TAKAFUL BASIC EXAMINATION (TBE)

TEXTBOOK
PART B – GENERAL TAKAFUL

2018
Edition
Part B Takaful Basic Examination
General Takaful

CHAPTER B1: INTRODUCTION TO GENERAL TAKAFUL

Learning Objectives

To understand the concept and salient features of General Takaful business

Learning Outcome

Able to advise and communicate effectively the characteristics, classes and basic needs of the
General Takaful products.

B1.1 INTRODUCTION

The concept of General Takaful is to provide a form of Sharī’ah-compliant risk management

based on the principle of risk sharing to cover participants against financial losses, liability or
injury due to or following a misfortune or accident occurring to their properties and assets or
persons.

General Takaful is a risk management tool that seeks to manage risk exposures to participants,
taking into account the pre- and post-loss objectives:

Pre-Loss Objectives

 Prepare for potential losses in the most economical way

 Reduce fear and worry
 Compliance with law

Post-Loss Objectives

 Completeness and speed of recovery

 Survival of the organization
 Stability of earnings
 Reduction in the impact of losses

1
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B1.2 CHARACTERISTICS OF GENERAL TAKAFUL PRODUCTS

The characteristics of General Takaful products can be summarized as follows:

No Characteristics Description
1 Annual/Short-Term Contracts The General Takaful contracts usually last one year or
less and at the end of that period, can be renewed by
mutual consent of the Takaful Operator and the
participant.
2 Varying Contribution at At the end of the contract period, the Takaful
Renewal Operator will reassess the risk. Based on this
reassessment, a possibly different contribution rate
may be charged.

The difference in the rate could be due to two basic

causes:

a. Change in the nature of the individual risk to

be covered and/or
b. Overall change in the certificate/ contribution
rates for that particular class of business
owing to, for example, an overall worsening
of the risk to be covered.
3 Contracts of Indemnity In General Takaful, the aim is to place the participant
in the same financial position before the occurrence
of the loss, subject to maximum limits of the covered
amount. For the majority of General Takaful
contracts, the process of indemnifying a loss leads to
the claim amount per unit of certificate, varying
considerably even within the same class of business
which can be considered to be fairly homogeneous in
relation to the covered risk.
4 Payment of a Claim Does Not Under General Takaful, the settlement of a claim will
Terminate the Contract not terminate the contract unless there is total loss
claim paid. Further claims can be made within the
contract period for the balance of the sum covered.
5 Risk to Be Covered Does Not Unlike Family Takaful contracts where the mortality
Necessarily Increase with Time risk increases with age, covered risk under General
Takaful may not increase with duration. In fact it may
decrease due to better safety measures taken by the
participant (e.g. installation of water sprinklers for the
building).

2
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B1.3 THE BASIC PRINCIPLES OF TAKAFUL AS APPLIED TO GENERAL TAKAFUL

General Takaful contract assimilates six main general insurance principles in its practices that
embody the concept of fairness as encouraged by Sharī’ah. The adopted six General Takaful
legal principles are:

1. Principle of Permissible Takaful Interest

2. Principle of Utmost Good Faith
3. Principle of Indemnity
4. Principle of Subrogation
5. Principle of Contribution
6. Principle of Proximate Cause

The above principles have been discussed in general under Chapter A5. However, it is obvious
that the principles of indemnity, subrogation and contribution have greater relevance to the
conduct of General Takaful business.

1.3.1 Principle of Indemnity

General Takaful contracts are contracts of indemnity where Permissible Takaful Interest is
measurable, for example property, pecuniary and liability Takaful contracts.

The principle of indemnity shall apply in the following circumstances:

 The participant has to prove that he has suffered a loss on the subject matter covered
under the Takaful at the time of the happening of the event and the loss is an actual
monetary loss.
 The amount of compensation will be the amount covered under the Takaful whereby
indemnification cannot be more than the sum covered.
 If the participant receives more than the actual loss, the Takaful Operator has the right
to recover the extra amount from the participant. Similarly, if the participant receives an
amount more than his actual loss from a third party after being fully indemnified by the
Takaful Operator, the Takaful Operator has the right under the principle of Subrogation
to recover such amount paid by the third party.
 It must be cautioned that the sum covered is not a measure of indemnity by itself but it
sets an upper limit to which the loss can be indemnified. The actual amount of
indemnity will be based on the principle of “the sum covered or the market values
whichever is lower”.

1.3.2 Principle of Subrogation

The Principle of Subrogation is a corollary of the Principle of Indemnity. Essentially, the Principle
of Subrogation is applied in the following:

 It is a corollary to the Principle of Indemnity to ensure that the participant does not
profit from his actual loss.

3
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 It may be applied before payment to the participant in cases where the participant had
been partly indemnified by a third party, the Takaful Operator will only pay the balance.
 It is only up to the amount of payment made to the participant. If the Takaful Operator
recovers from the third party more than what it has paid to the participant, such excess
must be given to the participant.
 It is not applicable to Family Takaful and Personal Accident Takaful as they are not
contracts of indemnity.

Example:

Participant A’s house was destroyed by fire due to the explosion of a factory close by. A
claim was submitted by Participant A to his Takaful Operator for RM500,000. Upon
payment of the claim, the Takaful Operator is accorded with the subrogation right to claim
the amount settled with participant A from the factory owner who is ultimately
responsible for the loss.

5.1.5 Principle of Contribution

The Principle of Contribution is applied to General Takaful in order to prevent the participant
from making profit out of multiple claims for the same loss from different Takaful Operators.
Under this principle the loss shall be proportionately shared between the Takaful Operators
concerned.

Example:

Participant B obtained cover for his house worth RM1 million with Takaful Operator X, Y
and Z hoping to make a profit by making claims from all the Takaful Operators for an
amount of RM3 million (RM1 million from each Takaful Operator) should his house be
damaged by fire.

When the house was destroyed by fire, participant B submitted his claims to all the
Takaful Operators as planned. However, upon discovery by the three Takaful Operators of
the multiple cover, each Takaful Operator will only pay their proportionate share of the
loss i.e. RM333,333 each totaling RM1 million.

The operators’ called into contribution must have covered:

 The same interest (i.e. applied only when the same person covers the same interest
with more than one insurer)
 The same subject matter interest (i.e., both the certificates must cover the same item in
respect of which a claim is made)
 The same peril (i.e. contribution arises only if both certificates include the same perils
which caused the loss)

4
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B1.4 NEEDS OF GENERAL TAKAFUL

As a risk sharing mechanism, the practice of Takaful is aimed at achieving the Maqāṣid al-
Sharī’ah in its implementation for the maṣlaḥah of individuals and public at large.

Through Takaful, individuals and business enterprises avoid the necessity of having to freeze
capital to provide for financial protection against losses. It also provides a means of stabilizing
the costs involved in managing risks. Takaful also helps remove fears and worries of losses
among individuals and business owners.

This removal of fears and worries helps establish confidence and enables forward planning for
more beneficial economic activities.

This is line with the Sharī’ah Legal Maxim (Qawā’id al-Fiqhiyyah), ‘al-Ḍararu Yuzāl’ – Harm Must
be Eliminated. As such, Takaful plays a crucial role in the socio-economic welfare and maṣlaḥah
of individuals and societies.

For instance, motor vehicle Takaful provides compensation to road accident victims similar to
the system of Diyāt as practiced in the Islamic traditions.

In Malaysia for example, motor vehicle Takaful is compulsory under the law. Similarly,
individuals and businesses benefit from the various Takaful products towards ensuring the
sustainability and profitability of their assets and business, against the risks of loss or damage to
the assets concerned.

The outbreak of fire at a factory can cause financial ruin to the company concerned, as well as
loss of jobs among the employees and related business counterparts such as suppliers and
vendors.

As a business concern, the business owner needs to recover quickly after a fire or loss as part of
its business continuity planning. It caters for both the upstream and downstream activities
involving vendors, suppliers, distributors and customers; workers need to be retained;
alternative temporary business premises need to be sought.

Therefore, participating in fire Takaful and loss of profits Takaful is an important aspect of such
business continuity planning.

In many countries, school children and students in tertiary education are required to be covered
under the group personal accident and medical Takaful schemes against death or permanent
disability and related medical expenses.

The Workmen’s Compensation Takaful provides cover to the workmen against occupational
related death or injuries. With the increasing trend of litigious society, individuals and
businesses need to prudently cover their liability risks to others through the various liability
Takaful products such as public liability, product liability and employers’ liability, and
professional indemnity.

In the same breath, financial institutions that provide financing facilities for businesses or assets
will face the possibility of default due to such loss or damage or death of the borrower before

5
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

full repayment of the financing. In this instance, Takaful products that provide cover for such
losses such as fire Takaful, engineering Takaful, burglary Takaful and the like will be relevant.

Additionally, Takaful products such as marine cargo Takaful and export credit Takaful will help
reduce the financial impact of risks in international trade and commerce, thus facilitating
efficient and secured global trading activities.

Islām highly encourages protection of assets as recorded in the following Ḥadīth:

Anas bin Malik narrated that a man said:

"O Messenger of Allāh! Shall I tie it and rely (upon Allāh), or leave it loose and rely
(upon Allāh)?" He said: "Tie it and rely (upon Allāh)."

(Jāmi’ al-Tirmidzi : 2517)

It can be deduced from the above Ḥadīth the wisdom in ensuring one’s properties are safe and
secure by taking all the necessary precautions, including taking or participating in the relevant
Takaful products.

This is in accord with the provisions of the Sharī’ah as well as Maqāṣid al-Sharī’ah.

B1.5 DIFFERENCES BETWEEN GENERAL TAKAFUL AND FAMILY TAKAFUL

Basis Family Takaful General Takaful

Nature Subject to a contingency where full Subject to indemnity where actual
assured amount is payable. loss is payable.
Sum covered Generally a valued cover. No limit Based on the agreed intention of the
as to the amount to be covered. contract i.e. market value,
replacement value, agreed value of
the asset or etc.
Certainty of Death is certain. Loss is uncertain.
event covered
against
Coverage Human life, limb, medical, Property and assets, liability, bodily
indebtedness. injuries and accidental death
Loss Generally full sum covered is Involving partial loss or total loss.
payable
Objective Protection, in the forms of savings Protection.
and investments.
Period Generally long-term in nature. Generally short-term and annually
renewable.
Contribution Generally fixed at time of May vary from year to year
certificate issuance and throughout depending on risk profile.
the duration of the cover.
Claim All certificates may end up with a Not every certificate may become a
claim or benefit payment sooner or claim
6
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

later.
Principles of Does not apply. Applicable.
Subrogation and
Contribution
Moral risk Lower – because generally one Higher - as people may cause damage
does not want to kill or hurt to or loss of subject matter of cover
oneself. for compensation.
Acquisition Generally higher. For example, Relatively low. Sales commissions are
costs costs due to higher sales lower.
commissions.
Table 1 : Differences between General Takaful and Family Takaful

B1.6 CLASSES OF GENERAL TAKAFUL BUSINESS

As a customary practice, General Takaful business is categorized into two classes: Motor and
Non-Motor business as following:

Classes Main/Basic Product Sub Products

Motor Motor Takaful  Private Cars
 Commercial Vehicles
 Motorcycles
 Special Types

Non-Motor  Fire Takaful  Basic Fire Takaful

 Houseowners Takaful
 Householders Takaful
 Business Interruption
 Industrial All Risk (IAR)

 Marine and Aviation Takaful  Marine Hull

 Marina Cargo
 Aviation

 Engineering Takaful  Contractors All Risk Takaful (CAR)

 Erection All Risk (EAR)
 Boiler and Pressure Vessel
 Machinery Breakdown
 Electronic Equipment/Computer

 Miscellaneous Takaful  Theft Takaful

 Liability Takaful
 Miscellaneous Accident Takaful

7
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B2: GENERAL TAKAFUL CLASSES – MOTOR TAKAFUL

Learning Objectives

To understand the types and benefits of Motor Takaful

Learning Outcome

Able to advise and communicate the types of Motor Takaful features and benefits according to
customers’ needs

B2.1 LEGAL PROVISIONS

The Motor Insurance and Takaful industry in Malaysia is generally governed under the Financial
Services Act 2013 and the Islamic Financial Service Act 2013 respectively, and specifically under
the Road Transport Act 1987 (RTA 1987) which determines the role and functions of insurance
and Takaful.

Under RTA 1987, it is an offence for anyone to use, or cause to permit another to use, a motor
vehicle on a road unless there is in force in relation to the use of that vehicle an inspection
certificate in respect of death or bodily injury to a third party.

A ‘motor vehicle’ is described by RTA 1987 as “a vehicle of any description, propelled by means
of mechanism contained within itself and constructed or adapted so as to be capable of being
used on roads, and includes a trailer”.

The RTA 1987 further defines ‘vehicle’ as “a structure capable of moving or being moved or used
for the conveyance of any person or thing and which maintains contact with the ground when in
motion”.

‘Road’ is defined by RTA 1987 as;

a) Any public road and any other road to which the public has access and includes bridges,
tunnels, lay-by, ferry facilities, interchanges, round-abouts, traffic islands, road dividers,
all traffic lanes, acceleration lanes, deceleration lanes, side-tables, median strips,
overpasses, underpasses, approaches, entrance and exit ramps, toll plazas, service
areas, and other structures and fixtures to fully effect its use; and
b) for the purposes of sections 70 and 85 which relate to the power of the Minister to
restrict use of vehicles on specified roads and construction to existing roads
respectively, also includes roads under construction;
However, the above does not include any private road, bridge, tunnel or anything connected to
that road which is maintained and kept by private persons or private bodies.

8
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

‘Third Party’ refers to the beneficiary of the certificate who is someone other than the two
parties involved in the contract (the policy owner/Takaful Participant and the insurer/Takaful
Operator). The basic certificate required by law does not provide any benefit to the Participant.
However, it covers the participant's legal liability for death/disability of third-party loss or
damage to third-party property.

B2.2 CLASSIFICATION OF MOTOR VEHICLES

Motor Takaful provides the participants coverage against:

 loss or damage to their vehicle due to accidental fire, theft or accident

 bodily injury or death of a third party as well as loss or damage of a third party’s
property

For the purpose of rating, the Motor Tariff classifies vehicles as follows:

Type of Vehicle Description

Private Cars These include three-wheeled cars and station-wagons used
for social, domestic and pleasure purposes and for business
or professional purposes of the participant only.

Note: Use for hire or reward, racing, reliability trial, etc. are
excluded.

Commercial Vehicles Vehicles used for commercial purposes, which include vans,
taxis, pick-ups, open lorries, trucks, articulated vehicles, etc.
that are not categorised under private car certificates but
under commercial vehicle certificates. These include all
vehicles (including three-wheeled carriers) not provided for
under the private cars or motorcycles classification.
Motorcycles These include motorcycles with or without side-cars, motor
scooters, auto-cycles or mechanically assisted pedal cycles.
The Tariff further sub-divides the motorcycles into:

 Private motorcycles
 Commercial motorcycles
 Motorcycles (with or without side-cars) used for hire
 Motorcycles trade

9
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Special Types These include forklift trucks, mobile cranes, bulldozers and
excavators, agricultural and forestry vehicles, site clearing
and levelling plants, mobile plants, delivery trucks
(pedestrian controlled), dumpers, (mechanical navies),
shovels, grabs, trolleys and goods-carrying tractors, fire
brigade vehicles, (road rollers), (gritting machines), hearses,
mobile shops and canteens, prison vans, tar sprayers, dust
carts, tractors and traction engines.

