Upon completion of the chapter, student should be able to: i. Define some common terminology in insurance ii.

Explain how insurance works iii. Identify the characteristic of insurable interest iv. Describe the classes of insurance

Insurance is an agreement whereby a group of individuals facing similar risk can share fortuitous losses of the unlucky few by the transfer of such risk to the insurer who agrees to compensate the losses. It must include a combination of large number of separate, independent exposure unit having the same common of risk characteristics into interrelated group.

Insurance may be defined as an device for reducing risk by combining a sufficient number of exposure units to make their individual losses collectively predictable. The predictable loss is then shared proportionately by all units in the combination. These exposure units include both an entity (for example, one automobile, one house, or one business) and a time unit (for example, one year).

Commonly, insurance involves spreading losses over more than one entity within one unit of time.

Contribution from many insured will be pooled together in a common pool and will be used to pay losses suffered by unlucky few. Insurance works because the insurer can collect premium from a group of people in similar circumstances. Not all of whom will suffer in any one year.

These premium are then pooled together, and used by the insurer to pay losses. Losses are thus shared out among all the policyholders rather than borne solely by the unlucky few.

Insurance uses a common pool concept. It involves contributions from many insured pooled together to pay for losses suffered by few. The common pool mechanism involved the following: i. Insurance uses a common pool concept. ii. An insurance company sets itself up to operate the pool.

It takes contributions in the form of premiums from many insured and pay for the losses of a few. iv. The operation of common pool is very much based on the successful application of the Law of Large Number. - The law states that the larger the group of similar risk, the closer the actual losses experienced by the group will approach the expected loss.
iii.

Law of the large numbers implies that the greater the number of similar risk, the more accurate the insurer can be inpredicting future losses. The application of law allows the insurer to fix premium/contribution to the pool in advance. - Effect : the person insuring knows they will not paid any premium at the end of insurance.

The insurer must take the value of the risk + operating cost + profit of the insurer itself into the consideration before set up the amount of premium to be pay by the insured person. The premium charge must be enough to cover the losses arising the risk transferred.

Risk transfer mechanism

Creation of the common pool

Equitable premiums

Risk Transfer mechanism

Insurance provide some form of financial security It will not prevent any of the risks from occurring. The owner can transfer the financial consequences of the risk to the insurer in return for paying a premium.

Creation of the common pool

An insurance company sets itself up to operate a pool. It takes contributions, in the form of insurance premiums form many insured and pays losses of a few Based on the Law of Large Numbers The greater the number of similar risk, the more accurate the insurer can be in predicting future losses.

Equitable premiums

Individual pools are organized for different types of risk. Even when risks of a similar type are bought together in a common pool, they do not represent the same degree of risk to the pool itself. There is differing magnitude of risk or hazard and this will be reflected in the contributions which each will make to the pool. No subsidization of risk and each person must be prepared to make an equitable contribution to the pool they represent.

Peace of mind

Invisible earnings

Social benefits

Investment funds

Loss control

1.

Peace of mind The knowledge of insurance exists to meet the financial consequences of certain risks, provide a peace of mind. Insurance helps to remove fear and worry for losses of individual and business executives. Social benefits Compensation paid by insurers to insured which reduced the cost of social services. Workers of a factory destroyed by the fire might have to fact unemployment had the factory being insured.

2.

3.

Loss Control Insurance primarily concern of controlling consequential of losses. In practical, buyers of insurance will normally being offered a loss control services by insurer. Investment funds Insurers accumulate large fund 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 private sector.

4.

5.

Invisible earnings
Insurance can contribute to the countrys balance of payments as invisible export/import. If we are consuming product that is not a Malaysian based product, meaning that we are consuming to the international product and importing the service from outside of our country.

Is the existence of a thing capable being affected by risk. The thing must be made subject matter of insurance. A subject matter of insurance may be any property, potential legal liability, right, life and limbs insured under a policy. There must be legally recognized relationship between insured and the subject matter of insurance and insured must be financially affected when the subject matter of insurance is affected by risk.

