Since the Large and Specialised Risks (LSR) Scheme was introduced in 1994, Scheme managers have continually displayed increased flexibility in screening the insurance coverage for LSRs as adopted by the leading insurer and the broker. This is in line with the 1994’s objectives of developing a healthy and responsive Malaysian insurance industry by enhancing the level of technical expertise and professionalism prevailing in the industry, but at the same time ensue optimum retention within the country and all reinsurance done to best national advantage.
By using such phrase as “optimum retention” this means the operating procedures of Scheme managers were designed to enable full involvement of Malaysian insurers in the process of developing and negotiating rates, terms and conditions of the insurance cover and reinsurance arrangements.
What the Scheme managers had done in the past are to conduct a mere scrutiny of the proposed terms and conditions of coverage early to make sure that insurance covers are not being designed as to make it difficult for best possible utilisation of Malaysian insurers’ capacity. But scrutiny then was more of the salient features of the proposed coverage and not going indepth into wordings. This was with the understanding that any significant deviation from the standard IAR wordings would be outlined as appropriately in the broking slips.
Why is now there a need for Scheme managers to consider assessing the policy wordings rather than just those broking slips and summaries?
Things are fine if those elements of cover having such “significant deviation” were properly mentioned in the slip for easy checking and digestion but now these are not what they used to be. With the advancement of the internet platform, information gets disseminated at super fast speed. New and unfamiliar policy wordings utilised in US and Europe got picked up very fast by the younger Malaysian brokers after “googling” the web. Today it is already a common scenario of “what you see on broking slips don’t get reflected within the actual policy wordings (or was it the other way around?) prescribed by the brokers”.
The broking fraternity with its mixture of old and young broking warriors are just driving the underwriting fraternity crazy with their sets of LSR wordings. On one hand they provide a broking slip depicting the terms and conditions that are acceptable but on the other hand the final policy wordings insisted upon can cause indigestion, especially where the underwriter’s treaty covers are not being parameterised to such extent. Case in point is the pollution & contamination clause – where most treaty provides for events of sudden and accidental only but some LSR wordings prescribed cover for those indirect losses stemming from losses that are not of sudden and accidental in nature, thus creating a massive gap in cover. You would have to read the fine print of the policy wordings in order to appreciate the those elements of contract uncertainty. The other common feature is the infectious diseases clause – sometimes the clause is given without any sublimit or a much higher sublimit being applied contrary to most treaty coverage in this country.
Even if the broking slip and the policy wordings did in fact jive but it is pathetic if the Scheme Managers did an overly fast check and missed out on the details leaving the Malaysian insurers red face, scurrying and hurrying their treaty leader into granting Special treaty acceptance for participating in the LSR risk.
So it should be back to policy wordings for the Scheme Managers, otherwise schemes having very extensive coverage terms and conditions get approved to the detriment of our government cause in optimising Malaysian capacity.
The policy wordings must contain terms and conditions that are more friendlier to the Malaysian insurers – so that their net retention and treaty capacity can be optimised.
Otherwise, it would be back to square one, take the FM Global wordings, front the risk and having the balance ceded overseas to FMG; and have all competiton diverted???