B2.3 TYPES OF MOTOR COVER

There are 4 types of cover available for each category of motor vehicles:

Type of Cover Scope of Coverage

Act This form of cover provides:

 the participants’ legal liability for death or bodily

injury to third parties (excluding passengers) caused
by and arising out of the use of the participant’s
motor vehicle on a road. It also includes cover for
reasonable expenses incurred for hospital treatment
for injured persons.

Note: This is the least form of cover required under the Road
Transport Act 1987.
Third Party Cover This form of cover provides the above Act Only cover plus:

 legal liability for loss or damage to third party

property caused by or arising out of the use of the
motor vehicle.
 legal liability refers to tortious liability, not
contractual liability, e.g. arising due to the
participants’ negligent or reckless driving.

This is normally the lowest option for Takaful participant; it

does not cover loss or damage to the vehicle of the
participant.
Third Party, Fire and This form of cover provides the above Act Only cover plus:
Theft Cover
 legal liability for third party bodily injury and third
party property damage cover.
 accidental loss of or damage to the vehicle as a
result of fire or theft.

10
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Comprehensive Cover The coverage under a comprehensive certificate is divided

into two sections.

• Section A – Loss or damage to own vehicle (Own

Damage).
• Section B – Legal liability to third parties (Third
Party).

Risks Covered Under Section A

1. Accidental collision or overturning.

2. Collision or overturning caused by mechanical
breakdown.
3. Collision or overturning caused by wear and tear.
4. Fire, explosion and lightning:
- By malicious act.
- By burglary, housebreaking or theft.
5. By impact damage caused by falling objects, provided no
flood, typhoon, hurricane, storm, tempest, earthquake,
volcanic eruption, landslide, subsidence or sinking of the
soil/earth or other convulsion of nature.
6. Whilst in transit (including its loading and unloading) by:
- Road rail, inland waterway.
- Direct sea route across the straits from the island of
Penang.

Risks Covered Under Section B

1. Provides cover against legal liability to a third party that

may arise in consequence upon injury/death of any third
party arising out of the use of the motor vehicle. This is
termed as Third Party Bodily Injury (TPBI). The law
allows for unlimited liability for TPBI.
2. Provides cover against any legal liability to a third party
in the event of damage or destruction to property
belonging to any third party arising out of the use of the
motor vehicle. This is known as Third Party Property
Damage (TPPD). Currently, the law limits damages under
TPPD to RM3 million.
3. Legal costs and expenses incurred by the Participant
which is payable with Takaful Operator’s consent.
Reasonable medical expenses due to a road accident to any
person limited up to a maximum of RM400.00 for in-patient
and RM40.00 for out-patient treatments.

This is the widest and all-encompassing form of cover as the

term comprehensive as specified under the Malaysian Motor
Tariff.

11
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B2.4 COMMERCIAL VEHICLES

The scope of coverage is similar to the Private Motor Vehicle except with two additional
exclusions:

 damage caused by overloading or strain.

 damage caused by explosion of any boiler forming part of or attached to or on the
covered vehicle.

B2.5 RATING FACTORS

The rating of motor Takaful contribution is generally based on the following criteria:

 Type of cover – third party or comprehensive.

 Type of vehicle – private car, commercial vehicle, motorcycle.
 Make and model of vehicle - saloon, sports, local, imported etc.
 Year of manufacture / age of vehicle.
 Cubic capacity of engine.
 Use of vehicle.
 Market value of vehicle.
 Driver/owner of vehicle – age, occupation, experience.
 Excess.
 Past claims.
In Malaysia, the motor premium or Takaful contribution for the motor insurance and Takaful
business is subject to Malaysian Motor Tariff. However, the practice towards de-tariff has been
introduced in 2017.

B2.6 NO-CLAIM-DISCOUNT (NCD)

If no claim is made or arises from a participant’s certificate, and provided the Subject Matter
Covered is covered for a continuous period of twelve (12) months in each of the following
instances, the participant is entitled to a No-Claim-Discount (NCD) upon renewal of the
certificate as follows:

Year No Claim Discount (%)

Car Motorcycle
st
After 1 year 25 15
nd
After 2 year 30 20
After 3rd Year 38.33 25
th
After 4 year 45 25
After 5th year 55 -
Table 2: Entitlement of No-Claim-Discount (%) for Car and Motorcycle under the Malaysian
Motor Tariff

12
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

This can be regarded as an incentive to the participant for not causing any accident during the
preceding period of cover. If an accident occurs involving a third party, the participant will lose
his NCD entitlement even though he has not made a claim as the Takaful Operator would have
to provide a monetary reserve in anticipation of a third party claim.

The NCD is transferable if there is a change to another Takaful Operator or to another vehicle
that belongs to the participant, since this incentive is attached to the person rather than the
vehicle.

B2.7 EXCESS

An excess is the first amount that must be borne by the participant in the event of a claim.
Excess is the amount of loss the participant has to bear before the Takaful Operator will pay for
the balance of your claim.

In other words, the excess amount will be deducted before the final claim payment.

For a Takaful coverage under the Third Party class, no excess is imposed.

However, for coverage under the Comprehensive class, there is compulsory excess for both the
Participant and the authorised driver(s) – for both cars as well as motorcycles.

The rates of excess under the Malaysian Motor Tariff are as follows:

Types of Vehicle Excess Rate

Private Cars 1% of sum covered
4WD Vehicles / MPVs 3% of sum covered
Commercial Vehicles 3% of sum covered
Motor Cycles 5% of sum covered

Example:

If the amount of excess is RM1,000 and the amount of claim for accidental damage is RM1,500,
the Takaful Operator will only indemnify RM500.

B2.8 EXCLUSION

Motor Takaful will not cover the following:

 Participant’s own death or bodily injury due to a motor accident.

 Damage to tires unless the vehicle is damaged at the same time.

13
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 Consequential loss, depreciation, wear and tear, rust and corrosion, mechanical or
electronic breakdowns, failures or breakages, equipment or computer malfunction.

 Loss, damage or liability occurring outside the geographical area (Malaysia, Singapore
and Brunei).

 Loss or damage caused by or due to cheating or criminal breach of trust.

 Loss, damage or liability arising from an act of nature, arising during or consequence of
flood, typhoon, hurricane, storm, volcanic eruption, earthquake or landslide and other
nature, landslide.

 Loss, damage or liability arising from riot, strike, war and/or warlike operations and
nuclear risks.

 If the participant or any person with the participant’s consent is not licensed to drive the
vehicle.

 If the participant or the authorized driver drives the vehicle whilst under the influence of
alcohol or drugs.

 Loss, damage or liability caused by the vehicle being used for an unlawful purpose

 If the vehicle is used for any motor sports or competition (other than treasure hunts) or
any other purpose specified in the certificate.

14
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B3: GENERAL TAKAFUL CLASSES – FIRE TAKAFUL

Learning Objectives

To understand the types and benefits of Fire Takaful

Learning Outcome

Able to advise and communicate the types of Fire Takaful features and benefits according to
customers’ needs

B3.1 INTRODUCTION

The main types of Takaful under this class of Takaful include:

 Basic Fire Takaful;

 Houseowners Takaful;
 Householders Takaful
 Business Interruption Takaful
 Industrial All Risk Takaful.

B3.2 BASIC FIRE TAKAFUL

Basic Cover Loss of or damage to buildings (of factories, shops, offices,

private dwellings, etc.), and contents (for example, furniture,
fixtures & fittings, plants & machinery, office equipment,
stocks-in-trade, personal effects and household goods)
caused by the following perils:

 fire.
 lightning.
 explosion of gas used for illuminating and domestic
purposes only.

15
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Extended Peril Under this extension the following perils are commonly
covered:
In addition to the basic
Fire Takaful, a further Dry Perils Wet perils Miscellaneous
range of perils may be Perils
extended under the Aircraft and Storm and Impact damage
standard cover but aerial devises tempest
subject to additional Explosion Flood Subsidence and
contribution. landslip
Riot, Strike, Bursting of pipes Subterranean fire
malicious
damage and Civil
Commotion
Bush, lallang fire Overflowing of Spontaneous
water tanks combustion
Earthquake and Sprinkler leakage Loss of rent
Volcanic
Eruption

Property/Asset Can Be The following items may be covered under Fire Takaful:
Covered under Fire
Takaful  buildings, to include out buildings such as walls,
fences, garages, etc.
 plant and machinery.
 stock and stock in trade.
 loss of rent.
 furniture, fixtures and fittings.
 goods held in trust or commission.
 professional fees.
 removal of debris.

Rating and Fire Takaful is normally rated and underwritten based on the
Underwriting Criteria following criteria:

 construction of building – bricks, wood, steel, etc.

 type of building – detached, attached complexes, etc.
 value of building - cost of rebuilding; (excluding value
of land).
 use of building – residential house, shop house,
factories, office complex, commercial complex, etc.
 location of building – towns, villagers, industrial areas,
residential areas, flood-prone areas.
 additional risks covered.

16
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The Fire Takaful excludes the following:

a. loss or damage caused directly or indirectly by the

following perils-
 earthquake, volcanic eruption or other
convulsion of nature.
 typhoon, hurricane, tornado and the like
 warlike risks.
 nuclear risks.

b. loss or damage caused proximately by the following

perils:
 burning of property by order of any public
authority.
 subterranean fire.
 explosion other than explosion of gas used
for:
 illuminating and domestic purposes.
 burning of forest, bush, lallang,
prairie, pampas or jungle and the
clearing of land by fire.

c. loss or damage to the following specified property

unless expressly stated in the certificate:
 goods held in trust or on commission.
 bullion or unset precious stones.
 any curiosity or work of art exceeding
RM500.
 manuscripts, plans, drawing or designs,
patterns, models or molds.
 securities, obligations or documents of any
kind, stamps, coins or currency notes,
cheques, books of account or other business
books or computer systems records.
 coal against loss by its own spontaneous
combustion.
 explosives.

d. specified losses by policy condition:

 loss by theft during or after occurrence of
fire.
 loss or damage to property resulting from its
own fermentation, natural heating or
spontaneous combustion.

17
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B3.3 HOUSEOWNERS TAKAFUL

Houseowners Takaful covers residential building against loss or damage caused by perils such as
fire, flood or earthquake, etc.

Basic Cover a. Loss or damage to the home building (including fixtures

and fittings, garages, out-buildings, walls, gates and
fences) by the following covered perils:

 fire, lightning, thunderbolt and subterranean fire.

 explosion.
 aircraft and other aerial devices and/or articles
dropped therefrom.
 impact damage by road vehicles, horses and cattle.
 bursting and overflowing of water tanks, apparatus
or pipes excluding first RM50 of every loss and
destruction or damage while the insured building is
left unfurnished.
 theft accompanied by actual forcible and violent
breaking into or out of the building or any attempt
thereat.
 hurricane, cyclone, typhoon, windstorm.
 earthquake, volcanic eruption.
 flood (including overflow of the sea).

b. Loss of rent (not exceeding 10% of the total sum insured)

in the event of the building being damaged as to be
rendered uninhabitable.

Liability of the covered to the public as owner of the

premises (this would include liability arising from defects
in buildings, fixtures and fittings or in the walls, gates,
fences and trees around) up to a limit of RM10,000 plus
legal costs subject to the consent of the Takaful Operator.

18
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion This Takaful coverage excludes the following:

a. loss or damage arising from:

• war, riot and kindred risks.
• contamination by radioactivity.

b. loss or damage caused by hurricane, cyclone,

typhoon, or windstorm to the following:
• any building under construction,
reconstruction or repair.
• metal smoke stacks, awnings, blinds, signs and
other outdoor fixtures and fittings including
gates and fences.
c. loss or damage caused by subsidence and landslip
except where it is occasioned by earthquake or
volcanic eruption.

Extension The Houseowners Takaful cover can be extended to include

the following perils at additional cost:

• riot, strike and malicious damage.

• subsidence and landslip.
• plate glass exceeding RM500 per piece.

B3.4 HOUSEHOLDERS TAKAFUL

Householder Takaful will cover contents, such as furniture, furnishings, kitchen equipment,
television and radio sets, clothing, personal effects and valuables, and also provide coverage for
fatal injury to you as a participant.

Basic Cover Loss or damage to contents (including furniture, furnishings,

household goods, personal effects and valuables) caused by:

 fire, lightning, thunderbolt and subterranean fire.

 explosion.
 aircraft and other aerial devices and/or articles
dropped therefrom.
 impact damage by road vehicles, horses and cattle.
 bursting and overflowing of water tanks, apparatus or
pipes excluding first RM50 of every loss and
destruction or damage while the insured building is
left unfurnished.
 theft accompanied by actual forcible and violent
breaking into or out of the building or any attempt
thereat.

19
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 hurricane, cyclone, typhoon, windstorm.

 earthquake, volcanic eruption.
 flood (including overflow of the sea).

Property temporarily removed but remaining in Malaysia will

be covered against the above perils. Property in transit or on
the persons will not be covered against loss or damage by
earthquake, volcanic eruption, hurricane, cyclone, typhoon,
windstorm and flood. Liability under this extension is limited
to 15% of the sum covered.

 loss of rent (similar to the Houseowners Takaful).

 breakage of mirrors (other than hand mirrors) whilst
in the private dwelling only.
 fatal injury to the insured occurring in the private
dwelling occasioned by outward and visible violence
caused by thieves or by fire. The Takaful Operators
will pay RM 10,000 or one half of the total sum
covered, whichever is less.
 loss or damage caused by any of the insured perils to
servants’ clothing and personal effects.
 liability of the participant to the public in respect of
accidental occurrence in or about the participant
premises as a private householder occupying the
private dwelling up to a limit of RM50,000 plus legal
costs subject to the consent of the Takaful Operator.

Exclusion This Takaful coverage excludes the following:

a. loss or damage arising from:

 war, riot and kindred risks.
 contamination by radioactivity.

b. loss or damage caused by hurricane, cyclone,

typhoon, or windstorm to the following:
 any building under construction,
reconstruction or repair.
 metal smoke stacks, awnings, blinds, signs
and other outdoor fixtures and fittings
including gates and fences.
 loss or damage caused by subsidence and
landslip except where it is occasioned by
earthquake or volcanic eruption.

20
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Extension The Householders Takaful cover can be extended to include

the following perils at additional cost:

 full theft (without the limitation of being

accompanied by actual forcible and violent breaking
into or out of the building).
 riot, strike and malicious damage.
 plate glass exceeding RM500 per piece.

B3.5 BUSINESS INTERRUPTION TAKAFUL (IN CONJUNCTION WITH FIRE TAKAFUL)

Also known as Consequential Loss provides cover to the participant’s loss of gross profit due to
reduction in turnover as well as increased in cost of working during the indemnity period in
consequence of the damage by peril(s) covered under the Fire certificate.

Business Interruption Takaful is really not a class of Property Takaful but is usually underwritten
in the commercial property department. It may be called consequential loss, loss of profits or,
more usually, Business Interruption Takaful because the certificate covers the loss of profits
resulting from a physical property having been damaged. The Fire Takaful provides protection
only against material loss or loss of capital, i.e. it deals with the value of the property damaged
or destroyed, but not with related losses or additional costs incurred during the repair period
and immediately thereafter until full operations are restored.