Some examples of subject matter of insurance under various types of insurance can be found below:
Type of Insurance
Motor Marine

Subject matter
Car, Motorcycle, etc Ship, cargoes

Personal Life
Aviation Fire

Life, Limbs, etc

Aeroplanes, Lives, etc Buildings, Goods etc

Fortuitous

Financial Value

Insurable interest

Homogeneous exposures

Pure Risk

Particular Risk

Public Policy

Fortuitous (accidental) The happening of the event must be entirely accidental It is not possible to insure against an event which will definitely occur, since it involves no uncertainty of loss and therefore no transfer of risk would be taking place.
1) 2)

Financial Value The risk that is to be insured must result in a loss which is capable of being measured in financial terms.

Insurable interest There must be legally recognized relationship between the insured and the financial loss.
3)

Homogeneous (identical) exposures To enjoy the benefits of the Law of Large Numbers Given a sufficient number of exposures to similar risks, the insurer can forecast the expected extent of their loss
4)

Pure risk Only pure risk can be insurable but not speculative risk A pure risk exists when there is a chance of loss but no chance of gain
5)

Particular risk Particular risk are much more personal both in their cause and effect These risk arise from individual causes and affect individuals in their consequences.
6)

7)

Public policy Common principle of law stated that contracts must not be contrary to what society would consider to be the right and moral thing to do. It is not acceptable to insure against the risk of a criminal venture.

a)

Each class of insurance developed in response to a demand for protection (eg. Case of fire, life, liability and etc) - The demand for protection not always motivated by the eventual purchasers: for example, employers liability and motor insurance were made compulsory by the govt, thus increasingly demand.

The development of the various forms of insurance was accompanied by the measure of government supervision. c) In the beginning, insurance companies act as a specialist companies offering protection in one or two types of insurance only. - but nowadays, most of the insurance companies offer difference forms of insurance.
b)

Learning Objectives:
Upon completion of the chapter, student should be able to: i. Define some common terminology ii. Discuss the importance of having a life and health insurance policies iii. Identify the types of life and health insurance policies iv. Explain the features and benefits of these policies

Risk management is a way to manage and handle risks. Having a Life and Health Insurance is also form of Risk Transfer mechanism since we transfer the risk to the insurer and make them responsible to pay claims in the event of certain perils.

Losing ones income is not only disastrous to the individual but also to the family. A persons income can be terminated in the following circumstances.

Income can be terminated

Disability

Retirement

Unemployment

Death

a)

b)

Disability - A person may lose his income due to disability. The disability may be cause by either disease or accident. Whatever the causes are, it will create hardship to the family. Retirement - A person may reach an age (eg. 60 yrs) where his services are no longer required by his employers.

Unemployment - A person may not be able to find a suitable occupation or may even be forced to resign due to economic situation. d) Death - Death is a tragic way in which ones income is terminated. Financial support that a person brings to his family may suddenly be terminated as a result of premature death.
c)

Most people do not see the importance of life insurance until the need arises. Although ones life is the most important asset one can have, most of us neglect this gift. A reckless driver may cause someones life( could be breadwinner of a family) to die in a road accident. The financial obligation of the decreased may burden someone else. Therefore, life insurance is necessary.

Income Fund

Mortgage

Why we need life insurance?

Education Fund

Retirement Fund

Burial Fund

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. Although, it cannot replace the emotional loss, but at least it can provide financial support to the deceaseds family. (especially dependent children)

Education Fund

It cannot be denied that the cost of education has increased tremendously in the past years. Most of the parent will want the best education for their children and have started to plan for their childrens education from the time the children are infant. An education fund can be met through the purchase arrangement can be made whereby the policy will provide a lump sum when the child reaches the age of 18 or 21.

