Bank wrongly insured different classes of fire insurance

Bank wrongly insured different classes of fire insurance.

The working class will always dream to have a roof over their head. In order to archive the goal, they toil hard from dawn to sunset.  Some even do moonlight on several jobs in a day. They save every a single penny. They called the modern Zombie living merely eat and sleep. They come out to face the sunshine when they save enough to make the 10% or even 30% down payment. Are they happy? Please read on.

Client’s Call

“Jamin, how come your insurer sent my fire insurance policy to the old address? The building had already demolished.” my relative called me during a fine morning after having my morning 10.00 break.

“Let me check first, I shall call you later.”

“What is the policy number you are referring to? I asked her.

“I do not have such policy number, could it be you taking a loan from a bank. It arranged the fire insurance on your behalf.”

Yes, it is correct the bank already auto debit my account for the past 3 years on this shop house.” she answered me with a soft tone.

I was on my way back home on a routine visit to the hospital.  I dropped by to read their policy, shocking to find out that the bank for the 3 years making the same imbecile mistake.

Classification of Risk

As per attachment here, the policy stating the building is vacant and occupied also the sum insured. But, in fact, it occupied as a shop doing retaining business. Dear readers, let us think out of the box.

Which risk is higher? Is it the vacant shop house or retailer? The answer is crystal clear the retailing business attract many customers, thus the higher the risk compared with the unoccupied building.

The vacant risk the insured pay lesser premium, higher for the retailer shop house. Occurring of fire razed the building to ash, will insurer pay? The Principle of Utmost good faith shall apply to whom.  Is the bank or the insured party?

Insurable Interest

Malaysia is a unique country with different rule and regulation. The local bank also has a subsidiary composite insurance. It could be a general or life insurance. Despite the Bank Negara Malaysia gave warning to the bank stating it could not force the borrower to buy fire insurance with them.   Nevertheless, it has fallen to a deaf ear, either the bank is greedy to make an excess profit out from the borrower or the insured is very ignorant. Do bank has any insurable interest in the building? Does the bank suffer any financial loss without the building?

Creditor Insurance

The insured is still continuing paying the installment even without the existence of the building. The bank providing the credit to the borrower, the bank should issue the creditor’s insurance to the borrower.  In the event, the borrower passed away, the bank would suffer the financial loss, as it has insurance interest on the loan amount, not on the building.

Under insurance

The Malaysian ringgit has depreciated against the US dollars about 30-35% coupling with the 6% of GST implemented 1st April 2015. It was inadequate to cover the building that brought from the developer in 2014. The purchase price was RM350 000.00 and the loan amount was RM244 000.00. On 2017, the sum insured was still the same amount as before without any upward adjustment.  No inflation for the past 3 years in Malaysia? Even the kid knows the answer. When a claim occurs, the average would apply. People would say insurer always conned people.

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Bauxite vessel sinks off Vietnam coast of Vung Tau

Bauxite vessel sinks off Vietnam coast of Vung Tau. M.V.,”Bulk Jupiter” left Kuantan Port carrying a cargo of bauxite ore sank off Vietnam waters on the way to China killing 18/19 crewmembers. The only Filipino chef survival said that he did not know why the ship suddenly capsized and sank when it was about 150 nautical miles from the southern city of Vung Tau on the morning of January 2, 2015 (Vietnam time).

The cause of sinking

The liquefaction of cargo causing the cargo to behave like a liquid inside the cargo hold of the ship hence causing instability to the ship and making it basically turn turtle.

The following was my comment on the FB on 7th April 2017 in the Insurance Forum.


Under the Code, bauxite is stated to be a Category “C” cargo, with the following cargo composition: Size
70% of 90% Lumps:
2.5 mm to 500 mm
10% to 30 % powder.

We assuming the cargo is sufficiently dry and in any event has a moisture content below the Transportable Moisture Limit (the “TML”) which is, of course, a figure at 90% of the Flow Moisture Point (the “FMP”). In this case, the port surveyor engaged by the Charter Party i.e the shipper did not test the cargo before loading. If the test was not in their favor, the shipowner could refuse to load the said cargo. Refer to the IMSBC code for further explanation.

Flag of convenience

The MV “Bulk Jupiter” was a flag of convenience registered in the Bahamas, thus it was the sub-standard class of vessel. Was it a member of the London P& I club.? Also, the annual dry docking for inspection would able to find out the vessel fatigue. Had the sea-worthiness and crew-worthiness certificate been obtained from the classification society namely Lloyd, Bureau Veritas, American Bureau of Shipping, Russian maritime of shipping and Nippon Kaiji Kyokai?