This Business Interruption Certificate aims to provide the following cover:

• certain overhead costs in the form of standing charges or fixed costs such as salaries,
rental, bank charges/ interest, etc. will remain at their full level even though sales may
be reduced.
• if stock or production has been lost, the profit achievable on that stock may be lost if
they lose the customers.
• there may be increases in costs incurred to keep the business going in a temporary
manner (e.g. temporary accommodation) or other expediency costs that increase the
cost of working.

Basic Cover Business Interruption Takaful provides cover for the following
which may be suffered as a result of an interruption to the
insured’s business following damage at the insured premises
by fire, lightning or explosion of gas used for illuminating and
domestic purposes:

 loss of gross profit due to reduction in turnover.

 additional expenses incurred in minimizing the loss of
turnover.

The certificate coverage is normally issued in conjunction with

Fire Takaful on the business premises to ensure that funds are
21
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

available for the repair of material damage and that the

insured’s business will be reverted to normal without delay. In
this regard, the Business Interruption Takaful coverage
contains a material damage warranty which provides that at
the time of the happening of the damage, the insured must
have a Takaful covering his interest in the property at the
premises against such damage and that payment has been
made or liability admitted under such coverage. By making
good the loss of gross profit, the operator provides cover for
the standing charges of the business and also its net profit.

The standing charges are those expenses which continue to

apply even though the manufacturing or trading activities
have been disrupted, for example rates, rent wages, salaries,
interest on loans, contributions and auditors’ fees.

The most common Business Interruption Takaful coverage is

those which cover losses flowing from:

 fire and special perils.

 engineering breakdown risks.
 computer damage and breakdown risks.

Exclusion The exclusions under this scheme are similar to those found
in the Fire Takaful.

Extension The certificate may be extended to cover:

 special perils which are similar to those offered under

the Fire Takaful.
 loss of gross profit arising from business interruption
on other’s premises (example: customer’s/ supplier’s
premises).

B3.6 INDUSTRIAL ALL RISK (IAR) TAKAFUL

An Industrial All Risks (IAR) certificate is an "all risks" form of Takaful which cover not only all the
“named perils” of fire Takaful but also extend to cover “accidental damage” which could not be
covered under fire Takaful, subject only to specific exclusions of the certificate. This class of
business is normally offered to large commercial and industrial risks. It covers:

Section I – Material Damage; and

Section II – Business Interruption

22
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Generally, the IAR certificate provides cover against loss of or damage to property and/or
interests of the Participant caused by any unforeseen, sudden and accidental physical loss,
destruction or damage arising from perils such as fire, lightning, explosion, falling of aircraft,
smoke, flood, self-combustion, short circuit, burglary and risks other than those specifically
excluded in the policy, as well as loss of profit as a consequence of material damage to the
property covered.

Basic Cover Section I - Material Damage

 Provides cover for any unforeseen, sudden and accidental physical
loss, destruction or damage other than those specifically excluded in
the General or Special Exclusions.

Section II - Business Interruption

Provides cover if the business carried on by the Participant at the
premises specified in the Schedule is interrupted or interfered
with, resulting in loss, destruction or damage indemnifiable under
Section I.
Exclusion The Takaful Operator will not indemnify the Participant in respect
of loss (including consequential loss), destruction, damage or
expense whatsoever directly or indirectly caused by or arising out
of or aggravated by;

 war, invasion, act of foreign enemy, hostilities or warlike

operations (whether war is declared or not) or civil war;
 riots, strikes, locked-out workers, malicious acts, looting,
mutiny, civil commotion, military uprising, insurrection,
rebellion, revolution, military or usurped power,
confiscation, requisition or nationalisation or acts of
terrorism; ionising radiations or contamination by
radioactivity from any nuclear fuel or from any nuclear
waste from the combustion of nuclear fuel;
 radioactive, toxic explosive or other hazardous properties
of any nuclear explosive, assembly or component thereof;
 wilful act or wilful negligence of the Participant or of his
representatives; or
 total or partial cessation of work.

23
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B4: GENERAL TAKAFUL CLASSES – MARINE AND AVIATION TAKAFUL

Learning Objectives

To understand the types and benefits of Marine and Aviation Takaful

Learning Outcome

Able to advise and communicate the types of Marine and Aviation Takaful features and benefits
according to customers’ needs.

B4.1 INTRODUCTION

Marine Takaful covers the loss or damage of ships, cargo, terminals, and any transport or cargo
by which property is transferred, acquired, or held between the points of origin and final
destination. Marine also includes Onshore and Offshore exposed property (container terminals,
ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Basic Cover Loss of or damage to property and interest by maritime perils which
include:

 perils of the sea.

 heavy weather.
 stranding or collision.
 fire and like perils.
 pilferage.

Subject Matter of The following may form the subject matter of a Takaful:
Takaful
 Hull and machinery.
 Legal liability arising out of collision.
 Cargo and freight.

With the exception of the collision liability which is covered under a

marine hull, different marine certificate are generally used to cover
the different subject matter.

24
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Types of Certificate
Type Subject Matter
Marine Hull Vessel, machinery & limited
collision liability
Marine Cargo Goods carried on the vessel
Marine Freight Freight (Money/Fee charged for
carriage of goods by the vessel)
Marine Building Vessel under Construction/Repair

B4.2 MARINE HULL TAKAFUL

Marine Hull Takaful provides cover against loss or damage to hull and machinery. The hull is the
structure of the vessel whilst the machinery is the equipment that generates the power to move
the vessel and control the lighting and temperature system such as boiler, engine, cooler and
electricity generator.

Scope of Cover

Under the Marine Hull Takaful the scope of cover is categorized as the Time Clauses. It is usually
issued for a specific period of usually 12 months. The nature and degree of risks which the
Takaful Operator assumes vary according to the kind of vessel and categorized as follows:

• Institute Time Clauses (Hull) – the most comprehensive cover.

• Institute Time Clauses (FPA).
• Institute Time Clauses (Total Loss Only).

Perils covered are perils of the sea, fire & explosion, violent theft, piracy, contact with aircraft,
earthquake, volcanic eruptions or lightning, accidents in loading, bursting of boilers, breakage of
shaft, latent of defect, negligence of masters, negligence of repairers, negligence of charterers,
barratry.

Marine Hull business requires a much more technical underwriting approach by specialist
underwriters. Most companies have limited capacity to write this class of business and may rely
a great deal on the support from their Retakaful providers.

B4.3 MARINE CARGO TAKAFUL

Delivery of goods via ship and sea is the cheapest form but it is exposed to many type of risks.
Marine Cargo Takaful provides the needed risk coverage for delivering of goods via sea. Many
types of Marine Cargo Takaful are offered by the market depending on the various terms of sale
and coverage required.

25
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Examples:

“Free on Board” (FOB) The risk of loss of or damage to the goods is transferred to
the buyer when the goods pass the ship’s rail.

“Cost & Freight” (C&F) The seller pay the costs and freight necessary to bring the
goods to the named destination, but the risk of loss or
damage to the goods is transferred to the buyer when the
goods pass the ship’s rail in the port of shipment.

Cost, Insurance and Means that the seller delivers the goods on board of the
Freight vessel. The risk of loss or damage to the good passes when
(CIF) the goods are on board the vessel. The seller must pay the
cost and freight necessary to bring the goods to the named
port of destination. The seller also contracts for Takaful cover
against the buyer’s risk of risk of loss of damage to the goods
during the carriage. When using CIF, the seller fulfills his
obligation to deliver when it hands the goods over to the
carrier and not when the goods reach the place or final
destination.

“Ex Quay” The seller makes the goods available to the buyer on the quay
(wharf) at the destination named in the sales contract. The
seller has to bear the full cost and risk involved in bringing the
goods there.

a. Type of Marine Cargo Cover

There are many types of cover available. Some examples are usually referred to as
follows:

 Total Loss Only (T.L.O.)

Cover total loss only of the participant interest caused by the perils of the seas

 W.A PLUS T.P.N.D (with Average + Theft, Pilferage & Non-Delivery)

 Total loss & partial loss of any package or packages occurring during loading,
transshipment or discharge.

 Partial loss & partial loss caused if the carrying vessel is stranded, sunk or burnt; and
if attributed to fire, explosion, collision or contact of carrying vessel with any external
substances (ice included) & the perils of the sea, where the most common peril is
seawater damage.

 Inclusive of the risks of theft, pilferage and non-delivery.

26
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

b. Institute Cargo Clauses (A) / (B) / (C)

i. Types of Marine Cargo Takaful Certificate:

 Individual Cover

These are certificates issued on each and every shipment upon request by the
participant.

 Open Cover

An Open Cover is a continuous cover that is issued on a certain date and remains in
force until cancelled. It provides automatic protection for all shipments described
in the Certificate.

For shipment by vessel, the Marine Cargo Takaful certificate has three main forms
of coverage set by three different sets of cargo clauses. They present an easily
understandable cover which no longer involves cross-reference to the certificate.

Institute Cargo Institute Cargo Institute Cargo

Clauses A Clauses B Clauses C
These provide cover These provide cover These provide cover
against loss of or against specified perils. against a narrower list of
damage to the cargo by B cover is almost similar specified perils than
all risks subject to to A cover; however, it clause B. This means
certain exclusions. excludes losses or that the C cover is the
damages by pirates and most restricted among
thieves, and deliberate the three forms of
‘damage and cover.
destruction.

With the exception of the collision liability risk which is covered under a Marine Hull Takaful,
different marine certificates are generally used to cover the different subject matter of Takaful as
follows:

Covered (√) and excluded (x) perils under the clause:

Clause
Perils A B C
Sinking, stranding, grounding, capsizing √ √ √
Fire, explosion √ √ √
Collision √ √ √
Overturning, derailment of land conveyance √ √ √
Earthquake, volcanic eruption, lightning √ √ x
General Average Sacrifice √ √ √
Jettison √ √ √
27
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Clause
Perils A B C
Discharge of cargo at port of distress √ √ √
General average and salvage charge √ √ √
Washing overboard √ √ x
Entry of sea, lake, river water into vessel √ √ x
Total loss of package during loading or √ √ x
discharge
Pirates and thieves √ x x
Deliberate damage or destruction √ x x
Willful misconduct of the insured x x x
Ordinary leakage, loss in weight or volume, x x x
wear & tear
Insufficiency or unsuitability of packing x x x
Inherent vice or nature of the subject matter x x x
Unseaworthiness & unfitness of vessel (when x x x
participant is privy to it)
Insolvency or financial default of carrier x x x
War, strikes, riots & civil commotions x x x
Atomic & nuclear weapons x x x

B4.4 AVIATION TAKAFUL

The global aviation industry has transformed modern day travel and international business. It is
among the most critical aspect of facilitating movement of people and goods across the planet
seamlessly at record speed and affordable cost. However, this mode of transport is exposed and
vulnerable to risks of devastating losses should any mishap happens. Records have shown that
hundreds of lives were lost in a single air crash. There were also instances where such crashes
involved third party properties.

Most aviation certificates are issued on an ‘all-risks’ basis subject to certain restrictions. The
participants of these certificates are the large commercial airlines, the corporate or business
aircraft owners, private aircraft owners and flying clubs.

Basic Cover Usually a comprehensive certificate is issued to cover:

 the aircraft itself (the hull).

 liability to passengers and others.

In addition, the following certificates are also available:

 Public Liability Cover

This coverage, often referred to as third party liability covers

aircraft owners for damage that their aircraft does to third
28
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

party property, such as houses, cars, crops, airport facilities

and other aircraft struck in a collision. It does not provide
coverage for damage to the insured aircraft itself or coverage
for passengers injured on the insured aircraft. After an
accident an insurance company will compensate victims for
their losses, but if a settlement cannot be reached then the
case is usually taken to court to decide liability and the
amount of damages.

 Passenger Liability Cover

This cover protects passengers riding in the accident aircraft

that are injured or killed. In many countries this coverage is
mandatory only for commercial or large aircraft. Coverage is
often sold on a "per-seat" basis, with a specified limit for
each passenger seat.

 Combined Single Limit (CSL)

CSL coverage combines public liability and passenger liability

cover into a single coverage with a single overall limit per
accident. This type of coverage provides more flexibility in
paying claims for liability, especially if passengers are injured,
but little damage is done to third party property on the
ground.

 Freight Liability

This protects the aircraft operator against legal liability to

refund freight to cargo owners.

 Personal Accident

This protects pilot and crew members in the event of

personal injury or death arising out of an accident.

 Loss of License

This protects pilots, flight navigators, flight engineers against

financial losses as a result of the loss of their licenses.

Exclusion In general, exclusions are rarely found except as stipulated in the

certificate.

29
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B5: GENERAL TAKAFUL CLASSES – ENGINEERING TAKAFUL

Learning Objectives

To understand the types and benefits of Engineering Takaful

Learning Outcome

Able to advise and communicate the types of Engineering Takaful features and benefits according
to customers’ needs.

B5.1 INTRODUCTION

Engineering Takaful comprises specialised classes of business and certificate may be classified
as:

1. Renewable; and
2. Non-Renewable certificate.

Common types of Engineering Takaful certificate under renewable certificate:

 Boiler and Pressure Vessel Takaful.

 Machinery Breakdown Takaful.
 Electronic Equipment/Computer.

For Non-Renewable Engineering Certificate:

 Contractors All Risk Takaful.

 Erection All Risk Takaful.

30
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B5.2 CONTRACTORS’ ALL RISKS

Basic Cover The certificate provides cover against loss or damage to

temporary works, materials, plants and other things brought
onto site by the contractor in connection with a building or
civil engineering project.

Third Party Liability: In addition to the material damage cover,

the CAR certificate includes a section which provides cover
against liability for property damage and bodily injury to third
parties occurring in connection with the contract works.

Exclusion The common exclusions include the following:

 loss or damage due to faulty design.

 cost of replacement of defective material and/ or
workmanship.
 wear and tear, corrosion, and deterioration.
 loss or damage due to mechanical and/or electrical
breakdown of construction plant and machinery.
 loss or damage to vehicles licensed for general road
use or waterborne vessels or aircraft.
 loss or damage to files, drawings, accounts, bills,
currency, notes, securities and cheques.
 loss discovered at time of taking inventory.
 excess to be borne by the participant.
 consequential loss howsoever caused.
 loss due to willful acts of any director, manager or site
official of the participant.
 nuclear risks.
 loss due to war, warlike operations, strike and civil
commotion.

B5.3 ERECTION ALL RISKS

Basic Cover The certificate provides cover against accidental damage to

actual works being installed and any temporary works carried
on in connection with the erection, testing and
commissioning of plant and machinery. Third Party Liability –
like the CAR certificate, the EAR certificate has a section
which provides cover against liability for property damage
and bodily injury to third parties.

31
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The main exclusions are quite similar to those found in CAR
certificate. Perhaps the main difference between these two
certificates is that EAR has provision to cover during testing
and commissioning during installations, while CAR is strictly a
building/civil engineering kind of works.