Burial Fund

Although this reason may sound strange to us, life insurance in the U.K originally existed because of this reason. Funeral expenses are not substantial but they must be settled immediately. Therefore, life insurance policy can be used to pay off these burial expenses.

Retirement Fund

Life insurance can be used to meet ones retirement needs. To maintain the same standard of living, one can the money from the life insurance fund. An arrangement life policy maturing at a specific of time for example the retirement age of 55 or 60.

Mortgage

Most young families have mortgage debts in their homes. In the event of 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 this outstanding loans.

Contract is a legally binding agreement between at least two parties. 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 event in this contract for which the payment are to be made can either be:The death of the life insured Or upon maturity of the contract (depending on the type of life insurance policy).

TERM

WHOLELIFE

ENDOWMENT

Life Insurance

1)

TERM It provide protection on the life of the individual for a specified number of years. Sum insured is ONLY payable if death occur; nothing is payable if insured person survives till the end of the term. Features: Low initial premium due to the fact the protection is temporary. Protection for the specific time period. May be renewed or converted to permanent contracts. Premium increases with each new term. A minimum cash value is available for term policies beyond duration of 20 years.

2)

WHOLE LIFE

Provides for the payment of sum assured (and bonuses is any) upon the death of the life insured or upon reaching a certain age such as 85, 90 or 100 years. Premium payments are normally paid throughout of 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 Should be purchased with intention of keeping for life or for long period of time

3)

ENDOWMENT

Provide the payment of sum assured (and bonus if any) upon the death of the life insured during the term (duration) of the policy or upon the survival of the policyholder at the end of the term. This type of policy not only provides cover against death but also includes provision for saving. At the end of an agreed period of time, a lump sum is received. This amount comprises of the premiums paid plus bonuses.
Features:

Insurance plus rapid cash accumulation Higher premium than term whole life insurance Insured person can arrange the policy to coincide with future events.

Ordinary life

Industrial life

Group Life

a)

Ordinary Life Insurance It is designed to meet the needs of individuals for themselves or for their dependants. Covers wide range of products and policyholder may select the one that is suitable to meet his needs and ability to pay. Normally issued with sum insured above RM 1,000 Premium are payable annually, quarterly or monthly.

b)

Industrial Life Insurance Also known as Home Service Insurance Premium are paid at frequent shorter intervals (eg. Monthly, fortnightly(once in two weeks), or even weekly). The life office usually employs a collector to go from door to door to collect the premium. Face amount of the policy is small compared to those policies in the ordinary life. Premium are high because of high administrative cost.

c)

Group Life Insurance

Provides coverage to groups of people under one master policy. Generally used to provide cover on life of employees, member of union etc. Low cost of protection Evidence of insurability is normally not required.

An annuity is another product of Life Insurance Company but it works reverse of a life insurance. In life insurance contract, the insured pay to the insurer premium money in return for being paid a lump sum money upon untimely death or upon the maturity of policy. In an annuity contract, the annuitant pays a lump sum of money called the purchase price to the insurance company. In return, annuitant will receive installment payment called annuity for the rest of his life or for the specific period. Objective: provide some form of pension benefits.

The increasing price of medical costs and the need for quality medical attention has led to an increase in the volume of business for this class of insurance. Only the wealthy can rely on their personal resources to finance their medical expenses and the work loss due to disability. Health insurance is known by many names. Among them are Accident and Health Insurance, Accident and Sickness Insurance, Disability Insurance, Hospitalization Insurance and Medical Insurance.

Health insurance basically covers two aspects. They are:

I.

Disability Income Insurance Provide periodic payments when the insured is unable to work because of sickness or injury. The amount of payable is normally a percentage of the insureds monthly income.

II.