The Master’s Knowledge

The master of the ill-fated vessel knew that the bauxite can turn into a liquid state, by 10% of moisture content, which risks increase from C to A category. Therefore, there was a chance of cargo shift that leads the vessel capsizing. Was the crew constantly monitor on the bulk cargo in the various hold? The stability of the vessel depends on the crew competency. During the Northwest monsoon, the sea wave is choppy in the South China Sea, with the frequency of Typhoon Signal of 3 or even higher that bring disaster to vessel plying along the coastal area or in the open sea. Had the master been warned about it?

P & I club will never engage a pre-shipment surveyor. Whether it is loading in America, Canada, Thailand, Indonesia, Malaysia and Australia port. According to various sources, the cargo insurer was actively threatened by the bauxite syndicate and practically tossed out of port” Was it true? Any evidence to prove it?

Finally, the chartered party term and insurance policy need to examine closely. The master log book report with a special detail of the sea weather condition like wind speed and, wave level need to study carefully before it can derive a final report.


The Sub-Committee concluded that:

  • There is a need to raise awareness, despite the efforts to date made by the Member clubs of the International Group of P&I Clubs, of the possible dangers of liquefaction associated with carriage of bauxite.
  • The potential for bauxite to liquefy is not specifically addressed in the IMSBC Code since it is only classified as Group C cargo.
  • If a Group A cargo is shipped with moisture content in excess of its transportable moisture limit (TML) there is a risk of cargo shift, which may result in capsizing.
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Lazada MalaysiaBauxite vessel sinks off Vietnam coast of Vung Tau 3

The Fast claim on equipment breakdown insurance

 The Fast claim on equipment breakdown insurance. Generally speaking, most of the household has a numerous of equipment at home. It can be kitchen electrical appliances, air-condition, robotic vacuum cleaner or lawn movie machinery. Likewise, it is the same for a factory using equipment for fast production.

Mega Risk Insurance

A plastics molded manufacturer insured their factory building, machinery, and loss of profit insurance with me. The Bank provided the loan facilities to insured, but not keen to cover this high-risk upon completed the premise. I was called to handle this mega risk for a special rating instead of following the fire tariff. An engineer from the HQ came down to survey the premises and recommend the special rating for PIAM approval after testing all the sprinkler system, water tank vortex, water hydrant, fire extinguisher and the firefighting squad team.

We have a whole day discussion how much coverage was required for the risk.

Machinery Coverage

Since all the machinery was imported directly from Japan. I need the original invoices to convert from Japanese Yen to Malaysian Ringgit.

“All the machinery is worth around RM10 million, it is best to cover this amount,” I advised the owner.

“I think we should cover less than this amount less say 20% depreciation.” the accountant said.

“Why? I asked him.

“The machinery would depreciate at least 10 to 20% after a year. We will write down for say 10% of depreciation based on our accounting system.”

“In insurance term, we “appreciate” for your used machinery less than 5 years old, provided that you have to cover the sum insured based on the original invoice value.  We will apply average in the event of the claim”

“What do you mean the word average”

“Average is a penalty, same like the franchise in marine insurance.”

“You mean deduction from the claim,’

“Yes, Mr. Accountant, as all the machinery imported from Japan directly, I will add the adjusting and replacement cost value clauses. It is free of charge.”

What is replacement cost value?

Replacement Cost Value is the amount it would cost to repair or replace an item with one of like kind and quality as the original – in today’s market without deduction for depreciation.

3 years later, a short circuit completed blazed the one unit of the equipment into the charcoal black. It was a total loss, the machinery needed to import from Japan. The Japanese Yen had appreciated more around 35% against Malaysia Ringgit.

“Jamin, we would like to claim the total loss for this unit of a machinery of RM100 000.00 as we have the coverage.” the owner called me.

“Please do not worry, the insurer will pay you the full amount. Please request a copy of performance invoice from Japan along with duly signed and completed the claim form and forward to us.”

The final verdict

The owner called and invited me for a business lunch after I personally handed over the cheque amounting to RM135 000 for the total loss claim. If the owner agreed with his accountant to cover Rm90 000 for the said equipment just to save an insignificant amount on premium. The claim would be RM90 000/135000 x 100% = 66.60%. The average rule applies Rm90 000 x 66.60% = Rm59 940 would be the final claim amount. Do you want to have insurer pay you RM135 000 or RM59 940?

Why extra?

Why RM135 000 instead of the original price of RM 100 000.  It is due to the replacement cost value at the current market price without any deduction for depreciation. The reader can also claim the household electrical appliances for new for old replacement. 

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The Fast claim on equipment breakdown insurance 4