B5.4 BOILER AND PRESSURE VESSEL

Basic Cover The certificate incorporates an inspection service and

provides cover against damage to the covered plants:

 damage to participant’s surrounding property.

 property damage and bodily injury to third parties,
caused by explosion and collapse of boilers and
pressure plants.
Exclusion The common exclusions are:

 wear and tear but explosion or collapse arising from

wearing a way of boiler and pressure plant is covered.
 failure of expendable parts (that is parts requiring
routine maintenance) unless such defects result in
explosion or collapse.
 damage to property belonging to insured caused by
fire.
 damage or liability caused by willful act or neglect by
participant.
 loss sustained by stoppage of work.
 loss or damage caused by:
o typhoon, hurricane, volcanic eruption,
earthquake and the like.
o war and warlike operations, civil commotion
and strike.
 loss, damage or liability arising from nuclear risks.

32
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B5.5 MACHINERY BREAKDOWN

Basic Cover The certificate covers unforeseen and sudden damage to the
covered machinery whilst at work or at rest. Cover provided
may include damage due to faulty material, design,
construction and erection.

 accidents arising from working conditions.

 excessive electrical pressure.
 failure of insulation.
 short circuits, open circuits or arcing.
 failure of other connected machinery or protective
devices.
 lack of skill, carelessness of employees or others.
 damage from outside sources.

Exclusion The main exclusions include:

 normal wear and tear.

 loss or damage arising from:
 fire and explosion.
 inundation, subsidence, landslide, earthquake
and the like.
 war, riot and similar risks.
 nuclear risks.

B5.6 ELECTRONIC EQUIPMENT/COMPUTER

Basic Cover The certificate provides cover against physical loss or damage
to covered electrical equipment by any cause other than
those specifically excluded by the certificate.
Exclusion The main exclusions are:

 deductibles.
 loss by theft.
 loss arising from:
 earthquake, volcanic eruption, hurricane,
cyclone or typhoon.
 faults or defects existing at the
commencement of the certificate within the
knowledge of the participant.
 failure or interruption of any gas, water or
electricity supply.
 atmospheric conditions.

33
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 maintenance costs.
 loss or damage for which supplier or manufacturer is
responsible by law or contract.
 loss or damage to hired equipment for which the
owner is responsible by law or contract.
 consequential loss or liability.

34
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B6: GENERAL TAKAFUL CLASSES – MISCELLANEOUS TAKAFUL

Learning Objectives

To understand the types and benefits of other classes of General Takaful (Miscellaneous Takaful)

Learning Outcome

Able to advise and communicate the types of other classes of General Takaful (Miscellaneous
Takaful) features and benefits according to customers’ needs

B6.1 INTRODUCTION

Other classes of General Takaful Products (Miscellaneous Takaful) refer to the types of risk that
are not covered by Motor, Fire, Marine or Engineering Takaful. Its scope is therefore very wide
and extensive and includes such a wide range of contingencies that may not be included under
the strict interpretation of the term “Accident”.

Other classes of General Takaful Products (Miscellaneous Takaful) cover many branches, which
are grouped together but not necessarily related to each other (for example, Burglary or Plate
Glass Takaful vs. Personal Accident Takaful). However, in practice, unrelated risks are grouped
together for the convenience of the participant. This class of business can be broadly
categorised into Property Takaful and Pecuniary Takaful respectively.

B6.2 THEFT TAKAFUL

1. Burglary Takaful

Basic Cover A Burglary Takaful Scheme provides cover against loss of or

damage to the contents in a business premises (for example
stocks and materials-in-trade, furniture, office equipment,
plants and machinery, household goods and personal effects
of employees) following theft involving entry to or exit from
the covered premises by forcible and violent means.

In addition to the theft losses, the certificate also covers

damage to the covered building and contents consequent
upon such theft or any attempted thereat.

35
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The common exclusions are:

 loss or damage by fire however caused.

 damage to stained or plate glass or any decoration or
lettering thereon.
 loss or damage occasioned by any person lawfully in
the premises or brought about with the connivance of
an employee or any member of the covered
household.
 loss of or damage to deeds, bonds, bills of exchange,
promissory notes, money or securities of money,
coins, stamps, precious stones, documents of title to
property, business books, manuscripts, computer
systems, records, curios, sculptures, rare books, plans,
patterns, moulds, models or designs unless same be
specially covered hereunder.
 riot, strike, war and kindred risks or confiscation or
destruction by order of any government or public
authority.
 loss occasioned by forces of nature such as volcanic
eruption, subterranean fire, earthquake and the like;
and.
 nuclear risks.

2. All Risks Takaful

Basic Cover The All Risks Takaful is normally issued to provide cover for
valuables such as jewelry, watches, cameras, paintings and
work of art. The scope of cover is very wide and it covers
against all risks (fire, theft and all accidental causes) other
than those excluded from the certificate.

36
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The common exclusions are:

 loss or damage consequent upon riot, strike, civil

commotion, earthquake or volcanic eruption.
 war and kindred risks.
 loss or damage arising from wear and tear,
depreciation, gradual deterioration, moth, vermin or
from any process of cleaning or restoring any article.
 scratching and breakage of lenses, glass or other
brittle substances, mechanical or electrical
breakdown or derangement of any mechanical or
electrical equipment.
 loss or damage arising from confiscation or detention
by customs or other official authorities; and nuclear
risks.

3. Goods in Transit Takaful

Basic Cover This provides cover on an ‘all-risks’ basis, indemnifying the

participant for loss of or damage to goods by fire, accident,
theft or pilferage while being loaded on, carried by, or
unloaded from the motor vehicles and their trailers, and
while temporarily garaged during transit anywhere in
Malaysia.
Exclusion The common exclusions are:

 radioactive contamination.
 war, riot and civil commotion.
 earthquake and subterranean fire.
 moth, vermin, insects, damp, mildew or rust.
 delay, loss of market, consequential loss of any kind.
 deterioration and changes by natural cause.
 theft or pilferage which involves the insured’s
employees.
 goods accompanying commercial travelers.
 property not covered, for example explosives, acids,
cash, bank and currency notes, securities, jewelry,
and business books.

37
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B6.3 LIABILITY TAKAFUL

1. Workmen’s Compensation Takaful

Basic Cover Indemnifies the employer (participant) to pay compensation

under Workmen's Compensation Ordinance to all employees
who are 'workmen' in respect of death or injuries due to
accidents or occupational diseases arising out of and in the
course of employment.

This covers:

 death, permanent total or partial disablement

resulting from any injury arising out of and in the
course of employment.
 hospitalization and medical expenses.
 occupational diseases, e.g. lung cancer caused by
asbestos.
 repatriation expenses – compensation payable to
repatriate remains to the country of origin of the
worker in the event of death or permanent total
disablement.
 personal accident (off - work hours).

Exclusion The common exclusions are:

 any employee who is not a “workman” within the

meaning of the Law(s)
 liability to employees of contractors to the insured
 war and kindred risks
 any contractual liability
 any sum which the insured would have been entitled
to recover from any party but for an agreement
between the insured and such party
 any liability caused by or contributed to by nuclear
weapon materials, ionizing, radiations or radioactivity
contamination

2. Foreign Workers’ Compensation Scheme (FWCS)

Effective 1 November 1996, all legal foreign workers (excluding expatriates) must be
covered under a separate Foreign Workers’ Compensation Scheme. The Foreign Workers’
Compensation Scheme (Insurance) 1998 issued under the Workmen’s Compensation Act
1952 requires every employer employing foreign workers to cover with the panel of
insurance or Takaful Operator appointed under this order and to effect payment of
compensation for injuries sustained from accidents during and outside working hours.

38
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Basic Cover This covers:

 death, permanent total or partial disablement

resulting from any injury arising out of and in the
course of employment.
 hospitalization and medical expenses.
 occupational diseases, e.g. lung cancer caused by
asbestos.
 repatriation expenses – compensation payable to
repatriate remains to the country of origin of the
worker in the event of death or permanent total
disablement.
 personal accident (off - work hours).

Exclusion The common exclusions are:

 compensations brought in the Courts of Law of any

territory outside Malaysia.
 any employee who is not a “workman” within the
meaning of the Law(s).
 liability to employees of contractors to the insured.
 war and kindred risks.
 any contractual liability.
 any sum which the insured would have been entitled
to recover from any party but for an agreement
between the insured and such party.
 any liability caused by or contributed to by nuclear
weapon materials, ionizing radiations or radioactivity
contamination.

3. Public Liability Takaful

Basic Cover The Public Liability certificate is designed to protect a business

firm in respect of its legal liability to pay compensation for
death or injury to third parties and damage to property of
third parties caused by or through negligence of the firm or its
employees or by defects in its premises.

The cover includes legal costs incurred by the firm, with the
prior consent of Takaful Operator.

39
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The common exclusions include:

 liability that can be covered under the Workmen’s

Compensation policy, Employers’ Liability policy and
the SOCSO scheme (established under the Employees’
Social Security Act, 1969).
 loss or damage to property belonging to the insured or
under his charge or control.
 loss or damage to property associated with steam
boiler or any boiler vessel or apparatus.
 liability in respect of injury or damage caused by:
 passenger lift or escalator owned by or in
possession of the insured.
 mechanically propelled vehicle licensed for
road use.
 professional liability; contractual liability.
 nuclear risks.
 war and warlike risks; sonic boom.

4. Professional Indemnity Takaful

Basic Cover Professional Indemnity Takaful protects a professional (for

example, an accountant, engineer or doctor), in respect of
liability arising out of professional negligence committed by
him, or his predecessors, or his employees. The cover includes
legal costs incurred by the professional, with the insurer’s
prior consent.

Exclusion The professional indemnity certificate usually excludes claims:

 for libel or slander.

 arising out of dishonesty, fraud, criminal or malicious
act or omission by the insured, or his predecessors or
employees.
 arising from contamination by radioactivity.
 which the insured is entitled to indemnify under any
other certificate.

40
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

5. Product Liability Takaful

Basic Cover A Product Liability Takaful provides cover to a manufacturer

or seller against his legal liability for death or injury or damage
to property caused by defects in the goods supplied or sold by
the insured.

Examples of products that may give rise to product liability

include electrical appliances, machinery, pharmaceutical
products, cosmetics and toys. The cover includes legal costs
incurred by the firm, with the Takaful Operator’s prior
consent.

Exclusion The common exclusions are:

 injury to employees.
 contractual liability unless such liability would have
attached in the absence of any contract.
 liability arising in respect of wrong formula or
specification of products.
 loss or damage to products supplied or sold arising
out of repairs or alteration works on the products.

6. Directors’ and Officers’ Liability (D&O)

Legislation has also made directors liable for the behavior of a company, and in this way,
shareholders, creditors, customers, employees and others can now take action against
directors as individuals.

Basic Cover A directors’ and officers’ liability certificate provides cover for:

 an indemnity to the company in respect of the costs it

incurs in indemnifying a director against the
successful defense of a claim.
 an indemnity to the director in circumstances where
this cannot be obtained from the company because
the defense has not been successful.

41
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Exclusion The coverage excludes:

 claims for bodily injury or damage.

 action brought against individual directors as result of
their own dishonesty, fraudulent or malicious
conduct.
 claims arising from improper personal gain, profit or
advantage.
 breaches of professional duty.

B6.4 MISCELLANEOUS ACCIDENT TAKAFUL

1. Personal Accident Takaful

Personal Accident (PA) Takaful is an annual plan that provides compensation in the event
of death, disablement or injuries arising solely from an accidental cause. Participation in a
PA Takaful can be for an individual or group plan for the family, company or any registered
groups. PA Takaful is also available for short durations, like for travelling abroad; to cover
should any accident occurring during the travel.

Cover for PA Takaful is usually provided in respect of accidents occurring anywhere in the
world, 24 hours a day, subject to the terms and conditions of the certificate. Companies
covering their employees may want to save contribution by restricting cover to business
hours plus business travels and activities only.

 Scale of Benefits

The scale of benefits refers to the amount of compensation payable by the Takaful
Operator in the event of death, disablement or injury.

The usual benefits are for:

 death.
 permanent total disablement.
 temporary disablement where the participant is not able to perform his normal
work, either totally or partially.

Participants are advised to note the scale of benefits in the plan and the definitions of
permanent and temporary disablement, as these vary between Takaful Operators.

The scale of benefits refers to the amount of compensation payable by the Takaful
Operator in the event of death, disablement or injury. Participants are advised to note
the scale of benefits in the plan as these vary between Takaful Operators.

42
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 Multiple Coverage

If a person has more than one PA Takaful certificate, in the event of death or
disablement claim, he or his beneficiary will be entitled to compensation under each
certificate. However, for certain claim such as medical expenses where compensation
is on reimbursement basis, he will only be compensated once, up to a maximum of
actual expenses incurred.

 Beneficiary

Participants are advised to nominate a beneficiary and ensure that his beneficiary is
aware of the PA Takaful that he has participated.

Basic Cover The basic cover of a PA Takaful includes death and

disablement arising from accidents. The coverage may also
include medical expenses, hospitalization benefits, corrective
surgery and funeral expenses, if required.

A person may choose to either take up a PA Takaful for

himself or join a group plan for his family. Employers can
purchase PA Takaful for their employees and in such cases;
payment of compensation to the employees is at the
discretion of the employer, unless PA benefits has been
specifically mentioned in their letter of employment.

Certain PA Takaful plans specify the range of age limits that

can be covered.

Exclusion PA Takaful will usually not cover accidents caused by the

following events:

 war risks.
 suicide and insanity.
 self -inflicted injury.
 influenced by liquor, drugs or narcotics.
 AIDS/HIV or any other venereal diseases.
 provoked murder or assault.
 childbirth, pregnancy or miscarriage.
 involvement in unlawful activities.
 hazardous sports.
 operating or riding a two-wheel motor vehicle.

In addition, it is quite common for PA Takaful to also exclude

persons employed under the following professions:

 police/ military and law enforcement officers.

 divers.
43
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 pilots or crew members.

 aircraft testers.
 racing drivers.
 seamen and sea fishermen.
 professional sports person.

Note: The above may vary between Takaful Operators

2. Money Takaful

Basic Cover The certificate provides cover for loss of money against all
risks, subject to certain specified exclusions whilst in transit;

 coverage specifies that the transit is only between the

insured premises and the bank.
 on the covered premises during business hours.
 in a locked safe or strong room in the covered
premises out of business hours.
 in the private residence of any principal or director of
the insured.
 other specified situations.

A money limit on any one loss is normally imposed for any of

the said situations. The term “money” includes cash, bank
and currency notes, cheques, postal orders, currency, postage
and revenue stamps belonging to the insured or for which he
is legally responsible.
Exclusion The certificate is not liable for any loss arising from:

 dishonesty of an employee.
 confiscation, nationalization, requisition or willful
destruction by any government authorities.
 shortages due to error and omission.
 outside the territorial limits.
 safe or strong-room following the use of key
 nuclear risks.
 depreciation in value.
 riot, strike, war and associated risks.

3. Fidelity Guarantee

A Fidelity Guarantee (FG) is a contract of Takaful that provides cover in the form of
guarantee to a participant that in the event of a dishonest act or dishonesty of its
employee, and as consequence, suffers direct financial loss, the Takaful Operator will

44
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

indemnify the said loss to the participant as employer within the limitations prescribed by
the contract.

There are three (3) types of fidelity certificate issued and type of guarantee by Takaful
Operator:

1. Individual Certificate:
This certificate covers a named employee for a stated amount or a specific position.

Type of guarantee : Per employee/person

2. Collective Certificate:
 Named Collective
This certificate incorporates a schedule containing the names and duties of
guaranteed individuals. The amount of guarantee is set against each name, and
this can be an individual sum or a floating sum over the whole schedule.

