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.
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 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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