Saturday, October 18, 2014

A CONSUMER EDUCATION GUIDE FROM PIAM - FAQ ON PROPERTY/LIFE INSURANCE

FAQ ON PROPERTY/LIFE INSURANCE 
- A CONSUMER EDUCATION GUIDE FROM PIAM

17 September 2014

1    Background
In Malaysia, the sum Insured for a basic fire policy is calculated based on the cost of rebuilding/reconstructing the building in the event of a total loss to its current state (excluding the cost of land).  This is however subject to the terms and conditions of the Malaysian Fire Tariff.
2     Property under Financing
If the property is under finance, the need to insure the property is one of the requirements under the loan agreement and will be arranged by the Financial Institution (FI) to protect and safeguard its financial interest on the mortgaged property. Consumers are also provided the option to self arrange the fire insurance with the request for all policy documentation to be provided to the FI for records on an annual basis.  It is important, therefore, that the property owner or borrower understands the requirements stated in his/her loan agreement.
 3     What is the appropriate sum to be insured?  What factors should be considered?
PIAM would strongly advise  property owners to discuss with their FI on the appropriate sum to be insured taking into account the current rebuilding/reconstructing costs  of their property (excluding the cost of land) to ensure adequate coverage.
Property owners should be aware that raw materials and labor costs have gone up in recent years and if renovations have been done to the property, the sum insured for the fire insurance coverage may not be adequate as of today.  It is also important to factor in the impact of inflation.  It is PIAM’s recommendation to property owners to obtain a valuation report of their property from an accredited quantity surveyor at least once in every 3 years to establish the rebuilding/reconstructing cost of their property and update the actual sum insured to their FI or insurance company.
4      What happens when the full loan is disbursed?
For all mortgaged property, upon vacant possession, the FI based on the insurance requirement in the loan agreement will determine the sum insured for the fire insurance and arrange for immediate protection by the insurance company to safeguard the interests of both parties. The sum insured is related to the amount of loan taken.  It is a common practice that the cost of the land is excluded.
Upon receipt of the policy document from the insurance company, property owners should review and advise the insurance company of any amendments; including to increase or reduce the sum insured where required.
5       How is the premium collected from the property owners?
For the convenience of all property owners and to enhance operational efficiency the premium due is debited to the loan account after receiving the billing transaction from the insurance company. Consumers are made aware of this transaction with advice to remit payment to their loan account for this premium.
In view of Premium Warranty condition in the standard fire insurance policy which states that the contract is automatically cancelled for non-receipt of premiums within sixty (60) days from the inception date of the policy, this operational process between the FI and the insurance company will ensure continuity/validity in the fire insurance coverage.
Property owners need to understand the fire insurance requirement and its significance on their property; where the main objective for immediate arrangement and continuity of insurance cover is to protect the interest of both property owners and the FI.
6      Need for Consumer Education – what consumers have to do ?
There is a need for consumer education at the national level and raising awareness of property owners on their responsibilities and obligations.  PIAM as a trade association for general insurance companies will drive efforts in this regard. 
On their part consumers have to review the policy insurance document received, to regularly determine the correct amount to be insured for their property and to ensure there is no under-insurance or over-insurance.  In addition they should provide any other amendment/feedback/option to the FI and insurance company; where applicable and also to submit complaints, if any to the parties highlighted in all policy documents.    
FIs must be consistent in allowing the option to property owners to arrange self insurance or/and to determine the correct sum insured based on acceptable facts of valuation or/and open to relevant feedback received.