 Unnamed Collective
This certificate covers the employer against loss arising from dishonest or
fraudulent acts committed by employees belonging to certain specified
categories, for example managers, cashiers, store-keepers and clerks.

Type of guarantee :

 Per person and event.

 Per year.

3. Blanket Certificate:
This certificate covers employers against loss arising from dishonest or fraudulent
acts of all employees, without showing names or positions.

Type of guarantee :

 Per person and event.

 In the annual aggregate/per certificate.

Exclusion:

 Any indirect or consequential loss.

 Any third party losses.
 Inventory losses or any losses discovered during stock-taking.
 Losses in consequence, directly or indirectly of war, strike, riot, civil commotion,
military rising, state of martial law and act of terrorism.

45
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B7: GENERAL TAKAFUL PRACTICES - RISK ASSESSMENT AND

UNDERWRITING

Learning Objectives

To understand the basic General Takaful underwriting processes.

Learning Outcome

Able to understand the basic General Takaful underwriting processes

B7.1 INTRODUCTION

Underwriting can simply be defined as a means of evaluation or assessment of a proposal to

participate in a Takaful. The process of evaluating a proposal to either accept or decline is
usually based on an established set of guidelines or procedures.

The underwriting process determines the physical, moral, environmental, market and legal
hazards of the subject matter to be covered, including its loss experience. Underwriting would
help to uphold the principle of fairness or ‘adl’ that is highly propagated in Islām. By this
process, appropriate terms and conditions as well as the rating class for the cover can be
determined or alternatively declined.

In any general Takaful scheme, the participant is required to make a payment known as
contribution into a General Takaful Fund (also known as Risk Fund or tabarru’ fund) that is used
to pay losses suffered by participating members. To ensure that sufficient funds will be available
to pay such claims/losses, the Takaful Operator must:

1. Manage against Anti-Selection

Anti-selection occurs when an applicant who knows that he has a very high risk of loss
submits a proposal for Takaful. When anti-selection exists within a class of risks, the actual
loss will be greater than the expected loss because the class of risks does not represent a
randomly selected group (referred to as ‘the law of large numbers).

The law of large numbers is one of the most fundamental premises in making a Takaful
scheme work. Simply put, this mathematical premise says that the larger the number of
randomly selected group of participants covered, the more accurate the predictions of
loss will be.

Since the contribution charged is based on the expected loss of the randomly selected
group, the amount collected will not be adequate to pay claims if anti-selection exists.

46
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

2. Charge a Contribution Commensurate with the Risk Shared by the Participants

For a Takaful scheme to function appropriately, it must have a fairly large group of
participants facing similar risks paying an equal amount into a common fund that is used
to pay for losses incurred by the unfortunate few.

In reality, applicants for Takaful cover have varying loss probabilities. To ensure that the
contributions collected from a class of risks are sufficient, operators would have to charge
the applicant a contribution rate that commensurate with the risk being brought to share.

In other words, operators will charge a higher contribution rate to an applicant with a
more than average loss probability. In practice, operators, through their underwriters,
carry out a process called ‘underwriting’ to ensure that they will not be selected against
(anti-selection) and the rates charged are equitable to the risk shared.

3. Develop a List or Table of Acceptable Risks to Ensure the Risk Fund Can Be Sustained

Takaful operators may have developed a strategic plan that is consistent with its business
portfolio and risk appetite. It has to decide whether to go either conservatively or
aggressively for their respective market share of businesses to be procured.

In the course of attaining such goals, Takaful Operators are expected to come up with
their list of “Acceptable Risk” that is consistent to their risk appetite. This will ensure only
risk are that within their “means” will be underwritten and eventually accepted.

Other risks which are considered “unacceptable” due to perhaps extreme moral and
physical risk factors are clearly stated as “declined risks”. Therefore, not every risk is
acceptable and even then, those which are acceptable are subject to limits.

4. Arrange a Retakaful Program Aligned to the Risk and Claims Profiles

An effective Retakaful Program helps the Takaful Operator to spread the risk so that in the
event of catastrophic losses, their actual losses are within the limits of the risk fund under
management. This will prevent operators from being financially crippled due to major
losses that may occur unexpectedly.

B7.2 THE UNDERWRITING PROCESS

A key element in the underwriting process is the role of the agent. It may even be argued that
the agent is the most important part of the risk selection process. This is due to the fact that he
is in a position to actually see and talk to the prospective participant, to ask the questions
contained on the Proposal Form.

The agent must not omit pertinent information or submit inaccurate information in order to
facilitate the certificate’s issuance. Thus, the highest ethical conduct is required from agent.

47
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Finally, if the prospective participant’s application is declined for coverage, it is the agent's role
to explain the reasons for such decision.

Since “underwriting” can be defined as a process of assessment and selection of risks, and the
determination of contribution, terms and conditions, the underwriting process will involve the
following:

1. Risk Selection Process

This risk selection process consists of evaluating information to determine how a risk will
be classified (i.e. whether a standard, substandard, or declined risk).

After this classification procedure is completed, the risk is rated in terms of the
contribution to be charged. A certificate is then issued and subsequently delivered by the
agent to the client.

a. Identification and Evaluation of Risk

When a proposal is submitted for Takaful, the underwriter will need to identify and
evaluate the physical and moral hazards associated with the proposed risk. The
information on hazards can be obtained from the proposal form completed earlier by
the proposer.

However, if additional information is required, the underwriter may take one or

more of the following actions:

 request for a survey report on the risk

 make direct enquiries

The following are some factors that may reveal physical hazards in the various classes
of General Takaful:

i. Fire Takaful

 type of construction.
 height of building.
 nature of flooring.
 type of occupancy.
 nature of goods stored.
 situation of risk.

ii. Motor Takaful

 type of vehicle.
 cubic capacity.
 age and condition of vehicle.
 use of vehicle.
48
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 modification of vehicle.
 age of participant/driver.
 occupation of participant/driver.

iii. Burglary Takaful

 nature of stock.
 situation of risk.
 type of construction (premises).
 security precautions.

iv. Personal Accident Takaful

 age of person.
 nature of occupation.
 health and physical condition.
 lifestyles/hobbies.

b. Independent Survey Report (if applicable)

This would constitute additional information over and above the ones provided in
the Proposal Form and Application. The information prepared by independent
experts is for the benefit of both the operators and the participant. This is
particularly pertinent for large commercial or specialized risks like energy, aviation,
marine hull, etc.

Naturally, the information provided herein would be in depth and comprehensive,

and may likely be used as part of the information required or need to be supplied
when operators commence Retakaful exercise for such magnitude risk.

c. Selection of Risk

After the underwriter has identified and evaluated the hazards associated with the
proposed risk, the underwriter is ready to decide whether to accept or reject the
proposal. If the underwriter decides the risk is a standard risk, the proposal will be
accepted, pending issuance of the certificate.

In some circumstances, a proposal may be declined due to poor moral hazards. For
instance, when the probability of fraud is suspected, however much increase in
contribution will not be adequate to cover the risk. Risks can be managed, on the
other hand, by imposing warranties and special conditions. The probability of small
but frequent claims can be minimized by imposing excesses, franchises or arranging
co- or Retakaful.

In some circumstances, a proposal may be declined due to poor moral hazards. For
instance, when fraud exists, no increase in contribution will be adequate to cover the

49
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

risk. Carelessness, on the other hand, can be handled to some extent by the
imposition of excess and warranties.

2. Determination of Contribution, Terms and Conditions

For the majority of classes of Takaful, the contribution charged is the rate per unit of
coverage multiplied by the number of units of coverage required.

The rate per unit of coverage can be expressed either in terms of RMX per cent (RMX per
RM100 coverage) or RMX per mille (RMX per RM1,000 coverage). The unit of coverage is
measured differently according to the type of Takaful. In determining the contribution for
a risk, the underwriter would ensure that the rate charged reflects the degree of hazard,
and the total units of coverage required reflect the value of risk “shared”; otherwise, the
contribution charged will be inadequate to pay for losses.

Thus, when two risks of equal value are submitted for Takaful, the risk with normal
hazards will be charged a normal rate, while the risk with abnormal or poor hazards will
be charged a higher contribution rate. The terms and conditions to be imposed will
depend on whether the risk accepted presents normal or abnormal hazards.

Risks with normal hazards are accepted on the standard terms and conditions for each
particular class of Takaful. Risks with abnormal hazards are acceptable subject to the
following underwriting measures:

Abnormal Hazard Risks Description

Underwriting Measures
Risk Improvement Risk improvement requires the proposer to undertake
certain improvements (for example, the installation of a
fire alarm, an automatic sprinkler system, etc.) on the risk
before the proposal is accepted.
Warranties Warranties are imposed to control hazards and to ensure
that:

 new/additional hazards are not introduced during the

currency of the certificate; or
 Recommendations made by the operator are carried
out by the participant.
Exclusion Exclusion clause limits the operator’s liability from certain
losses that would otherwise be covered under the
standard cover.
Restricted Cover With restricted cover, the proposer is offered a lower
Takaful coverage than the one originally requested. For
example, under motor Takaful cover, instead of being
provided comprehensive cover, the proposer may only be
granted third party cover.

50
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Excess When excess is applied, the participant is required to bear

a specified amount or portion of each and every loss.

Franchise Similar to excess, in the case of franchise, the participant

will not be able to claim if the loss amount is lower than
the franchise amount. However, unlike excess, if the loss
exceeds the franchise amount, the participant will not be
required to bear the franchise amount. Franchise is rarely
used in General Takaful, except in Marine Takaful.

Table 3: Underwriting Measures

3. Confirmation of Acceptance

If the terms and conditions set by the operator are acceptable to the proposer, the
operator will issue a cover-note (or an e-cover in the case of Motor Takaful), as evidence
of temporary cover until the certificate is issued.

B7.3 RETAKAFUL AND CO-TAKAFUL

When an underwriter assesses a risk, he may have to consider the size of the risk being
proposed. For large and complex risk, a Takaful Operator may not be able to assume the whole
risk alone and therefore may have to arrange for Retakaful or co-Takaful.

Such risk may have to be declined if Retakaful or co-Takaful arrangement is not available.
Fortunately, such instances are quite rare and Takaful Operators are usually able to arrange for
either Retakaful or co-Takaful cover when the need arises.

Retakaful is an arrangement whereby the Takaful Operator “shares” (or cedes) part of the risk
assumed in excess of the retention to other Takaful Operators or Retakaful Operators. Retention
is the amount of risk that is retained by the original Takaful Operator. Retakaful can be arranged
on a facultative basis, i.e. one-off placements, or by way of a treaty program, i.e. on a pre-
agreed basis for the whole portfolio.

There are two classifications of treaty:

1. Proportional treaty.
2. Non-proportional treaty.

51
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Below is an example of how a proportional treaty or facultative placement works:

Original Original
Takaful Takaful
Operator Operator
retained at has to pay
RM0.4 RM0.2
million million as his
Original Risk (Retained In the event share
valued at Risk) there’s a
RM1.0 million claim of
Retakaful risk RM0.5 Retakaful
at RM0.6 million Operator
million to has to pay
other Takaful
RM0.3
Operator or
Retakaful million, as
Operator his share
(Retakaful (which totals
Risk) RM0.5
million).

Table 4: Proportional Retakaful

Co-takaful is an arrangement between two or more Takaful Operators to share the original risk
and each operator is directly responsible for that portion of the risk covered. Thus in the
tabulated figure above, the boxes representing Retained Risk and Retakaful Risk shows their
respective share in proportion to the risk accepted, in the event of a claim.

B7.4 RATING

7.4.1 Types of Rate

The rates charged can be broadly categorized as individual rates, class rates, and merit rates.

No Type of Rate Description

1 Individual Rates When an underwriter determines the rate to be
charged on each risk separately without referring to
an established formula or manual, the rate
determined is known as an individual rate.

52
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

2 Class Rates When there is a large number of a risk to be covered

under a class of Takaful, it is possible to classify the
risks by certain characteristics into various classes.

For example, in Fire Takaful, risks are classified

according to three major characteristics, namely:

 construction of the building (wooden, bricks,

concrete).
 occupation (the building is occupied as a
factory, warehouse, office, etc.).
 location of the building (urban area or out of
town).

The main objective is to establish a contribution rate

known as a class rate for that class of risks which will
generate sufficient contribution to cover losses arising
from that class of risks.

3 Merit Rates A merit rating scheme is a combination of class rating

and individual rating. When a risk is subject to merit
rating, the underwriter will determine the class rate
and then adjust the rate upwards or downwards
depending on the merits of the risk. The merits
evaluated would include (but not limited to) electrical
installation, hazardous goods stored, sprinkler
system, etc. Merit rating is used in many classes of
Takaful including fire, motor, workmen’s
compensation, and burglary coverage.

Table 5: Type of Rate

7.4.2 Gross Contribution Rate

When the contribution rate (whether individual, class or merit rate) is calculated based on
expected claims cost, it is referred to as the pure contribution rate. Since Takaful Operators do
incur expenses and pay commissions as well as provide for variation in losses and earn a small
profit in the course of managing the risks, the rate charged would be a gross contribution rate.

The gross contribution rate is made up of four components:

1. pure contribution rate.

2. expenses and commissions margin.
3. contingency margin (provision for variation in losses).
4. profit margin.

53
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Determining the Gross Contribution Rate

One of the methods for determining the gross contribution rate is by making such additions
required to provide for the other components to the pure contribution rate. The additions
required, referred to as the ‘loading’, may be expressed as a proportion of the pure contribution
rate. For example, if the loading required for the other components is 40%, the gross
contribution rate is determined by increasing the pure contribution rate by 40%, i.e.:

Gross Contribution Rate = (Pure Contribution Rate x 140) / 100

It is important to bear in mind that the operator has to carry out further investigations as to the
level of expenses experienced, cost of capital, influence of competition and other variable
factors, before arriving at a loading figure.

7.4.3 Tariff Rating

The rating of Fire, Motor and Workmen’s Compensation Takaful is governed by their respective
tariffs originally formulated by Persatuan Insurans Am Malaysia (PIAM), wherein Takaful
Operators are instructed by BNM to adopt the same. When the rating of a class of Takaful is
governed by a tariff, the rate charged should not be lower than that laid down for that class of
risks and the cover granted should not be wider than that provided in the standard certificate
form and endorsements.

The main objective of the tariff is to ensure that price competition among operators and
insurers (both inter and intra) will not go below the economic level.

In general, the tariffs formulated by PIAM provide the following information:

 a schedule of minimum rates for different classes of risk.

 surcharges on special hazards associated with each class of risk.
 discounts for various improvements on the risk.
 general rules and regulations governing the practice of insurance/Takaful.
 wordings for the standard policy forms, endorsements, clauses, warranties, etc.
 minimum contribution

It is usual for operators to set a minimum contribution to be charged under each certificate so
that the administrative expenses incurred in issuing the certificate are covered.

54
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B7.5 PAYMENTS AND REFUNDS

1. Payment of Contributions

a. Sixty (60) Days Contribution Warranty Clause

Takaful Operators writing the General Takaful business are required to enforce the
Contribution Warranty ruling on most classes of Takaful except for motor, personal
accident, travel and marine. Under this ruling, the participant is required to pay the
contributions charged for the cover within 60 days from the effective date of Takaful.

