Insurance policy premium refund ala Malaysian?

Getting a policy premium refund?

All policy premium refunds belong to policyholders and rightfully any return in premium goes directly back to them unless they provide the insurance principal an official letter witnessed by a (at least) commissioner of oath stating their intention to have a third party receiving it on their behalf or in some cases authorising their agents to do a contra off with other outstanding premium due.

Hijacking the refund?
It is also not something unusual for agents (or even some brokers) to request that such premium refunds be issued in their account or in their name, or may even in favour of a third party linked to them, at times doing it in some very dubious manner, i.e., on a sheet of paper with signature that does not even matches that of the policyholder, at least not similar to the one found on the proposal form (also not usually given), and more than often was not witnessed by some proper person.

Witnessing it correctly….
What is this so-called proper person if you may ask? Simply say, someone who could be easily identifiable when a dispute occurs and this very same person could confirm that he or she having witnessed the policyholder signing on the said letter.

I am not insisting that such practice of assigning premium refund is bad but rather how best we could achieve a fair balance of things, i.e., to ensure all parties to it don’t end up with unnecessary legal tussle at the end of the day that usually leads to the insurance principal footing the bill and having has to go after the agent concerned. Also not to mention those bad publicity garnered.

What then should be those best practices?

In answering this it is best we revisit that part of the Malaysia’s Insurance Act, section 141 in particularly subsection 4:

Assumption of risk.
Section 141.

Subsection (1)   No licensed general insurer shall assume any risk in respect of such description of general policy as may be prescribed unless and until the premium payable is received by the licensed general insurer in such manner and within such time as may be prescribed.    

Penalty : Five hundred thousand ringgit.  

Subsection (2)   Where the
premium payable under subsection (1) is received by a person on behalf of a licensed general insurer, the receipt shall be deemed to be receipt by the licensed general insurer for the purpose of that subsection and the onus of proving that the premium was received by a person who was not authorised to receive the premium shall lie on the licensed general insurer.      

Subsection (3)   Where a person receives on behalf of a licensed general insurer premium on a policy of a description prescribed under subsection (1), that person shall remit the amount to the licensed general insurer within such period as the Bank may prescribe in relation to policies of that description.         

Penalty : Five hundred thousand ringgit.      

Subsection (4)   A licensed general insurer shall pay directly to the policy owner a refund of premium in relation to a policy of such description as may be prescribed under subsection (1) which may become due to the policy owner for any reason.         

Penalty : Five hundred thousand ringgit.

Reviewing subsection 4

This subsection states very clearly that all refunds must be made to the policyholder, and intention is to apply in absolute terms. Meaning, if the insurance company wants to allow this without satisfying itself of the authenticity of any ‘diverted’ refund, i.e., to another party other than the policyholder, then the insurance company can be charged and slammed with a half a million bills. Worse, this may trigger a thorough investigation by Bank Negara into the company’s adopted practices, and this can be a tragedy for the management. It does not matter even if the agent had argued that he or she actually paid the premium on behalf of the policyholder and therefore the refund ought to be paid back to the agent; the onus of proof in such cases are always certain to be on a the insurance company and the level of proof is certain to be strict.

Next time around when requested to do so, it is best the handling officer of the insurer vet through the request with the necessary documentary proof thoroughly before approving it; this is a matter of RM 500 k penalty for consideration and we are talking about ‘on a per case basis’! Do note it does not matter if the reasons are the following….

….agent having paid the premium on behalf of the policyholder and the latter had yet to pay up….

Subsection 1 of the Act should have clarifies matters.

….policyholder has decided to change agent mid-term and therefore the refund was directed to the subsequent agent to help resolve outstanding matters with the first agent

….policyholder wanted the agent to contra off some outstanding premium due on policies which belong to another party….

For whatever the reasons, insurance company must ensure all documentary proof
be over board and easy to discharge the onus of proof in the event of a dispute.

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1 comment for “Insurance policy premium refund ala Malaysian?

  1. Oven-boy
    December 19, 2012 at 06:13

    Hello! bro., this refund sini and sana punya basis is already a standard practice. Why not organise them properly rather than putting them under the weights of the insurance Act; makes doing business very unfriendly!

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