective of

other policy. • Medical expenses-on a reimbursement basis as per medical bills.• DEATH 100% of Capital sum insured• PERMANENT TOTAL DISABLEMENT % of Capital Sum • TEMPORARY TOTAL DISABLEMENT Weekly benefits (not exceeding

75% of weekly earnings) subject to a maximum of 104 weeks• TEMPORARY PARTIAL DISABLEMENT Weekly benefits [not exceeding

50% of (Temporary Total Disablement) above] subject to a maximum of 104 weeks.

• Medical Expenses - Specified limits insured• The aggregate shall not exceed 100%.

Personal Accident/Group Personal AccidentPersonal Accident/Group Personal Accident

It covers money in transit and money in premises against loss or destruction by any robbery, hold up or theft.•Scope of CoverScope of Cover•Money in TransitMoney in Transit•Loss or damage whilst in transit from banks to the Insured’s premises or contract sites and in respect of wages and/or salaries.•Money in PremisesMoney in Premises•Loss or damage by theft from a locked safe or by hold-up. •Damage to the safeDamage to the safe•Loss or damage to the safe or strong room resulting from the theft or attempt thereat.•Definition of MoneyDefinition of Money•Cash, Bank Notes, Cheques, Money order, Postal orders, and Bills of exchange, Postage and other stamps having monetary value.•Business Hours: The period during which Premises is actually occupied for business purposes with Money is in the Premises.

Money InsuranceMoney Insurance

• Premium RatingPremium Rating• Based on the estimated annual carryings.

– rated on the limit of indemnity required.• (a) Money in transit between the bank & the insured’s

premises• Acceptability of risk & rates : -

– Occupation or trade of the risk.– Distance between Insured’s premises & bank.– Maximum amount carried at any one time.– Frequency of carryings.– Adequacies of protection.

• (b) Money in Premises– Money in locked safe or strong room. – Depends on locality, security of premises e.g. presence of

burglary alarms, locked bars & quality of safe.– Money in Locked Drawers (Cover should never be granted)

Money InsuranceMoney Insurance

Fidelity Guarantee InsuranceFidelity Guarantee Insurance

• Coverage granted if the other classes of insurance being placed with the Company.

– exercise prudence in selecting risks as high moral hazard involved,.

• Scope of CoverScope of Cover• Indemnify against loss of monies, negotiable

instruments or goods as a result of dishonesty of their employees.

• Examples of Dishonesty: -• Theft, misappropriation of funds, false conversion of

stock or forgery. • The acts of fraud or dishonesty must be committed: -

– during the period of insurance– during the uninterrupted continuance of employment of

the said employee– in connection with the occupation & duties of the said

employee.

Contractor's All Risks InsuranceContractor's All Risks Insurance

• Offer protection against loss or damage for contract works to be performed, construction plant and equipment and/or construction machinery, and against third party claims for damage or bodily injury arising in connection with the execution of a project.

• Scope of CoverScope of Cover• Fire, lightning and explosion.• Natural Hazards such as earthquake, volcanic eruption,

windstorm, cyclone• Impact and aircraft damage.• Flood, subsidence, landslide & rock slide.• Theft, burglary.• Bad workmanship, lack of skills, negligence, malicious acts or

human error.• Wilful & Malicious Acts.

• Scope of CoverScope of Cover• BANK GUARANTEE or INSURANCE GUARANTEE. • The guarantee is given by a surety to accept responsibility for the

performance of a contractual obligation • Tender BondTender Bond• Gguarantee that the contractor enter into the Contract at the terms that he

has submitted to the Principal. – Unable to maintain his quotation, the Bond will be liquidated to indemnify the

Principal for the damages sustained up to the amount of the bond.• Performance BondPerformance Bond• Ensure that the Contractor fulfils his contractual obligations within the

period specified. – If the Contractor does not complete the contract within the period specified

then the Bond or Guarantee is liquidated.• Advance Payment BondAdvance Payment Bond• Principal required the surety to guarantee that the advance payment made

to the contractor is invested in the pre-financing aspects of the contract, • Principal is insuring credibility of the Contractor.

Bond UnderwritingBond Underwriting