If the contribution is not paid by the 60th day, the cover will be cancelled on the 61st
day and the operator shall be entitled to the pro-rata contribution for the period
they have been on risk.

For the purpose of this warranty, any payment received by the agent shall be
deemed to be received by the operator. The common principle relating to insurance
and Takaful agents, however, is that they are del credere agencies, i.e. they are
responsible for all contributions due regardless whether such have been paid or not.

b. Cash-Before-Cover Regulations

The Takaful (Assumption of Risk and Collection of Contribution) Regulations 1985

known as CBC Regulations were enforced on 2 January 2005. Subsequently, the
regulations were extended to include Personal Lines of business such as Personal
Accident Takaful, Houseowner/ Householder Takaful, etc. effective 1 July 2007.

In the case of motor cover, it has been prescribed by law that Motor
Takaful/insurance can only be issued by operators/insurers or their agents on ‘cash-
before-cover’ basis. This means that the contributions/premiums must be paid
before a motor cover note or certificate/policy can be issued. The above ruling
applies to intermediaries, brokers, as well as Takaful Operators and insurers.

By virtue of Section 96 IFSA 2013: Assumption of Risk:

“No operator shall cause any fund under its management to assume any risk in
respect of any general business unless and until the contribution payable is received
by the operator in such manner and within such time as may be prescribed by the
Bank.”

2. Refund of Contribution

Contribution is refundable if the certificate is either cancelled upon request by either the
operator or the participant. The calculation of the refund is usually on a pro-rated basis.

55
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B7.6 USING THE TARIFF

1. Fire Tariff

The rating for Fire Takaful follows the conventional insurance Fire Tariff. The rating plan
provided under the Fire Tariff is similar to the merit rating plan. Thus, when a proposal for
a standard fire cover is submitted, the underwriter will have to determine the classification
of the proposed risk in order to determine the class rate and warranties (if any) applicable
for that class of risk as provided under the Fire Tariff.

Unfavourable Risk Factors Favourable Risk Factors

Poor electrical wiring Sprinkler system
Open fire burning Hydrant system
Storage of hazardous goods Fire extinguishers
Poor housekeeping Automatic fire alarm
Table 6: Extract from the Fire Tariff

After determining the class rate, the next step involves the evaluation of physical factors/
hazards (other than construction, location and occupation) associated with the risk. This
‘discrimination’ process ensures that risks with poor physical factors will be charged a
higher contribution rate while discounts are granted to those with favourable physical
factors.

The contribution rate determined by the above steps is the rate applicable for the basic
cover under a standard fire certificate. If one or more special perils are requested to be
covered, the contribution rate will be increased accordingly.

2. Motor Tariff

As for fire insurance, the rating of motor insurance in Malaysia is governed by the PIAM
Motor Tariff. The Motor Tariff is classified under three broad categories, namely the Private
Car Tariff, the Motorcycle Tariff, and the Commercial Vehicles Tariff. The Private Car Tariff
is applicable to cars of private type including three-wheeled cars and station wagons, used
for social, domestic and pleasure purposes and for the business or professional purposes
(excluding use for the carriage of goods, other than samples) of the insured. It excludes the
use for hire or reward or for racing, pacemaking, reliability trial, speed testing or use for
any purpose in connection with the motor trade.

The Motorcycle Tariff is applicable to motorcycles (with or without sidecars) including

motor scooters and auto cycles. The Motorcycle Tariff further sub-divides the vehicles into
private motorcycles, commercial motorcycles, motor- cycles used for hire and motorcycle
trade, for rating and insurance purposes. The Commercial Vehicles Tariff is applicable to all
vehicles (including 3-wheeled carriers) not provided for under the Private Car Tariff and the
Motorcycle Tariff. The Commercial Vehicles Tariff further sub-divides the vehicles into

56
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

motor trade (road risks), goods-carrying vehicles, hire cars, omnibuses and special types for
rating and insurance purposes.

Under each broad category of the Motor Tariff, the basic rating factors generally
considered include the following:

a. Scope of insurance cover required, e.g. Comprehensive, Third Party Fire and Theft,
Third Party only, or Act only.
b. Cubic capacity of the vehicle.
c. The estimated value of the vehicle.

When the cover required does not include ‘own damage’, then (a) and (b) as above are
usually used to ascertain the premium amount in the Tariff. When the cover required is on
comprehensive basis, then a, b and c as above would be used.

B7.7 LIBERALISATION OF MOTOR INSURANCE AND TAKAFUL

The first phase of the Liberalisation of the Motor and Fire Tariff was introduced on 1 July 2016.
During this phase, insurers and Takaful Operators were given the flexibility to offer new motor
products and add-on covers at market-based pricing.

Effective 1 July 2017, contribution pricing for Motor Comprehensive; and Motor Third Party Fire
and Theft and Fire products was liberalised where premium/contribution pricing will be
determined by individual insurers or Takaful Operators.

Contribution will take into account broader risk factors that will drive fairer pricing; greater
innovation on new products tailored to consumer needs with improved services; and
sustainable motor and fire insurance/Takaful protection for consumers over the long-term at
competitive prices.

However, premium/contribution rates for Motor Third Party product will continue to be
subjected to tariff rates.

57
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B8: GENERAL TAKAFUL PRACTICES – DOCUMENTATIONS IN GENERAL

TAKAFUL

Learning Objectives

To understand the basic documentations in General Takaful

Learning Outcome

Able to advise and communicate effectively on the basic documentations available in General
Takaful to customers

B8.1 PROPOSAL AND DECLARATION FORM

A Takaful contract is concluded when the offer made by the proposer is accepted by the Takaful
operator. In Takaful, the offer is usually submitted through a Proposal and Declaration Form
duly completed and signed by the proposer. The declaration in the proposal form is the ‘aqad’
and is intrinsic to the Islamic financial contract.

The Proposal and Declaration Form shall serve as an important tool for the Takaful Operator to
assess the risk in a practical, customer-friendly and uniformed manner. Legally, it forms as the
basis of the contract between the proposer and the Takaful Operator.

All questionnaires, statements, and declarations made in the Proposal and Declaration Form
must be answered accurately and fully in line with the principle of Utmost Good Faith, termed
as, Duty of Disclosure. Any misrepresentation or concealment of facts in the Proposal and
Declaration Form may render the Takaful contract void. The duty of disclosure is outlined in
detail in Schedule 9 (Section 141) of the IFSA 2013.

1. The Usefulness of Proposal Forms

Proposal Forms are documents drafted by the operator in a questionnaire format to assist
the underwriter to:

 gather information required to assess a risk being proposed

 speedily and accurately consider the application since the information is furnished in a
structured manner

2. Proposal Form Structure

It is important to note the questions in the proposal form are not exhaustive and if full
answers to these questions still leave some material facts undisclosed, the proposer is

58
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

bound to disclose them. This is usually done by attachment of additional supporting

information in respect of the risk being proposed.

3. Contents of a Proposal Form

A proposal form generally contains the following:

a. A statement pertaining to the Anti-Money Laundering Act 2001:

“Where operators are required to obtain and verify the identity, occupation or
business purpose when underwriting such proposal on their prospective client.”

b. Questions of a General Nature

Questions which are common in all proposal forms:

i. Proposer’s Name

This is required for identification purposes but it may also indicate an aspect of
the risk proposed. For example, the name of a company may indicate the nature
of their trade. Further, the name of a person who is known to be disreputable
may prompt the operator to decline the risk, or subject to further
information/clarification, or modification to the proposal.

ii. Proposer’s Address

This is required for correspondence purposes.

iii. Risk Address

Risk often depends on its location. Information concerning the risk address is
important because a high-risk location tends to increase not only the chance of
loss occurring, but also the severity of loss.

iv. Proposer’s Occupation

Occupation is an important risk factor. Certain trade or occupations present

higher risk than others. For instance, a plastic manufacturer is considered a high
risk occupation for fire.

v. Previous and Present Insurance/Takaful

Such history can provide useful information on moral and physical hazard of the
Proposer. The current Takaful Operator would like to know if there are any
adverse terms imposed by the previous insurer/Takaful Operator (if any).

59
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

vi. Loss Experience

Information on loss experience provides an indication of the quality of the risk

proposed. The information required here includes details of all losses suffered
by the proposer, whether covered or otherwise.

vii. Sum Covered

Information concerning the sum covered provides an indication of the liability

and contribution income for the operator. This information gives an indication
of the maximum liability of the operator and is an important factor in the
calculation of contribution for many types of Takaful scheme including fire,
motor and theft.

viii. Subject Matter

This provides a description of the subject matter to be covered (the property,

assets, and liability to be covered)

c. Takaful-Related Questions.

The questions here are specific to the type of Takaful and usually concern hazards that
are commonly associated with the type of Takaful proposed.

Some examples are as follows:

i. Fire Takaful

 type of construction and use of the building.

 whether building is detached or ad joined to another.
 type of power used.
 goods/stock kept in the building (combustible/hazardous).
 occupation of adjoining buildings (to the left and the right).

ii. Motor Takaful

 cubic capacity of the vehicle.

 year of manufacture.
 age of driver.
 driving offences, if any.
 sum cover and type of cover required.

60
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

iii. Marine Cargo Takaful

 method of packing.
 port of discharge.
 name, age, class, gross tonnage of vessel.
 cover required.
 value of consignment or limit per bottom.

d. Declaration

The majority of the proposal forms used by General Takaful Operators contain a
declaration clause which requires the proposer to:

i. warrant the answers are true.

ii. warrant that the information is complete.
iii. agree that the proposal becomes the basis of contract.
iv. accept the usual form of certificate/cover for that class of business.

The declaration clause in effect changes the proposer’s common law duty to disclose all
material facts into a contractual obligation. In consequence, all representations made
in the proposal are converted to warranties.

In addition, the declaration outlines how the Takaful model works, describes the basis
of profit sharing or surplus return, states the Wakālah fee to be deducted and a
statement on the conditional donation (tabbaru’).

e. Signature

Below the Declaration Clause, there is a provision for the signature of the proposer and
date. The proposer should always sign the proposal form since it represents the offer in
the contract.

61
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B8.2 COVER NOTE

1. Uses and Limitations of the Cover Note

Once the completed proposal form is accepted by the underwriters, a cover note is usually
issued in advance of a certificate.

A cover note:

 as a temporary Takaful certificate and it is the evidence of the cover provided by the
Takaful Operator .
 provides the usual coverage found in any standard certificate for a class of business and
is subject to the usual terms and conditions of the said certificate.
 specify that the cover is subject to tariff warranties and/or special clauses whenever
applicable.

2. Contents of a Cover Note

The contents commonly found in a cover note would include:

 Name and address of the participant.

 Time and date of commencement of cover.
 Period of Takaful.
 Description of risk covered.
 Sum covered.
 Rate and contribution (if rate is not known, the provisional contribution will be
shown).
 Any special terms.
 Serial number of the cover note.
 Date the cover note is issued.
 Signature of the authorized person;
 Terms of cancellation (usually 24 hours upon written notice).
 A statement to the effect that the participant is held covered on terms of the
operator’s usual form of Takaful for the risk, subject to any special terms noted on the
cover note.

The cover note has a limited validity period usually thirty (30) days and has to be followed
with the issuance of the actual Takaful certificate.

3. E - Cover

Under the Motor Takaful business, the issuance of paper cover note and the manual
method of renewing road tax are no longer in use since 1 January 2005. The process has
now been replaced by the e-JPJ or electronic cover note system. The electronic cover note
system is part of the e-government initiative undertaken by the Road Transport
Department under the Ministry of Transport. It was agreed by all the parties involved that:
62
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

a. Takaful Operators must transmit Motor Takaful information electronically to JPJ.

b. Certificate holders would receive a confirmation slip from their Takaful
Operators/agents as proof of Takaful purchase (confirmation of participating in
Takaful).
c. Once successful transmission is confirmed, certificate holders would then proceed to
JPJ or POS Malaysia offices for road tax renewal.

B8.3 TAKAFUL CERTIFICATE

The certificate signifies that the cover is issued by an authorized operator in accordance with the
requirements of the respective law. For example, a certificate of Takaful is issued in compliance
with the Road Transport Act 1987, and it provides evidence of Takaful to the police and motor
vehicle registration authorities.

However, Marine Cargo certificates are issued by mutual agreement between the participant
and the operator. Marine cargo certificates are usually issued on an “Open Cover” basis, and a
certificate is issued as and when a shipment is declared by the participant.

1. Contents in Takaful Certificate

A scheduled certificate is divided into several distinct sections with details of the particular
risk inserted in one section of the certificate. The structure of a scheduled certificate is as
follows:

 Heading - This section provides the full name and registered address of the Takaful
Operator at the top of the front page.

 Preamble or Recital Clause - This clause introduces the parties in the contract - the
participant and the Takaful Operator. It also refers to the Takaful contribution paid or to
be paid, and it makes reference to the effect that the Proposal and Declaration Form is
the basis of the Takaful contract.

 Operative Clause or Takaful Clause - This clause sets out the essence of the contract. It
specifies the perils covered under the certificate and the circumstances in which the
Takaful Operator will become responsible to make payment or its equivalent to the
participant.

 Exclusions - Exclusions are restrictions on the scope of the Takaful cover. They are
inserted in the certificate because certain perils and losses cannot be covered under
Takaful.

63
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

 Schedule – this section contains all the type-written information applicable to the
particular contract such as: participant name and address, sum covered, Takaful
contribution, certificate number, risk covered, period of Takaful.

 Attestation or Signature Clause - This clause makes provision for the Takaful Operator
to attest his undertakings under the certificate and signed by an authorised signatory of
the Takaful Operator.

 Conditions
Types of Condition:

 Express Conditions are printed on the certificate which serves to regulate the
Takaful contract. In the absence of the express conditions, the contract of Takaful
would be subject only to implied conditions.

 Implied Conditions relate to: the duty of utmost good faith, existence of
permissible Takaful interest, existence of the subject matter of Takaful and
identification of the subject matter of Takaful.

B8.4 ENDORSEMENTS

Endorsements are used to modify the terms of the certificate as well as alterations to an existing
certificate. These endorsements form part of the certificate. Both the endorsements and
certificate constitute the evidence of contract.

Endorsements may also be issued during the currency of the certificate to record any alterations
to the contract as and when needed.

Examples of alterations to a certificate are as follows:

a. variation in sum in covered.

b. change of permissible Takaful interest by way of sale, mortgage, etc.
c. extension of Takaful to cover additional perils.
d. change in risk or transfer of risk/property to another location.
e. cancellation of Takaful cover.
f. change in name and address.

B8.5 WARRANTIES

Warranty is a risk-specific or situation-specific condition. Although there are some standard

wordings, Takaful Operators often draw up warranties to meet specific situations. Warranties
have to be strictly complied with, whereby a breach of warranty would enable the Takaful
Operator to avoid a claim.

64
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Examples of warranties are as follows:

 Something shall be done – for example that waste material would be removed daily
 Something shall not be done – for example that in certain cases no direct heat be applied
 A certain state of fact exists – for example that the alarm system is kept in working order.
 A certain state of fact does not exist – for example no inflammable material is stored.

