BNM's Guideline On Claims Settlement Practices (Consolidated)

PART I - OVERVIEW.................................................................................
1
1. Objective.......................................................................................................................1
2. Coverage ......................................................................................................................1
PART II - GENERAL CLAIMS GUIDELINE.............................................1

3. Claims Servicing Counter ..........................................................................................1
4. Claims Processing ......................................................................................................2
PART III - MOTOR CLAIMS GUIDELINE ................................................6

5. Coverage ......................................................................................................................6
6. Own Damage Claims..................................................................................................6
7. Third Party Claims.................................................................................................... 10
8. Motor Claims - Other Matters ................................................................................. 11
PART IV - FRAUD CONTROL................................................................13

9. All Claims................................................................................................................... 13
10. Motor Claims ............................................................................................................. 15
PART V - WITHDRAWAL OF GUIDELINES/CIRCULARS..................15

11. Guidelines and Circulars Withdrawn ..................................................................... 15
BNM/RH/GL/003-9 Consumer and Market Conduct GUIDELINE ON CLAIMS SETTLEMENT Page
Department PRACTICES (CONSOLIDATED) 1/15
PART I - OVERVIEW
1. Objective
1.1 This guideline is issued to lay down the basic principles of claims processing
which need to be followed in order to protect the interest of policy owners and the
public, while promoting a positive image of the general insurance industry.
1.2 The guideline acts as a minimum standard expected to be observed by

insurers in handling general insurance claims. While the main objective of the
guideline is to ensure prompt and fair settlement of claims, it should not restrict or
replace the sound judgement of insurers to maintain professionalism and uphold
utmost good faith in claims handling.
1.3 The guideline is issued in pursuant to Section 201 of the Insurance Act.
2. Coverage
2.1 This guideline must be observed by insurance companies and loss adjusters
in relation to their general insurance business with immediate effect1.
2.2 The timeframe in the guideline will not be applicable for claims which require
special handling e.g. expert opinion or further investigations. Insurers are required to
keep proper documentation to justify such special handling.
PART II - GENERAL CLAIMS GUIDELINE
3. Claims Servicing Counter
3.1 Every insurer should set up a claims servicing counter at its head office in
order to provide efficient and effective claim services to claimants. Each branch is
1
Suspected fraud suspends timeframes. Timeframes cease when claims are put into litigation, or the
insurer advises the claimant of its decision.
also encouraged to have a claims servicing counter or at the minimum, there should
be one designated staff to undertake this function;
3.2 The counter staff should handle general claim enquiries, enquiries on status
of claims and provide the necessary advice/assistance to claimants.
3.3 The Claims Servicing Counter may be established as a unit within the
Customer Service Counter. There must be a specific person with a dedicated
telephone line, email address and other access to communication, to perform the
above functions; and
3.4 Feedback forms on the quality of claims handling services rendered, including
that of other service providers (e.g. motor workshops, panel hospitals/clinics, third
party administrators, etc.), should be made easily available at the counter. The
completed forms should be evaluated by the internal audit department for
improvements in service standards.
4. Claims Processing
Every insurer should assist the claimant in the processing of claims. The following
procedures should be observed by the insurer:-
4.1 Notification of Claims

4.1.1 Within seven working days from the receipt of claim notification:
4.1.1.1 undertake claim registration and initiate claim processing immediately after
recognising the claim. The claims register must be completed and
updated at all times as required under Regulation 45(b) of the Insurance
Regulations 1996;
4.1.1.2 acknowledge the receipt in writing together with the following documents:
· the claim form and advice to facilitate submission of claim; and
· the checklist of all documents required.
4.1.2 All claims notifications through agents must reach the insurer within three
working days, except for crime related claims which should be notified within
24 hours from time of loss. The agents should not be involved in claims
handling on behalf of the insurer except in assisting the claimant in completing
the claim form; and
4.1.3 All subsequent communications from a claimant must be entertained within
14 working days.
4.2 Verification of Facts