Medical expenses insurance Pays for medical costs resulting from injuries or sickness. This includes hospitalization charges, physician fees and other necessary expenses incidental to the injuries and sickness. The amount paid are based on the certain percentage of each costs incurred or up to the certain maximum amount. (eg. room fee: RM250/per night)

Disability Inability of the insured to engage in his normal occupation or in any gainful employment. Waiting period/ Deferred Period Duration of time from the start of the illness/injuries to the time when the disability benefits again. Accidental Bodily Injuries Injuries that are caused by unintentional and accidental means.

Explain on the following pertaining to life insurance: a) Whole life insurance (5m) b) Endowment insurance(5m)

Describe four (4) types of life insurance products. (10m)

General Insurance

Fire Insurance

Motor Insurance

Marine Insurance

Liability Insurance

LEARNING OBJECTIVES:

Upon completion of the chapter, student should be able to: i. Be familiar with the terminology ii. Explain the importance of fire insurance iii. Identify the protection offered, terms and conditions in the standard fire insurance

An agreement between the insurance and the insured, whereby, the insurers having received the premium, undertake to make good the financial loss (subject to the limit of a specified amount) 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.

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 those who are insured.

Subject matter of fire insurance is any kind of moveable or immovable property having monetary value. Such property will include buildings, furniture, fixture & fittings, household contents, plants, equipments & machineries, stock and merchandise in premises, in the open and in transit.

Subject matter of fire insurance contract is the policyholders interest and financial involvement in the subject matter of insurance. For example, if Mr. Josh wishes to insure his house valued at RM 100,000 with insurance company AIA, then the value of RM 100,000 would be the subject matter of Mr. Joshs contract.

A Standard Fire Policy cover is provided in respect of three perils: a) Fire b) Lightning c) Explosion

A. -

FIRE Fire is actual burning damage following ignition under accidental circumstances. Once there is a fire within the meaning of the policy, the various other types of losses come within the scope of the policy.

a)

b)

Damage during or immediately following a fire caused by Smoke Scorching Falling walls Damage caused by fire brigades in the discharge of their duties, eg. 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.

c)

Exceptions: a) its own spontaneous fermentation b) its undergoing any process involving the application of heat c) Earthquake d) Subterranean fire e) Riot or Civil Commotion f) War, invasion, act of foreign enemies, hostilities (whether war be declared or not), civil war, rabellion, revolution and etc.

B. -

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 provided cover against explosion as follows: Loss or damage by explosion of gas used for illumination or domestic purposes in a 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. The explosion cover does not include explosion of gas used in trade process.

C.

In Extended Fire Insurance policy, the following perils are added to the cover of a standard fire policy with additional premium payment.
Perils of Chemical Nature Explosion Spontaneous Combustion
Miscellaneous Peril Aircraft and other devices or Article Dropped Therefrom Bursting or overflowing of Water tanks, Apparatus or pipes Impact by Road Vehicle, Horses or cattle

Social perils Strike, Riot and Civil Commotion Malicious damage

Perils of the Nature Earthquake, Volcanic Eruption and other Convulsion of Nature Storm and tempest Flood Hail Subsidence and Landslide Subterranean Fire

i. -

a)

b)

c)
d)

CONSTRUCTION It will be recognized at once that there in a difference in fire loss potential between buildings made of brick and one made of wood. The Fire Tariff provides for four main construction classifications which is a follow: Class One Building with Hard Roofs and Walls wholly of Bricks and/or Stone and/or Concrete. Class Two Building with Hard Roof and with Walls of Bricks and/or stone and/or concrete and partly Iron or Wood or with walls wholly of Iron or Wood Frames. Class Three Building with Hard Roofs and Walls is wholly of Woods or with wall partly or Wood and partly of Iron and all buildings with roofs of shingles. Class Four Building of any construction roofed with Thatch and/or Nipah and/or Rumbiah Palm and/or other materials not defined in the construction classification.

ii.

