Foreign Workers’ Compensation Scheme | frolicking with the extras….

 

Whenever a Malaysia-domiciled enterprise engages a foreign worker, the following types of insurance are compulsory:

  1. Foreign Workers’ Insurance Guarantee (or Bond) (FWIG)
  2. Foreign Workmen’s Compensation Scheme (FWCS)
  3. Foreign Workers’ Health Insurance (taking effect from 01.01.2011)

 

CEO! You may be caught in between and guess what? Without you knowing it!

 

In the context of this posting rather than explaining what these coverage are all about we shall focus on the “…..frolicking part of insurers trying to extend coverage to some of the above insurance covers”. By the way, we have inserted a summary of what’s FOREIGN WORKMEN’S COMPENSATION SCHEME is all about. Just scroll down…

It's down there, scroll down to view

it’s at the bottom of this posting.

 

When we say, “..frolicking…” we meant by the insurer(s) trying to extend cover without putting much thoughts on whether the extension may fall foul of some statutory Acts, ie. Insurance Act 1996 and those relating to Workmen’s Compensation Act 1952 (amended 1996).

Case-in-point would be the following extension wordings….. with intention to value-add to the existing Foreign Workmen’s Compensation Scheme (Scheme), of course trying to out-bid their competitors:

[QUOTE] This Foreign Workmen’s Compensation Scheme shall be extended to indemnify the insured for loss resulting from non-recovery of or failure to recover any outstanding balance of loan or advancement disbursed to foreign workers for the purpose of travelling expenses/levy/incidental expenses, arising from the disappearance from work and/or death of the foreign workers, subject to policy terms, conditions and exclusions as they are originally provided. [UNQUOTE]

Some insurers are prepared to extend this, clouded by the simple fact that FWCS has a current low loss ratio and thus making an exception is alright. But have we ever consider furthering our thoughts, especially on those coverage points like, “…. said foreign worker disappearing from work” and “indemnification is based on Insured’s failure to recover loans or advancement….. disbursed”?

Wouldn’t these coverage points to a breach of the Insurance Act? At least this was what I know in the first instance….

MALAYSIA INSURANCE ACT 1996

PART II – LICENSING OF INSURER, INSURANCE BROKER AND ADJUSTER

Business which is not insurance business

5.   For the purposes of this Act, the following is not insurance business:

(a) the operation by an employer, otherwise than for profit, of a scheme or arrangement making financial provision for his employees’retirement, or future termination of service through death or disability;

(b) the business carried on in accordance with Part II of the Societies Act 1966 by a mutual benefit society as defined in section 2 of that Act; and

(c) export credit and other credit guarantee insurance business carried on by Malaysia Export Credit Insurance Berhad.

Prohibition or restriction of insurance business

6.   The Bank, in the interest of orderly operation of a licensed insurer’s or restriction business or of the insurance industry, may prohibit or restrict a licensed insurer of insurance in writing from carrying on such description of insurance business as it may specify.

Penalty: Imprisonment for three years or three million ringgit or both default penalty.


Reading from this relevant sections of the Insurance Act, make no mistake, the Act has never intended that insurers underwrite risks that have those credit guarantee elements such as the above extension of cover to the FWCS. That’s the reason why the underwriting of credit insurance requires additional approval by the Central Bank – reference can be made to Surat Pekeliling: JPI 20/2006 (Consolidated), section B 3.

And wouldn’t it makes sense to double-check those FWCS extension since the penalty is …AWESOME?

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It's down there, scroll down to view

WHAT IS FOREIGN WORKERS COMPENSATION SCHEME (FWCS)?

1.         Introduction

The Workmen’s Compensation Act 1952 was amended in August, 1996.  Under Section 26(2) of the Amended Act, it is mandatory for every employer to insure all the foreign workers employed by him under an approved insurance scheme in respect of any liability he may incur under the Workmen’s Compensation Act 1952.

Any employer who fails to insure the foreign workers under the approved insurance schemes shall  be guilty of an offence and shall be liable, on conviction, to a fine not exceed RM20,000 or to imprisonment for a term not exceeding 2 years or both.

All the employers are required by this Act to insured all their foreign workers under the FWCS scheme with any of the FWCS insurance providers appointed by the Ministry of Human Resources.

2.         Scope of Cover/Premium

Section 1 – Workmen’s Compensation Insurance

Coverage

Benefits

(a). Death

A maximum amount of RM18,000 under the Workmen’s Compensation Act plus RM7,900 as provided for under the Scheme.

(b). Permanent Disablement


(i).  Permanent Total Disablement

Pays a maximum sum of RM23,000 as per the First Schedule of the Workmen’s Compensation Act.

(ii). Permanent Partial Disablement

Pays a sum of money based on the capital sum  of RM23,000 calculated in accordance with the First Schedule of the Act.

(iii). Temporary Disablement

Pays a sum of money calculated in accordance with Section 8(e) of the Workmen’s Compensation Act.

(iv). Medical Expenses

Pays in accordance with provisions of the Workmen’s Compensation Act.


Section 2 – Repatriation Expenses

This Section will indemnify the Insured for the actual repatriation expenses incurred or RM4,800 whichever is lesser, in the event the insured worker dies or suffers permanent total disablement.

Section 3 – Personal Accident Insurance (Off-Work Hours)

This Section will pay the insured person for personal injury sustained in an accident, which occurs outside the working hours.

Coverage

Benefits

(a)  Death

A sum of RM23,000

(b)  Permanent Disablement

Similar to Section lb.(i), (ii), (iii) & (iv)


Premium Computation:-

The premium for each worker is computed as follows :-

Gross Premium  : RM67.00

5% Service Tax  : RM 3.35 (6% with effect from 1 January 2011)

*Service Fee       : RM 5.00

Total Premium    : RM75.35 (excluding RM10.00 Stamp Duty)


3.         General Exclusions

(a)        Any actions for compensation brought in the courts of law of any territory outside Malaysia.

(b)        War and Terrorism Exclusion

(c)        Asbestos Exclusion

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2 comments for “Foreign Workers’ Compensation Scheme | frolicking with the extras….

  1. Anonymous
    September 30, 2012 at 21:38

    Service tax of 5% is already outdated.

  2. December 23, 2010 at 06:28

    [New Post] Foreign Workers’ Compensation Scheme | frolicking with the extras…. – via #twitoaster http://www.malaysiainsurance.info/grapev

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