4.2.1 Within 14 working days of receipt of claim form, acknowledge the receipt in
writing, stating the following information:
4.2.1.1 the insurer’s contact person, reference number and any other relevant
information for ease of enquiry and correspondence by the claimant;
4.2.1.2 the expected timeframe needed to process the claims;
4.2.1.3 the rights of the policy owner; and
4.2.1.4 request for reasonable additional information and further supporting
documents. Piecemeal and repetitive requests for information/documents
should be avoided;
4.2.2 If the requested information is not forthcoming, a reminder should be sent to
the claimant after 14 days; and
4.2.3 The failure of the claimant to respond to the reminder will suspend the
subsequent time frame under these guidelines. However, the insurer shall
deal with the claim if the claimant forwards valid and reasonable explanation
for the delay.
4.3 Assessment of Claims

4.3.1 Within seven working days from the date of receipt of the completed claim
form and all relevant supporting documents, appoint licensed/in-house staff
adjusters. A licensed adjuster provides independent professional assessment
of the loss giving rise to a claim and ensures fair compensation to claimants;
4.3.2 Within 14 working days from appointment, the adjuster’s final report2 must
reach the insurer;
2 Adjuster’s report is considered final when there is no further investigation pending or required.
4.3.3 Within 60 working days from the date of first notification and every 30
working days thereafter, to notify the claimant of the position of a claim (if
investigation is still on-going), until the matter is resolved; and
4.3.4 If fraud is suspected, the claimant should be advised in writing that the claim
is under examination.
4.4 Settlement
4.4.1 Offer of Settlement
4.4.1.1 Within seven working days from receipt of the final adjuster’s report,
send offer letter to claimant or his/her authorised representative;
4.4.1.2 Where there is no dispute as to liability, accept the recommendation made
in the adjuster’s report; and
4.4.1.3 Any dispute with the adjuster’s final report should be resolved with the
adjuster before making an offer of settlement to the claimant.
4.4.2 Repudiation of Liability

4.4.2.1 Within seven working days after receipt of the adjuster’s final report,
advise the claimant in writing on the rejection of his/her claim, stating the
reasons for the repudiation in a clear and simple manner; and
4.4.2.2 An insurer should not repudiate a claim on the following grounds:-
· technical breaches of warranty or policy conditions which are not
material or unconnected to the circumstances of loss, unless it has
prejudiced the interest of the insurer or has exceeded time bar as
provided under the law; and
· non-disclosure of a material fact which a policy owner could not
reasonably be expected to have known to be necessary to disclose,
or on grounds of misrepresentation, unless it is a deliberate or
negligent misrepresentation of material fact.
4.4.3 Notice of Avenue of Appeal

Any letter of rejection of any element of a claim and dispute on quantum
which are within the purview of the Financial Mediation Bureau must contain
the following statement prominently:-
“Any person who is not satisfied with the decision of the Insurer, should refer
to the procedure for appeal as stated in the leaflet issued by the Financial
Mediation Bureau, entitled: (Note for the policy owners who made a claim/
report).”
4.4.4 Payment of Claims
4.4.4.1 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:-
· 14 working days for claims of up to RM1 million
· 21 working days for claims exceeding RM1 million
4.4.4.2 Note:-
· Claimants should be given the option to request for an exchange of
cheque with the signed Discharge Voucher;
· The insurer should not delay in making part payment claims;
· Claim quantum should not be reduced in exchange for early
payment; and
· For claims payable on a reimbursement basis, within seven
working days from the date of receipt of original bills from the
claimant, the insurer should reimburse all medical and hospital bills,
providing itemised payment in accordance with the policy
coverage/benefits.
4.4.4.3 Payment of Claims by Way of Court Order:-
· Within 14 working days of receipt of the sealed court order,
payment of court judgement sum should be made. In the case of
minors and persons mentally incompetent, a Distribution Order
should also be obtained; and
· The insurer may pay upon receipt of the draft court order which has
been duly approved by both parties and the court if the claimant’s
solicitor undertakes to serve the sealed court order on the insurer.
4.4.4.4 Payment of Adjuster’s Fees3
3
With effect from 20 March 2003.
· The services rendered by licensed adjusters are professional i n