OCCUPANCY This is the single most important factor influencing the risk of fire. There exists hundreds of possible hazards of occupancy, which reflect the uses of the building. Of several buildings, one may be used as supermarket, another as a electronic devices store and so forth. The danger of destruction by fire to these buildings are different because of the different substances and processes that they contain and the different uses to which they are put. Almost every process of labour, manufacture or commerce are potentially dangerous.

This policy provides a very wide cover to private dwelling house. A households policy can be issued on contents and Houseowners policy on buildings. The owner-occupier may request for the 2 policies in respect of both building and contents. The cover enable most perils to which the private householder/houseowner is subject to be insured under a single document.

 1. a) b) c) d) e) f)

g)
h) i) j) 2.

The Houseowner/householder provides cover against: Loss or damage to building and/or 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 Insureds personal liability Riot and Civil commotion Various other perils Legal Liability of the insured to third parties arising from within the premises. Loss of Rent following the damage building contents by insured perils. Other contingencies.

3. 4.

Traction Engines and Motor Cars Ordinance 1930

Road Transport Act 1987

Road Traffic Ordinance 1938,1941,1955 and 1958 respectively

Apart of being able to buy a new car and also covering cost of repair if motor vehicle involve in any road accident, insurance are compulsory because of law under Section 9 (Road Transportation act 1987). All motorist have to insure for the liability for injuries or death to third parties as a result of a road accident arising from the use of a motor vehicle.

However, there are classes of motor vehicle which are exempted from the requirement of the Act, they are: a) A vehicle owned by i. The government of Malaysia ii. The government of the republic of Singapore iii. The municipality of local authority; and iv. A public body Whilst the vehicle is being used for official purpose.

Any vehicle at anytime when it is being driven for police purposes; or on a journey undertaken salvage purpose. (eg, ambulance) c) 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 driving license. d) A motor vehicle in respect of which the owner has deposited with the Accountant General, the sum of RM 125,000.
b)

Private Car Insurance

Motorcycle Insurance

Commercial Vehicle Insurance

Motor Trades Insurance

Definition of Private Car Car 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.

Types of Motor Insurance Cover Available i. Act Only- the cover required by the Act ii. Third Party Only- Act plus third party property damage iii. Third party, Fire and Theft- third party plus own damage as a result of fire or theft. iv. Comprehensive- third party, fire and theft plus other own damage specified in the policy.

This motor insurance policy provides the widest form of cover. divided into 2 sections. Section A (OWN LOSS OR DAMAGE) The main risks covered are: i. Accidental damage (eg. Collision and etc) ii. Fire (eg, fire after collision, short circuiting of the electrical system, spread of fire in the building where vehicle was garaged or packed) iii. Theft of attempted theft (theft of part and accessories whether or not accompanied by the theft of vehicle but must be fixed to the vehicle). iv. Malicious damage (eg, scratches or damages by vandals) In the event of partial loss, the insurance company can either provide indemnity by the 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. v. Payment of reasonable cost of removal to the nearest repairers in the event the vehicle is disable as a result of an accident ( maximum limit is RM200).

Exception of Section A The insurer will not be responsible for any of the following: i. Consequential loss of any nature, depreciation and indirect losses such as reduction in value. ii. Loss of use- for example, cost of hiring another car while waiting for the insured car to be repaired. iii. Wear & Tear, mechanical or electrical breakdown, failure of breakage. iv. Damage of tyres- unless the motor vehicle is damaged at the same time. v. Cheating & Criminal Breach of Trust.

SECTION B (THIRD PARTY LIABILITY) Indemnity is provided against legal liability in respect of death or bodily injury to any person arising out of the use of the vehicle involving i. Third Party Bodily Injury (TPBI) ii. Third Party Property Damage (TPPD)

Exception to Section B - The insurers will not be responsible for liabilities under the following circumstances: i. Passengers- injury to fare-paying passengers. ii. Employees- injury to the insureds own employees whilst in the course of employment are excluded as they be covered under SOCSO. iii. Own property- damage to property belonging to the insured and insureds household members. iv. Action outside Geographical area- action bought in courts and legal cost& expenses incurred outside Malaysia, Singapore and Brunei.

