Setting Up An Insurance Audit

Setting Up An Insurance Audit

Letting Your Insurance Adviser Gaze Into The Crystal Ball

Most business managers know all about annual financial auditors’ reports but who bothers about an insurance audit? Or realises that such an audit incurs no extra cost at all?

Far too few, say experienced insurance advisor like Wong Wei Keong, Managing Director/ Technical Adviser of Kadanjoe Asia Pacific Sdn Bhd. Wei Keong is keen to point out to business community that an insurance audit is as vital to the health of the body corporate as is the normal annual audit.

How else can a company keep abreast of the latest trends in insurance policy innovation such as new extensions and options for the same premium, with trends in litigation and, in Malaysia at least, increasingly higher insurance awards to claimants?

Not to mention which insurance companies are paying out the most generously. Or at all? Which companies are interpreting the “small print” rigidly, to the letter? Analysis of the insurance companies themselves and their usual modus operandi, is an essential task for the Insurance Specialist/Consultant conducting an audit.

When it comes to the bottom line, the insurance audit ensures that you pay the right premium for the right cover – i.e. you get value for money. And that cover should be neither excessive nor inadequate needless to say. Easily said but less often done.

Yet once a range of cover has been decided most managers are often content to let those policies run from year to year with only minimal adjustments – perhaps in workmen’s compensation and inventory, for example.

Few institute regular checks to reassess the scope of cover adequacy of protection, changes in social and commercial needs or amendments to the “small print”. But such a check is really just plain commonsense.

Insurance companies are always innovating. But they are not usually aggressive enough to tell you about new benefits unless you ask for them. It’s really up to you to make yourself familiar with developments in the insurance business. Most company managers have little time or knowledge to do this for themselves which is where the Insurance Specialist Consultant and his insurance audit come in.

The cost of insurance to companies ranges from 0.5% to 5% of their turnover. Many companies incur a cost below 2%. This is a relatively insignificant cost compared to staff salaries, rental or machinery overheads.

Nevertheless insurance policies serve two fundamental needs almost disproportionately important when compared with the cost:

(a) To protect the assets on the balance sheet
(b) To protect the cash-flows in the profit and loss account

The significance of insurance really surfaces only when a claim has to be made. Relatively few managers ever experience making major claims. Generally most claims arise under a motor policy, marine cargo, workmen’s compensation, hospital & surgical insurance or personal accident insurance policy. A claim in respect of fire, flood or other serious destruction is rare. Few managers expect such things to happen.

However, when a major disaster does occur, you will get into very hot water indeed if your insurance is not adequate, your company could find itself out of business.

One of the key roles of an Insurance Consultant is to undertake a thorough insurance audit for a Company. The Insurance Specialist Consultant is familiar with the activities of different businesses and their insurance needs. Most importantly, he is fully aware of the policies offered by difference insurance companies, the cover, wording and scope of exclusions. This puts the Insurance Specialist in an ideal position to determine value for money.

“Value for money” does not simply mean the cheapest or lowest price. At times it may be advisable to buy a more expensive policy for instance because it offers wider cover, fewer conditions, exclusions and other qualifications.

It is the Insurance Consultant’s job to handle claims with a wide variety of insurance companies. A good Consultant has to be a claims expert. He is also an expert in types of cover and exclusions. He is in the best position to ensure that companies avoid complicated insurance pitfalls. And he cuts out your confusion when faced with technical insurance jargon – leave it to him, the expert.

For example cover under certain policies may be on an “each and every claim” basis while others may be on a “claims in the aggregate” footing. The limit of both types of policies may be RM100,000.00. Yet, the first policy can be relied on for as many RM100,000.00 claims as necessary, while the second stops when the ceiling of RM100,000.00 in claims has been reached. Reinstatement of sum insured is required.

The Insurance Consultant/Specialist has to play the role of a “crystal-ball gazer”- predicting what may ultimately happen. Perhaps even be a “prophet of doom”. The truth is that unless a company is aware of all its potential liabilities (no matter how remote), it simply will not get the right cover.

Many businesses in Singapore/Malaysia tend to have extremely low levels of liability cover, usually around $200,000.00. Generally speaking insurance awards in Singapore/Malaysia have been on the low side. However, that situation is changing in many ways:

(a) A Japanese expatriate who was involved in a car accident was awarded almost S$1.50 million in 1984.
(b) Another auto accident case filed in 1995 involves a case which judgment was delivered on 12/04/2001 involving RM1 million damages for a businessman paralysed in accident – he was travelling as a passenger in a BMW car. Our Sessions Court awarded this judgment and liability was apportioned as follows:-

* the driver and owner of the stationary BMW car in which the victim was travelling was held 70% liable. The driver of BMW parked his car at the road shoulder at KM 257 of the Ipoh – Changkat Jering Section of the Expressway to check whether the car engine was overheating.
* Another car (Mercedes Benz) travelling in the same direction collided into the BMW. The Mercedes Benz’s driver and its owner were held 30% liable.



Yet the most critical fact of this 2001 judgement involving this RM1 million court award for this auto accident is the UNTOLD fact 80% of the issued Malaysian Motor Vehicle Insurance Polices DON’T COVER YOU FOR SUCH EVENTUALITY, namely Passenger Liability and Legal Liability To Passengers For Their Acts of Negligence. If you were the owner and driver of the BMW car, you would be out of pocket for RM700,000 since our court had held you liable to that extent AND IF YOUR MOTOR POLICY had not been extended to cover such exposure. Our Malaysian Standard Private Automobile Insurance Policy does not cover such perils unless your policy is specifically endorsed and additional premiums are paid to cover them:-

Click Here To Read More about Motoring Exposure versus Motor Insurance Premium.


YET YOU ARE NOT TOLD ABOUT THIS PITFALL IN YOUR EVERYDAY EXPOSURE involving a simple Motor Car Insurance Policy, are you?

An insurance audit by an Insurance Consultant/Specialist will usually cost a company nothing in fees. Most Consultants/Specialists provide the service with no additional charge as the “customary insurance commission” will be sufficient to pay for this specialised service; and also because they usually find so many problems with existing policies that they are subsequently appointed to act on behalf of the Policyholder. If nothing else this should prove one of the most compelling reasons you should consider using an Insurance Specialist Consultant and setting up a regular insurance audit.



Check your own Motor Insurance Policy to see whether you are COVERED for Passenger Liability and Legal Liability To Passenger For Their Acts Of Negligence

You are probably NOT COVERED for such daily exposure.

A very simple MOTOR INSURANCE POLICY. YET MOST motorists are not covered.

You can imagine other possible pitfalls in your other more Complex Insurance Policies.


Contact & Call Us At :

DANIEL & RUTH (M) SDN BHD [314334-W]
TEL : 603-91322533/3533/8533
FAX : 603-91320133/0188

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