nature and represent the independent assessment of a third party.
To safeguard the quality of services of adjusters and their role as
the independent party to a claim, payment of adjusting fees must be
made by insurers without delay.
· Within 14 working days from the submission of the final adjuster’s
report or the offer of settlement/rejection to the claimant (whichever
is earlier), the insurer shall pay the relevant fee to the adjuster for
the services rendered.
Where ‘adjusters’ are mentioned above, the requirements/ timeframe are also
applicable for other specialists such as medical consultants and marine surveyors.
The flowchart on non-motor claims processing is attached in Chart I while flowcharts

related to motor claims processing are attached in Part III.
PART III - MOTOR CLAIMS GUIDELINE
5. Coverage
Where applicable, the standards for prompt and equitable claims processing in Part
II must be employed for the handling of all motor insurance claims, in addition to the
standards under this section.
6. Own Damage Claims
6.1 Assessment of Claims

6.1.1 Upon receipt of the completed claim form and all the relevant documents, a
licensed/in-house staff adjuster appointed by the insurer, should inspect the
damaged vehicle within:-
· Seven working days at major towns4; or
· 14 working days at other locations.
4
Major towns include Kuala Lumpur, Penang, Johor Bahru and Ipoh.
6.1.2 The adjuster should prepare the assessment report independently from the
repairer’s estimate;
6.1.3 Within seven working days from the date of inspection, the adjuster must
present his report to the insurer;
6.1.4 If the insurer fails to inspect the damaged vehicle during the stipulated period
stated above, the policy owner shall then have the liberty to appoint his own
adjuster at the expense of the insurer and proceed with the repairs at any of
the workshops under PIAM Approved Repairers Scheme (PARS).
Negotiations shall be limited to labour and parts prices only and not on the
extent of damage, unless the insurer finds that the damage to the parts are
not consistent with the circumstances of the accident; and
6.1.5 The insurer reserves the right to require the policy owner (or workshop) to
retain all replacement parts for re-inspection for a period of 28 days from date
of replacement.
6.2 Pre-Approved Authorised Repair Arrangements

The prior approval of BNM must be obtained by the insurer for any
arrangement or agreement involving pre-approved authorised repairs.
6.3 Minor Claims Up to RM 2,000 After Excess

6.3.1 Within three working days from date of receipt of notification of loss, the
insurer may, at its discretion, request the policy owner in writing for an
estimated cost of repairs;
6.3.2 Within three working days from the receipt of the estimate, the insurer may
inspect the vehicle, failing which:-
· the policy owner shall have the liberty to proceed with the repair at
any PARS workshops; and
· within seven working days upon receipt of the estimated cost of
repairs, the approval letter should be given.
6.3.3 If the insurer requires the vehicle to be surveyed by an adjuster, the insurer
shall bear the adjuster fees.
6.4 Approval Letter

6.4.1 Within seven working days of receipt of all documents, approval letters
should be sent to the policy owner and workshop; and
6.4.2 The approval letter should itemise the repair estimates (spare parts
prices/labour charges) via reference to the database of Motordata Research
Consortium Sdn. Bhd. (MRC) and include a clear explanation on the scale of
betterment, average clause and deduction of salvage, as well as options
available to policy owner, where applicable.
6.5 Supplementary Claims – Re-inspection

6.5.1 Within seven working days following the date of notice of supplementary
claim either from the policy owner or the repairer, a second inspection of the
vehicle shall be performed if required; and
6.5.2 Within five working days from the date of receipt of the adjuster’s
supplementary report, the supplementary approval letter (with an itemised
approved estimate of replacement parts and labour charges) should be issued
to the policy owner or repairer.
6.6 Unsatisfactory Repair

6.6.1 Within the repair warranty period, the policy owner should be allowed to report
unsatisfactory repair. This condition should be specifically stated in the
Discharge Voucher;
6.6.2 The insurer should re-inspect and ensure that the vehicle is restored to its
pre-accident condition; and
6.6.3 Should the repaired vehicle be certified as not roadworthy after repairs have
been carried out in accordance with the approval of the insurer, the policy
owner should be reimbursed with the market value of the vehicle.
6.6.4 The certification of roadworthiness or otherwise must be made by
PUSPAKOM at its premises.
6.7 Total Loss Claims