The insurer will not pay the claim if: i. Driving without license (at the time of accident) ii. Influence of alcohol or drugs iii. If the insured car is used for unlawful purposes iv. War exclusion- the insured car is damaged by war, strikes riot and civil commotion v. Excluded perils- the insured car is damaged by natural disaster eg, flood vi. Racing exclusion- if the insured car is used for racing, rallies etc vii. Unattended exclusion- the insureds car is left unattended without proper precaution (eg, break system not functioning without repairs being done) viii. Outside geographical area

Insured are entitled to a No Claim Discount (NCD) as appended below on their renewal if no claim is made or arises from their policy. Figure 1 Scale of NCD
Scales of NCD / Period of Insurance After one continuous claim-free year After two continuous claim-free year After four continuous claim-free year After five or more continuous claimfree year Discount 25% 30% 45% 55% (max)

After three continuous claim-free year 38 1/3 %

If the insured makes a claim during the period of insurance irrespective of whether he is responsible for the accident or not, the entire NCD will be forfeited on his next renewal. (will start from 0%) ii. NCD follows the owner, not the vehicle. i.e if Ali sells the car, the new owner will not get the NCD iii. NCD is allowed for comprehensive, Third Party, Fire & Theft, Third party Policies only.
i.

a)

Motorcycle including motor scooters and auto cycles which do not fall under (b) below.

b)

Auto-cycle or mechanically assisted pedal cycle, i.e any motorcycle with engine capacity not exceeding 100 c.c, makers speed not exceeding 25mph.

Private motor cycles used solely for social, domestic and pleasure purposes and in connection with the Insureds business or profession. Commercial motor cycles- used for the insureds business or profession, including the carriage of goods but not passengers for hire or reward. Motorcycle used for hire. Motorcycle trade.

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 (eg. Fortuitous accidental of sea, heavy weather etc) and other incidental perils (eg, fire,explosion on board of vessel, war etc).

The subject matters under marine insurance are properties such as ship, goods (cargo), monetary interest such as freight (sum payable to shipowner for the carriage of goods) and maritime liabilities of shipowners arising of navigation.
Subject matter Insured Ship Cargo/ Goods Freight Maritime liabilities Who may insured Shipowners, mortgages Shipper, Consignee Shipowner Shipowner Name of Insurance Hull and machinery Insurance Cargo Insurance Freight Insurance Hull & machinery Insurance P & I Insurance (other maritime liabilities)

A. a)

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 third 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 sellers warehouse via sea transit to the buyers warehouse. This insurance is affected either by the seller (shipper) or the buyer (consignee) depending on the sale contracted arranged.

b)

B. a)

CLASSIFICATION BY DURATION OF COVER Time Policy Insurance cover is effective for a fixed period of time, usually 12 months. Usually for Hull & machinery Insurance. Voyage Policy in this policy, the duration of insurance is on per voyage basis, i.e cover is effective from commencement of voyage and terminates on arrival at destination. (port Klang- port at Japan). Cargo Insurance is usually arrranged as a voyage policy but it cover warehouse to warehouse instead of port to port.

b)

c)

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.

C. a)

CLASSIFICATION ACCORDING TO PERILS COVERED Marine Risk A policy (hull, cargo and freight) which covers maritime perils but excludes war and strike perils. War and Strike Risk A policy (hull, cargo and freight) which covers war and strike risk only and does not cover maritime risks.

b)

Scope of Cover The perils covered under a cargo insurance may be on an all risk or specified risk basis as given in the Institute Clause A, B, C. Clause A provide 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. widest cover and the most expensive Clause B or C provides cover against loss of damage caused by insured perils such as fire, explosion, collision, and etc. restricted and it is less expensive.

