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Fire Insurance Clauses

Based on the Malaysian Revised Fire Tariff (RFT), there are easily 40 clauses available for use in the Fire Insurance Policy. Many queries were raised by Agents as to why Insurers do not voluntary incorporate these clauses into the client's fire insurance policy unless requested in writing.

Honestly speaking, Insurers had nothing to hide from the Agents/Clients, as majority of these Clauses are pre-printed in the policy jacket for all to read. Agents should take the initiative (forget the layman) to refer to the RFT for the relevant Clauses and request be made to incorporate same into the policy when submitting the proposal or renewal to the Insurers. As long as these Clauses are approved by BNM and relevant to the subject matter insured, there are no reasons for Insurers to reject such request.

Technically, there are 3 categories of Clauses that Agents should take note.

1st Category (Premium is charged on inception)

Escalation Clause (to cater to the subsequent appreciation in value of the subject matter)
Public Authority Clause (by topping up the SI to cater to the requiremnent of new building by-laws etc)
Removal of Debris Clause (by topping up the SI to cater to the cost of removing the debris or insured as a separate item)
Architect , Surveyor & Consultant Fees (by topping up the SI to cater to all professional fees incurred or insured as a separate item)
Reinstatement Value Clause (by topping up the SI to cater to further increase in the reconstruction cost)
Contract Price Clause (by topping up the SI to cater to the profit margin for goods manufactured but not delivered)
Outbuildings Clause (by topping up the SI to cater to ancilliaries like fences, gates, guard post etc)


2nd Category (Premium is charged /refundable upon declaration)

Capital Addition Clause with minimum SI RM 1.5Mil (declaration to be made within 3 months)
Stock Declaration Clause (monthly declaration)
Reinstatement Value-Day One (declaration at the end of 12 months)
Internal Removal Clause (retospective from the date of removal or oversight)

3rd Category (Free of Charge)

Other Contents Clause (Limit R1,000)
Designation Clause
Appraisement Clause (5% of SI or RM5,000 the lower of)
Temporary Removal Clause
Temporary Storage Clause (Limit R500,000 up to 60 days)
Alteration & Repair Clause
Mortgagee Clause / Automatic Renewal Clause
Hire Purchase Clause
Computer Systems Records Clause
Vehicle Load Clause

The questions now are:

"What" Clauses should be applied to the Building or to the Machineries or to the stock in trade or across the board etc? and

"Why" these Clauses are so important to the clients? To be continued

Loss estimates rise for Typhoon Fanapi

Taiwan:

Typhoon Fanapi, the worst storm tohit Taiwan this year, inflicted damage estimated at NT$3 billion (US$95 million) in industrial parks in the south of the island on Sunday, according to preliminary estimates by the Ministry of Economic Affairs.


Updated Asia Insurance Review 22/9/2010


Another act of God catastrophe!!! After earthquake in Christchurch, NZ now Typhoon in Taiwan.

Govt reports initial loss estimate from Typhoon Fanapi Taiwan's agriculture sector has suffered losses of NT$267 million (US$8.43 million) so far from Typhoon Fanapi, which landed on Taiwan on Sunday and is the most powerful typhoon to batter the island this year, according to a statement by the Council of Agriculture, the island's farming regulator.


Asia Insurance Review 21/9/2010

Room to grow in life insurance sector

Malaysia's insurance market remains largely untapped with the average sum assured being less than MYR50,000 (US$16,000), and more can be done to raise the level of awareness of insurance, reports the Bernama news agency.


Asia Insurance Review 10/9/2010

Costs of Saturday quake at Christchurch, N.Zealand could total US$1.4 bln.

New Zealand:

The cost of damage from last Saturday's devastating 7.1-magnitude quake in Christchurch, New Zealand's second largest city, could be as much as NZ$2 billion (US$1.44billion), according to media reports from New Zealand.


Asia Insurance Review 4/9/2010

More taking up health insurance

Malaysia: 

Rising medical costs have prompted more Malaysians to purchase multiple health insurance policies, with some even extending their cover up to the age of 100, reports the Star newspaper.

A check with several major insurance firms showed good demand from the working population on extending their medical cover until at least the age of 80.

So Agents, take this opportunity to push for more sales

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Interested, call steven 012-3373837

BNM issues 4 family takaful licences

Following the announcement made at the end of April 2009 on the issuance of two family takaful licences under liberalisation of the financial services sector, Bank Negara Malaysia (BNM) received several strong applications for the family takaful licences and has decided to
approve four takaful joint ventures involving:

i)     AIA Bhd (70%) and Aliance Bank Malaysia Bhd (30%)
ii)    AMMB Holdings Bhd (70%) and Friends Provident Group pls UK (30%)
iii)   ING Management Holdings Sdn Bhd (60%), Public Bank Bhd (20%) and Public Islamic 
       Bank Bhd (20%)
iv)   The Great Eastern Life Assrance Co Ltd (70%) and Koperasi Angkatan Tentera Malaysia
       Bhd (30%)

Previously there were 8 existing takaful operators in Malaysia, namely CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, HSBC Amanah Takaful sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Sykt Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

An industry observer lauded BNM move. With more takaful players coming in, competition will be steeper but customers can enjoy better pricing for the takaful products.