6.7.1 The basis for all total loss settlements shall be fully explained to the policy
owner;
6.7.2 Any deduction, including depreciation must be measurable, reasonable,
specific and fully explained to the policy owner;
6.7.3 Beyond Economic Repair (BER) settlement must be supported by
documentation on the vehicle’s condition;
6.7.4 If the wreck value is more than the claim settlement sum offered, the policy
owner should be given the choice of either withdrawing the claim or accepting
the insurer’s offer;
6.7.5 In the case of BER claims, if the policy owner insists that the vehicle be
repaired, the insurer should give due consideration to repair the vehicle
subject to the following conditions:-
· the wreck value is more than claim settlement sum offered; and
· the vehicle meets the “Contract Repairs” guideline (stated in 8.2).
6.8 Theft Claims

6.8.1 Where the insurer decides to investigate the claim, it should appoint the
investigator without delay;
6.8.2 Within 90 days from the date of notification of loss, the theft investigation by
the insurer should be completed;
6.8.3 Within 180 days from the date of notification of loss, the insurer has to make
a reasonable offer of settlement or repudiate the claim. However, the insurer
may make an offer of settlement upon earlier completion of police
investigation or its own investigation; and
6.8.4 The insurer should request for all necessary documents in its letter of offer to
the policy owner.
Flowcharts on the different types of claims are as follows :

· Own Damage Claims Chart II & II(a)
· Theft Claims Chart III
· Windscreen Claims Chart IV

· Total Loss/Beyond Economic Chart V

Repair Claims
7. Third Party Claims
7.1 Third party claimants should not be required to furnish information or submit
documents which they cannot obtain (e.g. the police report of the insurer’s
policy owner).
7.2 Excess shall not be applied in all third party claims.
7.3 Verification of Claims

7.3.1 Within seven working days from notification of claim by the third party
claimant/lawyer, the insurer should acknowledge the notification;
7.3.2 If the policy owner fails to report the accident, the insurer should draw the
attention of the policy owner to the provisions of Section 104 of the Road
Transport Act, 1987 and the penalties pertaining to non-reporting of accident;
and
7.3.3 A minimum of two reminders at an interval of 14 working days each should be
sent to the policy owner if he/she fails to respond to the insurer’s request.
7.4 Third Party Property Damage

7.4.1 The insurer should not repudiate liability on third party property damage
claims solely on the grounds of non-reporting by the policy owner. Such
claims should be considered subject to procedures stated in Appendix I;
7.4.2 The letter of approval should explain the basis used in arriving at the
settlement amount, including details of discrepancies for any inconsistencies
between the adjuster’s recommendation and the insurer’s estimate;
7.4.3 Where a claim for compensation for assessed repair time (CART) is payable,
the insurer should adhere to the scale of CART agreed by the industry (as per
Appendix II) and explain how the amount is derived in its offer of settlement
to the claimant;
7.4.4 For claims where the Knock-for-Knock Agreement and the Supplemental
Agreement apply, the insurer should adhere to the Code of Procedures and
Practices stipulated in these Agreements;
7.4.5 For all supplemental Knock-for-Knock claims, the insurer should reimburse
the third party claimant the amount of excess as stated in the approval letter
issued by the claimant’s own insurer; and
7.4.6 Where the policy owner insists that the insurer should not handle the third
party claim as he/she is not liable for the accident, the insurer should require
the policy owner to sign an undertaking letter to waive any liability on the part
of the insurer. The policy owner should also be advised of the implications of
giving the undertaking.
7.5 Third Party Bodily Injury