Duration of Cover- Warehouse to warehouse cover This cover commences from the time the goods leave the warehouse specified in the policy, continues during the transit and terminates when the good delivered to the final warehouse at the destination.

Legal liabilities can arise in any ways. Protection from these liabilities is made available by affecting an appropriate policy, or range of policies.

Public Liability Policy

Personal Liability Policy

Product Liability

Employers Liability Policy

Workmens Compensation Policy

Professional Indemnity Policy

Legal liabilities are frequently incurred in connection with business activities. For example, an oil patch in shop premises may cause injury to a customer who slips on it. Or the fire used in the industrial process may escape and cause damage to neighboring property.

Scope of Cover The legal liability policy is intended to provide the necessary protection against legal liability for damages in respect of accidental death or bodily injury to the third party and accidental damage to his good and/or the property incurred as a result of business activities or in connection with business.

A large part of a businessmans time may be expended on non-business activities such as golf, hunting, or keeping a pet. These activities also can give rise to liability and cannot be include under public liability policy because not connected with businesses. Therefore, a personal liability policy may be needed.

Scope to Cover Protection is given against legal liabilities for damage incurred by an individual in respect of accidental bodily injury to a third party and accidental damage to his goods and/or property resulting from activities carried out by the individual, where the activities are not connected with business. Extension of Cover The policy is frequently extended to provide similar protection to family members of insured who are normally residing with him.

Product sold or supplied to consumers may be rise to legal liabilities in several ways: Negligence in the preparation or the putting up the products which cause harm to a consumer may result in liability to the manufacturer. Breach of the conditions implied in a contract of sale by the Sale of Goods Ordinance 1957 may cause the seller to be liable to the buyer for the breach itself and also harm resulting from it. Strict Liability for personal injury and damage to property caused by defects in products may occasionally be imposes by an Act of parliament.

a)

b)

c)

A manufacturer or a person (including a retailer) should buy this types of policy as they a performs some work or carries out process on goods.

Scope of Cover - Legal liability for damages in respect of accidental bodily injury to third parties and accidental damage to their goods and/or property arising from defects in goods sold or supplied.

An employer who is responsible for bodily to an employee because of negligence or failure to observe statutory requirement may be liable to the employee. The employee is also indirectly liable if an employee should be injured through the negligence of their colleague. Therefore, an employer may be liable in more than one way for the harm sustained by his employee.

Scope of Cover - When the employee died or suffered bodily injury not only when executing his job, but also the job must be casually linked to the death or injury. - For example, police can get injury or death if been attack by offender or criminal.

Frequently, employees sustain injury while carrying out their jobs. For example, lorry driver may be involved in a road accident and killed while on his way to deliver goods, workmens construction may injured or killed in the construction site while on his duty of carrying concrete brick.

Who is Workman? An employee is a workman under the Workmens Compensation Act 1952. Person that are excluded: A person earning above RM500 a month, unless engaged in a manual labour. A person whose employment of a casual nature and not employed for the purpose of the trade or business of the employer. A domestic servant A member of the employers family and living with him. A public servant, member of the police and member of any armed forces.

i.

ii.

iii.

iv.
v.

 i.

ii.

Scope of Cover Liability under the Act to provide compensation to his workmen for bodily injury, and to the dependents of his workmen for their death, arising out of or in the course of employment. Legal liability for damages he may incur under common law in relation to accidental death or bodily injury.

A doctor as an example of a professional person, who make a wrong diagnosis may be sued by the patient who suffered harm from that error. Therefore, the insurance are important for the professional person in the fact that they may faced with legal liability because of negligence.

Scope of Cover The insured is protected from liability at law damages in respect of claims for breach of professional duty made against him as a result of neglect, error, or omission that occurred in good faith.

Insurable Interest Proximate cause Assignment

Contribution

Utmost Good Faith

Subrogation

Indemnity

Defined as the right to insure arising out of legally recognizes financial interest which a person has in the subject matter of insurance. Only legal financial interest that has been recognized under a common law or statute can be insured. For example, a thief could not insure the goods he stole because he does not have a legally recognized financial interest in the goods.