An example of a warranty in a Burglary Takaful Scheme reads:

Warranted that the burglar alarm installed at the premises be kept in efficient working order
and be kept in full operation at all times when the premises are unattended.

B8.6 RENEWAL NOTICE AND RENEWAL CERTIFICATE

Renewal Notice

Operators usually issue a renewal notice one month in advance of the expiry date, reminding
the participant that his certificate will expire on a certain date. The notice incorporates all
relevant particulars of the certificate including the participant’s name, certificate number, expiry
date of certificate, sums covered and contribution.

It is also the practice to include a note advising the participant to disclose any material
alterations in the risk since the inception of cover (or last renewal date). Renewal notices issued
by motor operators further advise the participant to revise the sum covered (that is the
participant’s estimated value of the vehicle) to reflect the current market value and draw his
attention to the need to comply with the statutory provision of ‘Cash Before Cover’
requirement.

Renewal Certificate

When a certificate is renewed for a further period, a new contract is formed. If the renewal is on
similar terms as the original contract, Takaful Operators frequently confirm the renewal by
issuing the Renewal Certificate. On the other hand, if the renewal is on revised or different
terms, a fresh certificate will be issued. A renewal certificate contains all the information similar
to that found in the schedule of the certificate, and states any changes to the certificate, if any.

65
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B9: GENERAL TAKAFUL PRACTICES - CLAIMS

Learning Objectives

To understand the basic General Takaful claims processes

Learning Outcome

Able to advise and communicate effectively basic General Takaful claims processes to customers

B9.1 INTRODUCTION

The term ‘claim’ in Takaful business has been defined separately as, ‘Takaful Claims’ and
‘Takaful Benefits’ respectively by the IFSA 2013.

It defines:

Takaful Claims as “…a demand for payment of an amount due under a Takaful certificate…”

Takaful Benefits as “…includes any benefit, whether pecuniary or not, which is payable under a
Takaful certificate...”

For this purpose, a proper guideline on claims ought to be established by the Takaful Operator
which must be approved by the Board of Directors to serve as a guide to the employees
especially for the claims staff. Primarily, the purpose is to ensure that all claims would be
processed timely, efficiently, accurately and fairly.

B9.2 CLAIMS PROCEDURES

Whenever an event covered by the Takaful contract occurs, it becomes an obligation that
participants/claimants notify Takaful Operator immediately of such event. For example, a visitor
to a shop slipped on the floor and hurt his back; at time of event, the shop owner may not know
whether the visitor will sue for the injury but he has to report the incident to his Public Liability
Takaful Operator.

Under normal circumstances, a written notification is required and eventually full particulars of
the loss to be submitted within a stipulated timeframe. Further, the participant is bound by the
duty of good faith to act as if he is not covered, including taking steps to minimize a loss.

In the event intermediaries are involved, the intermediary shall inform the operator without
delay of such losses and also inform the participant/claimant of operator’s claims process and
documentation for an expeditious settlement.
66
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

9.2.1 Notification of Loss

It is a condition precedent to liability that when a loss occurs, immediate notification of the loss
is given to the Takaful Operator. Depending on the wording of the notification condition, notice
may be verbal or written and it may require the participant or covered person to furnish full
particulars together with the claim form with details of the loss, identity of the claimants, etc.
with supporting documents as proof within time frame as stipulated in the certificate, for
example 7, 14 or 30 days.

9.2.2 Checking Coverage

Once intimation of loss or accident is received, a preliminary check is made to see if the event is
likely to be covered. The preliminary check involves checking whether:

a. the certificate in force.

b. the contribution has been paid.
c. the loss or liability is caused by a covered peril.
d. the subject matter is the same as that covered under the certificate.
e. notice of loss been given without undue delay.

Once the preliminary check is completed and the claim is determined to be covered by the
certificate, the claimant will be given a Claim Form or Accident Report Form.

Claimant will also be informed of the claim procedures, together with a list of documents
needed to be submitted.

However, if the claim official finds that the event falls outside the scope of cover or policy
liability is not engaged, the claimant will be informed of the decision and settlement
proceedings will not continue.

9.2.3 Claims Register

The Guidelines on Claim Settlement Practices issued by BNM in 2003, requires that every
Takaful Operator maintains an up-to-date register of all Takaful claims. None of these claims
shall be removed from the claims register for as long as the claim is not settled. The claims
register serves as an official record of claims notified to the Takaful Operator.

9.2.4 Investigation of Claims

When a claim form is issued, it does not mean that the Takaful Operator has admitted liability.
The claim form seeks to obtain immediate additional information for registration purposes.

The Takaful Operator may:

a. Rely only on the information submitted on the claims form and other documents
submitted to proceed with settlement, or

67
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

b. Conduct a thorough investigation, either by its own staff or by appointing independent

adjusters; the extent and manner of investigation will vary according to the size and
complexity of the claim. A small claim is usually paid on the basis of documents submitted
by the claimant and managed by a claim official. Large and complicated claims will be
investigated in more detail by an independent loss adjuster.

When a claim form is issued, it does not mean that the Takaful Operator has admitted liability. It
only implies that the Takaful Operator after making a preliminary check has not found anything
to disqualify the claim. To determine if a claim is eventually payable, a thorough investigation
may be necessary. However, the extent and manner of investigation will vary according to the
size and complexity of the claim. A small claim is usually paid on the basis of documents
submitted by the claimant and managed by a claim official. Large and complicated claims will be
investigated in more detail by an independent loss adjuster.

In general, claims investigation involves ascertaining the following:

a. The Validity of a Claim

This involves ensuring whether:

 the event actually occurred

 the event is caused by a covered peril
 the event does not fall within the scope of an exclusion
 the subject matter affected by the event is the same as covered under the certificate
 the event occurred within the geographical area mentioned in the certificate
 the person making the claim is the rightful claimant
 any breach of condition/warranties which may invalidate the claim

b. Loss Amount or Potential Liability

This involves determining the amount or quantum of the loss or potential liability.

Where property is damaged or lost, the amount of loss is ascertained from proof of the
value of such items or estimates of repair, replacement or reinstatement. In liability
claims, the potential liability is an estimate of the loss suffered by the third party and
mitigated by the extent of their own contributory negligence.

Claimants need not appoint other parties to submit claims; they can do so on their own
accord. Following completion of an investigation, a decision on policy liability and
quantum is reached and a settlement offer would be made to the claimant. If the offer is
accepted, the claimant would be required to sign an Acceptance and/or a Discharge Form,
before final claims payment is made.

In the Claims Settlement Offer letter, if the claim involves individuals and are below
RM100,000 Takaful Operators are required to state that in the event the offer is not
acceptable, the claimant may have the claim mediated by the Ombudsman for Financial
68
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Services (OFS) (formerly known as Financial Mediation Bureau (FMB)) established by Bank
Negara Malaysia. Mediation by the OFS does not take away the participants’ right to have
the matter adjudicated in a court of law;

c. Ascertaining Subrogation Rights and Contribution Duties

If cause of the loss, damage or accident is caused by some other party and the participant
has a right of action against that party, the Takaful Operator after settling the claim, can
stand in the shoes of the participant and seek recovery from the third party responsible.
This is called subrogation. In the event there are multiple policies or certificates covering
the same subject matter and loss, damage or liability is caused by the same event, then
each policy or certificate will share the claim on a rateable proportion basis.

B9.3 CLAIM DOCUMENTS

In addition to the completed claim form or accident report form and loss adjuster’s report,
certain other documents are required to substantiate the claim. The documents required may
vary depending on the type and nature of claim as summarised below:

MOTOR TAKAFUL OWN DAMAGE CLAIM

 police report
 certified copy of vehicle registration card and road tax
 certified copy of driving license and identity card for driver
FIRE TAKAFUL
 photographs
 technician’s report (where applicable)
 purchase invoices, repair bills, sales record and other related documents
 police report (where damage is extensive)
 fire brigade report (where damage is extensive)
BURGLARY TAKAFUL
 police report
 purchase invoices, repair bills, sales record and other related documents
PERSONAL ACCIDENT TAKAFUL DEATH CLAIM
 post-mortem report
 death certificate
 burial certificate
 police report
 letter of employment

B9.4 DISCHARGE FORM

1. Claims Settlement Methods

Claims settled by the operator may be one of two kinds, namely:

69
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

a. settlement with a participant in respect of a covered loss; or

b. settlement with a third party on behalf of a participant in respect of the latter’s
liability.

2. Purpose of a Discharge Form

In both cases, the Takaful Operator would require the claimant to execute a discharge. This
avoids the possibility of any further claims being made in relation to the same loss, either
against the Takaful Operator or the participant.

B9.5 CLAIM SETTLEMENT

When the Takaful Operator is satisfied that the claim is in order, settlement would be affected
by any of the following methods:

1. Methods of Claim Settlement

a. Cash payment of claim by cheque.

b. Repair.
c. Replacement.
d. Reinstatement.

2. Documentary Evidence is Needed to Determine the Rightful Claimant

When settlement is effected by cheque, it is important to ascertain that payment is made

to the right claimant. Documents may be required to validate the claimant. For example, in
the case of Marine Takaful, the claimant has to produce a marine certificate which has
been endorsed in his favour. In practice, a claimant is usually required to execute a proper
discharge under the certificate before settlement is effected by the Takaful Operator.

3. Market Agreements

a. Motor Insurers’ Bureau (MIB)

The Motor Insurers’ Bureau shall be interpreted under Section 89 of the Road
Transport Act 1987 (RTA) as the bureau which has executed an agreement with the
Minister of Transport to secure compensation to third party victims of road accidents
in cases where such victims are denied compensation by the absence of insurance or
of effective insurance as required under section 90 of the same Act. Section 89 further
provides the statutory definition for “authorised insurer” as used in the context of this
Part of the Act:

“Authorised insurer” means a person lawfully carrying on motor vehicle insurance

business in Malaysia who is a member of the Motor Insurers’ Bureau.

70
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

It should be noted that MIB has a unique position, having been established following
an agreement between the motor insurance industry and the Government.

By making specified levels of insurance and Takaful compulsory and by limiting the
ways in which insurers/operators can escape liability to compensate, the RTA goes a
very long way to establishing this ideal. It is a general desire to ensure that innocent
victims of road traffic accidents should not go uncompensated.

However, where a motorist ignores the legal requirement to cover or where the
defect in an existing Takaful contract is sufficient for the operator to escape
responsibility under the RTA, then some further safeguards are required. In addition,
the remedies under the RTA rely upon there being a negligent person to sue, which
would not be the case, for example, in a hit-and run accident.

MIB is a company limited by guarantee; this means that MIB holds no assets to cover
its potential liabilities, but that its members guarantee that they will pay its liabilities
as and when the need arises.

b. Revised Knock-for-Knock Agreement (KfK)

The Revised Knock-for-Knock Agreement dated 18 March 1987 (hereinafter referred

to as the Principal Agreement) was made between the insurance and Takaful
Operators who are the signatories, the insurance companies and operators agree to
the terms, conditions, procedures and practices set out under Section 1 of the said
Principal Agreement and incorporated in the Malaysian Motor Tariff.

Most motor insurers and operators subscribe to the KfK claims settlement agreement
whereby each insurer/operator deals with the damage to their own
policyholder’s/certificate holder’s vehicle, if such damage is comprehensively covered,
irrespective of who was responsible for the accident.

The knock-for-knock agreement works on the principle of swings and roundabouts

with each motor insurer/operator agreeing not to exercise subrogation rights against
each other and if this is arranged on a long-term basis, no one insurer/operator will
gain or lose from participating in such a scheme.

Further, it is a device which enables motor insurers/operators to speed up the

settlement of claims and reduce legal and administrative expenses. The agreement
applies to damage being caused to vehicles in connection with which indemnity is
granted against damage and/or third party risks by parties hereto:

 as a result of collision or attempt to avoid collision;

 by the loading or unloading of a vehicle; or
 by goods falling from a vehicle.

71
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Each party shall bear its own loss within the limits of its policy / certificate, in respect
of such damage, irrespective of legal liability. The main provisions under the
agreement are:

 the application of excess (if any).

 the exclusion of the following vehicles:
 any vehicle licensed or insured / covered for the carriage of passengers
for hire or reward.
Examples: taxis, public buses, stage buses, school buses and factory
buses for hire.
 any vehicle licensed or insured / covered by the owner for purposes
which include driving by a hirer.
Examples: chauffeur- driven taxis, hire cars with hirer driving.
 non-application of the agreement to loss or damage covered by a policy /
certificate for Fire only.
 application of the agreement only to accidents for which indemnity is
provided under policies / certificates issued in Malaysia, Republic of
Singapore, and Brunei Darussalam.

The knock-for-knock agreement was further revised in June 2001 (Supplemental

Agreement - Revised Knock-For-Knock Agreement). This provides that in the event of
an accident involving the participant and a Third Party vehicle, the participant, under a
comprehensive Takaful cover, has an option to make a claim for damage to his own
vehicle from his own operator - if the participant or his authorized driver is deemed
not to be at fault and opts to make a claim for the damage to his vehicle under his
own Takaful certificate instead of making a claim against the Third Party
insurer/operator, the participant’s NCD shall not be forfeited.

c. Centralised database for Motor Repairers Estimation

With the support of Bank Negara Malaysia, the insurance and Takaful industry
implemented the centralised database for motor repairs estimation, developed by
Motordata Research Consortium Sdn Bhd (MRC) in 2001 with the objective of
minimising subjectivity in motor repairs estimation, it also has the added benefit of
improving transparency in claims estimation and anti-fraud mechanism.

With improved transparency in the estimation of accident damage claims, incidences

of fraud and leakage as a result of collusion between the vehicle owner and repairer
would be reduced.

The diagram below shows the information and workflow in the processing of a Motor
Takaful claim.

72
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

2. Digital pictures are taken

1. Damaged car arrives

at the workshop

6. Takaful 3. Repairers
Operator prepares an
approves electronic
estimate estimate
via CPC

Electronic
estimation, images
and documents
are sent to the 5. Takaful Operator
4. Takaful Operator Claims Processing assigns claims to
retrieves the estimate Centre (CPC) Adjuster via the CPC

Diagram 1 : Process Workflow for Motor Takaful Claim

4. Disputes

Of the many claims settled, only a small proportion usually ends up in disputes. Disputes
between claimants and operators may generally involve one of two issues:

a. the question of whether the operator is liable or

b. the quantum of loss, if the operator is liable

When a dispute arises, it may be resolved through the following channels:

a. Negotiation

When there is a dispute, the claim official will try to settle the dispute through
discussion with the claimant. If the dispute relates to a claim that has been rejected
by the operator, the claim official will try to explain why the claim was rejected. On
the other hand, if the dispute concerns the quantum of loss, the official may try to
negotiate for an amicable solution. Failing this, the claimant may have the matter
mediated by the Ombudsman for Financial Services (OFS).

b. Litigation

When a claim is repudiated or the arbitrators’ or mediators’ decision is being further

challenged by the claimant, he may institute legal action against the operator. The
operator normally considers litigation as a last resort and therefore would try to
bring about an out-of-court settlement unless it involves a huge claim or an
important principle of law.