Upon receipt of initial information, the insurer should establish the facts of the
accident and persons injured. Where the insurer decides to investigate the
claim, it should appoint the investigator without delay.
The flowchart on the different types of claims are as follows :
· Knock-for-Knock (KfK) Claims Chart VI
· Supplemental KfK Claims Chart VII
· Third Party Bodily Injury Claims Chart VIII
8. Motor Claims - Other Matters
8.1 The practice of joining two halves of damaged vehicles (Cut and Shut) as a
method of repair is prohibited except for the repair of ‘stretched’ version of
vehicles which were constructed using the joining technique or process and
provided the approval of Jabatan Pengangkutan Jalan (JPJ) is obtained.
8.2 Contract repairs are not allowed except under the circumstances as follows:
8.2.1 with the agreement of the policy owner in writing;
8.2.2 vehicle of 5 years old and above;
8.2.3 estimated cost of repair exceeds 65% of the sum insured;
8.2.4 insurer must send the repaired vehicle to Puspakom for
inspection/certification of road worthiness; and
8.2.5 if the vehicle meets the above requirements but cannot be repaired due
to non-availability of parts locally, the insurer should treat it as “Total
Loss”.
8.3 The insurer shall adhere to the standard procedures set by the industry in
dealing with chain collision claims whereby the insurer of the vehicle
immediately behind shall be responsible for damage and uninsured losses
(i.e. excess and compensation for assessed repair times only) for the vehicle
in front of it. These procedures shall not apply to collisions involving:-
8.3.1 parked vehicles;
8.3.2 where the front vehicle makes a ‘U’ turn;
8.3.3 vehicles not traveling in the same direction; or
8.3.4 foreign registered vehicles.
8.4 New franchise parts must be used for vehicles below 5 years old with no
betterment charges applicable. Betterment charges may only be applied
when new franchise parts are used for vehicles aged five years and above.
Where betterment is applicable, the claimant should be given the option of
using new non-franchise parts and/or second hand parts in order to avoid
betterment charges. The insurer should explain to the claimant the rationale
and quantum of betterment. The insurer should adhere to the scale of
betterment and the related guidelines set by the industry as per Appendix III.
8.5 Where the repairer is appointed from the insurer’s panel, the insurer should
ensure that the repairs are carried out within the shortest time possible, in any
case, not more than 15 working days from the date of approval of repair
estimates (unless due to extensive damage or non-availability of parts).
8.6 The insurer should refer to the centralised database for motor repairs
estimations of MRC for all Own Damage motor claims processing. To enable
the insurer to undertake electronic claims estimation using the MRC
database, the insurer should only appoint adjusters and repairers which are
linked to the centralised database on its panel. In utilising the database,

insurers should observe the following5:-
8.6.1 Claims approval should be itemised as stated in paragraph 6.4.2 of the
Guidelines i.e. by each part used, its price and labour time required;
8.6.2 No further reduction is allowed on the final repair estimate derived
using the database as this is the amount required to undertake repairs
to the damaged vehicle; and
8.6.3 Electronically approve all OD claims via the database system to ensure
that the claims data is transmitted to the Central Processing Centre of
the database i.e. claims approval outside of the MRC system is not
allowed.
8.6.4 Pursuant to section 193 of the Insurance Act 1996, insurers conducting
general insurance business are required to submit to Bank Negara
Malaysia a monthly report in the format given in Appendix IV, by the
10th day of the following month6.
8.7 The insurer should honour claims where the driving licence or the road tax
was invalid or had expired at the time of accident provided the person driving
is not disqualified from holding or obtaining such a licence to drive the vehicle
under any required laws, by laws and regulations.
PART IV - FRAUD CONTROL
9. All Claims
9.1 The insurer should be guided by a checklist of documents/information which

will alert claims staff on the possibility of fraud.
9.2 Any suspicion of fraud should be promptly investigated and any evidence of
fraud should be reported to the police and BNM with a copy to PIAM.
5
With effect from 4 May 2005.
6
With effect from October 2001.
9.3 If there is any suspicion of fraud, the insurer should verify the relevant
facts/information with other insurers through PIAM as well as other relevant
parties.
9.4 The assignment of work to adjusters/investigators and lawyers on the panel

should be on a rotation basis to minimise the possibility of collusion between
the parties involved. A panel should be made up of at least six members at
any one time.
9.5 Claims staff should be properly trained to detect and deter fraud. To ensure
that claims staff act in the interest of both the insurer and the claimant, the
following should be observed:-
9.5.1 clear segregation of duties and approval authority among claims staff;
9.5.2 some form of job rotation among claims staff;
9.5.3 claims staff are required to go on long leave (at least one week)
periodically to enable other staff to take over their work;
9.5.4 claims staff should refrain from indulging in any form of entertainment
with related parties (including repairers, adjusters and lawyers) which
may be construed as compromising their professional judgement,
except with the prior approval of senior management (i.e. General
Manager or above); and
9.5.5 claims staff are prohibited from accepting any form of gifts from related
parties.
9.6 An effective control system should be in place at all times and subject to
periodic review by the internal audit department.
9.7 Random checks should be undertaken on the following:-