When must Insurable Interest Exists Must be in the beginning of insurance contract and at the time of loss for all the classes of insurance except: Life insurance- at the beginning of contract Marine Insurance- at the time of loss

a) b)

Application of Insurable interest

Life Insurance

Reinsurance

Property Insurance

Liability Insurance

Transfer of rights and liabilities by one person to another.

In insurance, the transfer of all rights and liabilities of the insured to a new insured is an assignment of policy.
Assignments of policy proceeds arises when an insured instructs his insurer to pay the policy proceeds to a third party. For example, the insured instructs his insurer to pay the amount of indemnity to his repairer.

Not the entire contract is being assigned just the benefit of that contract.
Assignment can takes place before or after the loss.

Ordinary Commercial Contract - Parties to the contract are subject to duty of good faith in relation to disclosure during negotiation. - Under the duty of good faith, the buyer should ask question if he needs more information and the seller is requires to answer the questions truthfully but he is not required to volunteer information relating to the sale.

Insurance Contracts

Different considerations apply to a contract of insurance. - The insurer are at disadvantage when the proposer knows or should know everything about the risk proposed. - He (insurer) is not able to make a complete assessment of the risk unless the proposer is willing to give his fullest co-operation. - To remedy (correct) this inequitable situation, the law imposes the duty of utmost good faith on parties to an insurance contract.
-

The Duty of Utmost Good Faith Is a positive duty (of the insured) to disclose fully and accurately all material facts that he (the insured) knows whether asked for or not (by the insurer). What is the material fact As a fact which would influence the prudent underwriter in accepting the risk or fixing the premium. Duration of Duty of utmost Good faith The duty to disclose material facts lasts until the completion of the insurance contract.

Breach of Utmost Good faith i. When, fail to provide the insurer with information relating to the material fact,or ii. Misrepresent a material fact i.e providing the insurer with incorrect information.

Proximate cause vs Remote cause Frequently a loss is preceded by two or more causes. - In such situation, the dominant cause ( causes that can be see) i.e the cause that overshadowed the other causes are deemed to be remote causes. - For example, a person fractured his leg in road accident. While he was hospitalized, he contracted a strange disease and died subsequently. Thus, the strange disease is the proximate cause and injury from the accident is the remote cause.
-

Insurance contract promise to make good the loss or damage. The promise if subject to the principle of indemnity which required that when a loss arises under an insurance policy, the insured shall be restored to the same financial position after the loss as he has enjoyed immediately before it.

Contract of Indemnity - When the insured has measureable insurable interest, the contact of insurance will be a contacts of indemnity. - Eg, property, pecuniary (something that related to money) and liability insurance contract. - Life insurance and personal accident contracts deemed to be non-indemnity contract because the insureds insurable interest tend to be unlimited.

Method of Indemnity Four methods : Cash, Repair, Replacement and Reinstatement. Measure of 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

a. -

b) -

Partial Loss The measure of indemnity used are the cost of repair.

Factors Limiting Indemnity

1.

Sum insured when policies 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 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 at time of loss) x Amount of loss

2.

Average reduces the amount payable to the insured. For example the insured will receive less than indemnity. The insured is considered the insurer for the proportion under-insured and therefore has to contribute to the loss.
Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.

3.

Exceptions for Indemnity: Personal Accident

Transfer of rights and remedies from the insured to the insurer who has indemnified the insured in respect of the loss.

 The

amount which each insurer has to contribute to the cost of loss when the loss is covered by two or more insurers.

Conditions for contribution to arise :

a. Two or more policy of indemnity exists. b. Two policies must a cover a common

interest.

c. The policies must cover a common perils

which give rise to the loss.

d. The policies must cover a common subject

matter.

e. Each policy must be liable for the loss