The penetration for takaful in Malaysia is around 10% compared with oventional insurance which stands at around 40%.

StarBiz 2/9/2010

Road accidents result in economic losses of nearly US$3 bln in '09.

Malaysia:

Road accidents are exacting a heavy price toll on Malaysia, causing the economy losses of about RM9.3 billion (US$2.96 billion) last year, reports the Bernama news agency citing Road Safety Department Director-General, Mr Suret Singh. The figure represents about 1.5% of the country's GDP.



Asia Insurance Review 31/8/2010

Basics of Fire Insurance

The Fire Insurance Policy states:


"In consideration of the Insured named in the schedule hereto paying to the abovementioned Company (hereinafter called ABC Insurance Co Bhd) the premium mentioned in the said schedule.

The Company agrees subject to the terms and conditions contained herein or endorsed or otherwise expressed hereon that if the property insured described in the said schedule or any part of such property be destroyed or damaged by Fire or Lightning during the period of insurance stated in the said schedule or any subsequent period in respect of which the Insured shall have paid and the company shall have accepted the premium required for the renewal of this policy , the company will pay or make good to the Insured the value of the property Insured at the time of the happening of its destruction or amount of such damage.

Provided that the liability of the company shall in no case exceed in respect of each item the sum expressed in the schedule to be insured thereon or in the whole the total sum insured hereby or other such sum or sums as may be substituted therefor by endorsement hereon or attached hereto signed by or on behalf of the company.

Provided always that due observance and fulfilment of the terms and conditions and endorsements of this policy in so far as they relate to anything to be done or complied with by the Insured shall be conditions precedent to any liability of the company to make payment under this policy"

To have a basic understanding of this policy, we shall examine all the key words underlined above and the intended application.

Consideration:

Refers to the "premium" paid by the Insured and the "acceptance" of the premium and "commitment" by the Insurer to pay a claim due to an insured peril or extended peril subject to the terms and conditions of the policy

Terms and Conditions:

There are 4 categories here.

i) Conditions precedent to Contract

* Misdescription or Concealment
* Due Diligence and care
* Payment of Premium

ii) Conditions subsequent to Contract

* Cancellation
* Change or alteration in risk

iii) Conditions precedent to Liability

* Notice of Claim
* Arbitration
* Average
* Contribution
* Subrogation

iv) Excluded Perils / Property/ Loss/ Liability

* Flood, earthquake, flood or other convulsion of nature
* Displacement of building
* Marine Damage
* Pollution or contamination liability
* War and allied perils
* Goods held in trust or on commission
* Cash, manuscripts, moulds, personal effects etc

The Property:

Can mean the buildings, the machineries, the stocks, the office contents, furnitures, fixtures and fittings as well as the professional fees connected with the removal of deris, architects and surveyors fees


Fire and Lightning:

These 2 are the basic perils provided under the fire policy.

Domestic explosion is not specified in the operative clause but shall deemed to be loss by fire so long as the gas is not generated therein and which does not form part of any gas works

Extraneous Perils

Excluded perils such as flood, storm, earthquake, aircraft damage, standard explosion etc and uninsured perils such as aircraft damage, impact damage, damage by falling trees etc are usually incoporated into the policy by way of endorsements subject to additional premium (See Section 5 of RFT)

Destroyed or Damaged:

Property insured can be totally destroyed or partially damaged for a claim to be registered.

Destroyed means total loss and Insurer will pay the claim based on the value of the property insured at the time of the happening of its destruction subject to the maximum sum insured

Damaged means partial loss and Insurer will pay or make good the amount of such damaged subject to the application of average (for underinsurance).

Pay or Make Good:

Pay refers to the cash payment (usually by cheque) issued by the Insurer to the Insured being the cost incurred to repair or replace or reinstate the subject property

Make good refers to the physical repair or replacement or reinstatement of the subject property (instead of cash payment), these options can only be exercised by the Insurer should the Insured decides not to accept the cash payment which is not to the latter's expectation of a full indemnity or compensation.

Liability of the Insurer:

Limits to the sum insured of each item. Meaning the sum insured stated against the item insured is the maximum payable by the Insurer. No offset business.

Example:

Building insured for RM 500,000
Machinery insured for RM1,000,000

Caim for damage to building is RM200,000 (with a balance sum insured of RM300,000).
Claim for machinery is RM1,100,000 (exceeded the sum insured). Insurer will limit the claim for this item to RM1,000,000 being the maximum sum insured.

Insurer will not allow the balance amount of RM300,000 from the building sum insured to be used to offset the RM100,000 shortfall under the machinery sum insured.

Maximum claim payable under the policy shall not exceed the total sum insured of all properties insured

Due Observance and Fulfilment of Terms and Conditions:

Failure of the Insured to comply with any of the policy terms and conditions can render the policy null and void.

Examples: failure to advise the change in the occupation of the building or late in notifying the Insurer of a claim, breach of the 60 days premium warranty etc

The Schedule:

Basically, it contain the details of the Insured, the subject matter insured and the clauses/warranties applicable

Examples:

Description of property insured, period of insurance, sum insured, name of Insured, nature of business, construction of building, premium charged and clauses/warranties applicable etc

Next Posting will be on Clauses and their intended application