73
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

c. Arbitration

In practice, most General Takaful certificates have an arbitration clause which may
provide that all disputes (or disputes relating to quantum only) will have to be
referred for arbitration before court action can be considered by the participant.
Generally, arbitration is preferred to litigation because it is speedier and less costly
than legal action, and hearing is in private rather than in open court.

d. Mediation

Bank Negara Malaysia prescribes mediation by the Ombudsman for Financial

Services (OFS) if claimants are not happy with the Takaful Operators’ decisions,
either in respect of policy liability or quantum.

The mediation process includes investigating the complaint through various sources
based on the facts presented, having face-to-face discussions, having meetings with
all the parties concerned or conducting an enquiry, taking into account industry
practices, and consulting legal basis/sources before a decision is made.

However, in the event both parties cannot reach an amicable settlement, the
Mediator will make a decision based on the investigation, industry practices and the
relevant applicable law(s).

5. Guidelines on Claim Settlement Practices

In 5 December 2003, the JPIT/GPT 3-Guidelines on Claims Settlement Practices are to

further enhance claims processing and include fraud control and risk management
measures as well as improvement introducing both Bank Negara Malaysia and the
insurance industry. Takaful operators should apply professionalism and fair practices in
handling general takaful claims and continuously endeavor to provide their claimants with
the highest service standards possible.

The following are the prescribed timelines for Takaful operators under the Guidelines:

Claim Process Timelines

1. Notification of  Within 7 days from receipt of claim notification,
Claims register and initiate claim processing
2. Verification of  Within 14 working days of receipt of claim form,
Facts acknowledge the receipt in writing
3. Assessment of  Within 7 working days from the date of receipt of
Claims the completed claim form and all relevant
supporting documents, appoint licensed/in-house
staff adjusters
 Within 14 working days from appointment, the
adjuster’s final report must reach the Takaful
Operator
 Within 60 working days from the date of first

74
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

notification and every 30 working days thereafter, to

notify the claimant of the position of a claim, until
the matter is resolved; and
 If fraud is suspected, the claimant should be advised
in writing that he claim is under examination
4. Settlement (a) Offer of Settlement
 Within 7 working days from receipt of the final
adjuster’s report, send offer letter to claimant or
his/her authorized representative;
 Where there is no dispute as to liability, accept the
recommendation made in the adjuster’s report; and
 Any dispute with the adjuster’s final report should
be resolved with the adjuster before making an offer
of settlement to the claimant.
(b) Repudiation of Liability
 Within 7 working days after receipt of the adjuster’s
final, advise the claimant in writing on the rejection
of his/her claim.
5. Payment of Claims  Full payment must be made to claimant from date of
receipt of the acceptance of offer and/or Discharge
Voucher and all relevant documents within:
(i) 14 working days for claims of up to RM1 million;
or
(ii) 21 working days for claims exceeding RM1
million
 For claims payable on a reimbursement basis, within
7 working days from date of receipt of original bills
from the claimant.

6. Post-Settlement Action

When a claim has been paid, the operator may take one of the following actions:

1. Terminate the Takaful certificate.

2. Reduce the sum covered (or reinstate with additional contribution payment).

B9.6 APPLICATION OF AVERAGE IN CLAIMS

When the sum covered of an asset or property is less than the market value and the certificate
is subject to average, a claim under such certificate will only be met in the proportion which the
sum covered bears to the full value of the property at the time of loss.

The formula generally used to adjust the claim is as follows:

75
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

Claim payable = Sum Covered X Loss

Value at risk

Example:

A participant covered his car under Motor Takaful for RM30,000 when the market value
is actually RM50,000. When the car was damaged in an accident, if the repair costs is
RM20,000, the claims amount is:

Sum Covered (RM30,000) X Loss (RM20,000) = RM20,000

Market Value (RM50,000)

In this case the Takaful Operator will only pay the participant RM12,000. The balance
RM8,000 will have to be borne by the participant himself.

Table 7 : Calculation for Average Clause

When a property is under-valued for purpose of Takaful cover, the contribution paid by the
participant is based on such value instead of its full value. This means the participant will be
making a contribution to the General Takaful fund (for payment of losses) which is less than the
risk shared with the other participants. The principle of average is therefore applied to penalize
the participant who has under-valued his property. When a loss is subject to average, the
participant will be considered as the risk-bearer for the proportion so under-valued and
therefore has to contribute to the loss.

It is the duty of the agent to recognize under-valuation of the property to be covered.

To avoid disputes arising from the application of average, agents should draw their clients’
attention to the principle of average at the outset and ensure that the sum proposed for Takaful
cover is adequate not only at the commencement of the cover but also throughout the currency
of the certificate.

B9.7 RECOVERIES FROM RETAKAFUL, CO-TAKAFUL, SUBROGATION AND CONTRIBUTION

The claim settlement process will also involve making appropriate recoveries from Retakaful
and/or co-Takaful Operators, third parties under subrogation rights, and other Takaful
Operators under contribution rights, if such rights exist.

76
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B6.6 REPUDIATION OF LIABILITY

Not every claim filed by a claiming participant will result in payment as Takaful Operators may
have reason to repudiate liability on grounds:

1. there was no loss or damage as reported

2. the loss or damage for which a claim has been made was not caused by a peril or was
excluded under the certificate
3. the certificate had been rendered void as a result of a breach in condition or warranty

77
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

CHAPTER B10: GENERAL TAKAFUL PRACTICES - ETHICS AND CODE OF CONDUCT

Learning Objectives

To understand the ethics and code of conduct to be practiced by General Takaful intermediaries

Learning Outcome

Able to abide with the ethics and code of conduct and compliance requirement for Takaful
intermediaries pertaining to General Takaful

B10.1 INTRODUCTION

The Inter-Takaful Operator’s Agreement (ITA) on Takaful Business is a joint effort by industry
players at self-regulation for the betterment of the industry. The Agreement was made amongst
all members of the Malaysian Takaful Association (MTA) with the objectives of:

 promoting and protecting the interests of the Takaful industry, for the mutual benefits
of all the members of MTA and the public.
 regulating and controlling the conduct and activities of every person transacting Takaful
business.
 monitoring the tariffs, commissions and remuneration applicable to Takaful business.

For the purpose of regulating and controlling the conduct and activities of all registered agents
and to ensure compliance with the Regulations, a Committee may be appointed by the
Management Committee of MTA. The powers of the Committee amongst others include:

 to receive and to consider applications for registration as agent, for and on behalf of any
Takaful Operator.
 to issue, renew or extend certificates of registration to agents.
 to approve and certify the appointment by agents of any corporate nominees.
 to monitor and to control the conduct and activities of agents to comply with the
Regulations and/or Guidelines.
 to recommend to the Management Committee the appointment of a Registrar or any
other person for the administration of the functions of the Committee.
 to notify the Management Committee of any breach or foreseeable breach of the
Regulations and/or Guidelines committed or to be committed by any agents.
 to consider and to approve appeals for exemptions from the terms of the Regulations
and/or Guidelines.
 to consider and to approve the appointment and removal of motor vehicle franchise
holders in the Second Schedule of the ITA.
78
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

The Agreement also provides for the formation and appointment of an Inspection Task Force.
The Task Force is given the authority to conduct inspections and carry out investigation on the
conduct and activities of any member of MTA in accordance with the manner provided in the
Agreement. This includes the authority to enter any of the member’s premises and the
inspection of documents on the premises.

The Agreement also makes provisions for disciplinary procedures, penalties and appeals.

B10.2 DEALINGS WITH AGENTS

In respect of matters involving agents, the Inter-Takaful Operator’s Agreement on General

Takaful Business provides for the following:

a. Authorized Agents

All members of MTA shall only authorize, deal and/or transact General Takaful business
with registered agents or brokers.

b. Restriction on Payments

Commission shall only be paid to agents or brokers who are involved in the procuring,
selling, transacting, dealing or negotiating of any General Takaful business.

c. Compliance with Regulations

All members of MTA shall ensure that their agents comply with all the rules for the
registration and regulation of General Takaful agents stipulated under the Agreement.

d. Scope of Agency

Members of MTA shall not permit or authorize their agents to:

i. issue or complete Takaful certificates.

ii. conduct a loss survey or make loss adjustments.
iii. settle or approve Takaful claims.

e. Suspension of Agent

If the Committee, after due investigation found that an agent had breached a Regulation,
the agent shall be suspended and not allowed to transact any business. The suspension is
to be in force until further notice from the Committee.

79
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

f. Cancellation of Certificate of Registration

MTA member companies shall terminate their agent within thirty days of notification if
such agent’s certificate has been revoked, cancelled or refused renewal by the
Committee.

MTA Member companies shall:

i. keep a complete and up-to-date record of all their agents, including their corporate
agents, directors, shareholders and corporate nominees.
ii. maintain proper and accurate accounts showing the amount of commission paid to
their agents.
iii. provide the Committee with any information concerning any of their agents as and
when requested.

10.3 MINIMUM ENTRY QUALIFICATION

The Takaful Basic Examination (TBE) is an entry qualification for all those who intend to be a
registered Takaful agent in the financial services industry promoting Takaful products and
services. It is a compulsory qualification to enhance the competency and professionalism of the
Takaful agents.

The implementation of TBE was effective on 1 January 2009 and the requirement of individual
to pass the TBE is stipulated in the MTA Inter-Takaful Operators Agreement where every new
applicant who would like to be registered as an Agent (including corporate nominee) needs to
pass TBE or its equivalent as approved by the management committee (MC). This requirement is
irrespective of whether or not the applicant possesses the Pre Contract Examination (PCE)
certificate or any other qualification. The TBE qualification is segregated into two categories,
namely the General Takaful and Family Takaful which are governed by MTA Rules and
Regulation on Takaful Agent Registration.

10.4 CORPORATE NOMINEE

A corporate agency shall be represented by a Corporate Nominee subject to the approval and
fulfilling the following qualifying criteria:-

 is the principal officer of the corporate agency or such other officer as approved;
 is engaged full time in the principal office of the corporate agency; and
 is a person of good character and high business integrity.

Where a Corporate Nominee leaves the employment of the agency, the agency is required to
replace the Corporate Nominee.

80
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

B10.5 COMMISSION WITHIN WAKĀLAH FEES AND DISCLOSURE

An efficient and responsible Takaful Operator is one that conducts its business in a prudent
manner which includes the exercise of control over collection of contributions, expenses and its
business development strategies.

The Guidelines “Valuation Basis for Liability of General Takaful Business” which came to effect 1
July 2011 and together with the Guidelines on Takaful Operational Framework, form the basis
for Takaful Operators to conduct their business in a transparent and prudent manner. It also
provides amongst other, matters for the maximum gross commissions and agency-related
expenses for the following classes of Takaful business written within Malaysia to be limited to
the following percentages of gross direct contributions:

No Classes Rate
1 Marine Cargo, Aviation and Transportation (MAT) 15%
2 Motor 10%
3 Fire 15%
4 Marine Hull 15%
5 Engineering 15%
6 Bonds 10%
7 Other classes 25%
Table 8: Commission Structure for General Takaful Business

The maximum limits should apply on a cover to cover basis from the date of commencement of
risk. In respect of a package scheme, the maximum commission allowed is that applicable to the
cover with the largest proportion of the contribution.

The Inter-Takaful Operator’s Agreement on General Takaful Business further provides that no
discount or rebate whatsoever shall be given by an intermediary to any participant or certificate
holder on any commission paid or payable by the Takaful Operator to the agent.

In addition, if the client deals with the insurer or operator directly without an agent or broker as
intermediary, the Takaful Operator may allow a discount not exceeding the amount as stated in
the table 8 above.

Agents are also compelled to disclose commissions received on a particular business transacted
whenever requested by the respective client / participant.

B10.6 COMPLIANCE WITH CASH-BEFORE-COVER (CBC) FOR MOTOR TAKAFUL CERTIFICATES

Pursuant to the circular issued by BNM and in compliance with Section 96 of the IFSA 2013 and
Takaful (Assumption of Risk and Collection of Contribution) Regulation 1985, identifies the
motor and other “personal lines” business as that which the Takaful Operator or its agent shall
not assume unless the contributions for such covers:
81
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

1. has been paid to the Takaful operator or its agent (cash-before-cover); or

2. is secured by an irrevocable bank guarantee and is paid by the end of the month
following the month in which the risk is assumed, failing which a demand is made on the
bank guarantee.

The Regulation also provides that where the contribution in respect of a motor certificate
covering a commercial vehicle is more than RM5,000 the Takaful Operator may assume risk
upon the payment to its account an amount of at least 30% of the contribution, with the
balance being paid within 45 days of the assumption of risk. Further, the Regulation also
provides that a Takaful agent receiving contribution for a motor certificate shall pay the amount
into the Takaful Operator’s account within seven (7) working days from the date of assumption
of risk.

In this regard, an agent shall maintain a bank account designated in the name of the Takaful
Operator which the agent represents and shall deposit into such account all contributions
and/or monies collected on behalf of his principal operator (in gross before deducting any
commission).

The definition of “payment” has been extended to include payment by way of credit/debit or
charge cards and electronic fund transfers in the purchase of Motor Takaful cover. The old
regulations which provide for payment by way of cash, cheque, money order or postal and bank
draft/cashier’s order still remains valid.

In other classes of business (with the exception of marine cargo, marine hull, bonds, contractors’
all risks and erection all risks certificates), the agent may offer credit to the client for a maximum
period of sixty (60) days from the date of commencement of cover and on such terms as
approved by his principal in writing. An agent must also ensure that all cheques or drafts from
the client / participant are drawn in favour of the Takaful Operator.

B10.7 THE DUTY OF DISCLOSURE

The principle of utmost good faith applies to Takaful business and this is evident in Section 141
of the IFSA 2013, (specifically Paragraphs 4 to 12 of Section 141) where the followings are
observed:

1. Before a contract of Takaful is entered into, a proposer shall disclose to the Takaful Operator
a matter that:

a. known to be relevant to the decision of the Takaful Operator on whether to accept the
risk or not and the rates and terms to be applied; or
b. a reasonable person in the circumstances could be expected to know to be relevant.

2. The duty of disclosure does not require the disclosure of a matter that

a. diminishes the risk to the Takaful Operator;

82
Copyright @ IBFIM 2018
Part B Takaful Basic Examination
General Takaful

b. is of common knowledge to both the proposer and the Takaful Operator;

c. the Takaful Operator knows or in the ordinary course of his business ought to know;
d. in respect of which the Takaful Operator has waived any requirement for disclosure.

3. Where a proposer fails to answer or gives an incomplete or irrelevant answer to a question

contained in the proposal form or asked by the Takaful Operator and the matter was not
pursued further by the latter, compliance with the duty of disclosure in respect of the
matter shall be deemed to have been waived by the Takaful Operator.

4. No Takaful Operator or his agent, in order to induce a person to enter into or offer to enter
into a contract of Takaful with it or through him

a. shall make a statement which is misleading, false or deceptive, whether fraudulently or

otherwise;
b. shall fraudulently conceal a material fact; or
c. in the case of an agent, use sales brochure or sales illustration not authorized by the
Takaful Operator.

5. Where a person is induced to enter into a contract of Takaful in a manner described in

subsection (4), such contract shall be voidable and the person shall be entitled to rescind it.

6. The following changes are most likely to affect the contribution rates applicable at renewal:

a. a change in the nature of the individual risk to be covered; and/or

b. an overall change in the contribution rates for that particular class/portfolio owing to,
for example, an overall worsening of the risk of the entire class of business.



83
Copyright @ IBFIM 2018