9.7.1 claim files;
9.7.2 physical pre-repair and post-repair inspections; and
9.7.3 pre-spray painting inspection, particularly on new franchise parts
replacement.
10. Motor Claims
10.1 There should be clear segregation of duties in processing the payment for
repair costs. Processing of the claims must only be done by the Claims
department, while payment for repair costs should only be handled by the
Accounts/Finance Department.
10.2 The registration cards of vehicles declared as `total loss’ should be indicated
accordingly on the face of the cards (stating the date of declaration and the
name of the insurer concerned) and returned to JPJ for cancellation, with a
return acknowledgment slip for JPJ to confirm blacklisting of vehicle.
PART V - WITHDRAWAL OF GUIDELINES/CIRCULARS
11. Guidelines and Circulars Withdrawn
11.1 With the issuance of this guideline, the following guidelines and circulars are
deemed withdrawn:-
Guidelines/ Title Date Issued

Circulars
JPI/GPI 14 Guidelines on Claims Settlement 25 February 1995
Practices
Revised Guidelines on Claims Settlement 16 September 2003
JPI/GPI 14 Practices
Surat Pekeliling Fi Pelarasan Kerugian Tertunggak 20 March 2003
JPI: 8/2003 Daripada Penanggung Insurans
Surat Pekeliling Centralised Database for Motor Repairs 19 May 2003
JPI: 14/2003 Estimation
JPI/GPI 14 Guidelines on Claims Settlement 4 May 2005
(Revised 2005) Practices

BNM's Guideline On Claims Settlement Practices (Consolidated)

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PART I - OVERVIEW.................................................................................

PART II - GENERAL CLAIMS GUIDELINE.............................................1

4. Claims Processing ......................................................................................................2

PART III - MOTOR CLAIMS GUIDELINE ................................................6

6. Own Damage Claims..................................................................................................6

7. Third Party Claims.................................................................................................... 10

8. Motor Claims - Other Matters ................................................................................. 11

PART IV - FRAUD CONTROL................................................................13

10. Motor Claims ............................................................................................................. 15

PART V - WITHDRAWAL OF GUIDELINES/CIRCULARS..................15

1.2 The guideline acts as a minimum standard expected to be observed by

PART II - GENERAL CLAIMS GUIDELINE

3. Claims Servicing Counter

4.1 Notification of Claims

4.2 Verification of Facts

4.3 Assessment of Claims

4.4.2 Repudiation of Liability

4.4.3 Notice of Avenue of Appeal

· The services rendered by licensed adjusters are professional i n

The flowchart on non-motor claims processing is attached in Chart I while flowcharts

PART III - MOTOR CLAIMS GUIDELINE

6. Own Damage Claims

6.1 Assessment of Claims

6.2 Pre-Approved Authorised Repair Arrangements

6.3 Minor Claims Up to RM 2,000 After Excess

6.4 Approval Letter

6.5 Supplementary Claims – Re-inspection

6.6 Unsatisfactory Repair

6.7 Total Loss Claims

6.8 Theft Claims

Flowcharts on the different types of claims are as follows :

· Theft Claims Chart III

· Windscreen Claims Chart IV

· Total Loss/Beyond Economic Chart V

7. Third Party Claims

7.3 Verification of Claims

7.4 Third Party Property Damage

7.5 Third Party Bodily Injury

8. Motor Claims - Other Matters

linked to the centralised database on its panel. In utilising the database,

PART IV - FRAUD CONTROL

9.1 The insurer should be guided by a checklist of documents/information which

9.4 The assignment of work to adjusters/investigators and lawyers on the panel

9.7 Random checks should be undertaken on the following:-

10. Motor Claims

PART V - WITHDRAWAL OF GUIDELINES/CIRCULARS

11. Guidelines and Circulars Withdrawn

Guidelines/ Title Date Issued

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