Making the right choices in life could save you money and heartache. Understanding whether you have made the right choice in the purchase of general insurance is admittedly not an easy feat as the subject can be so technical that it is hard to grasp, even if the right questions are asked.

The Persatuan Insuran Am Malaysia (PIAM) has recommended that consumers consider the following areas in relation to decision making and choices in purchasing insurance products and services.

(1) Select a Good Insurance Company

Three primary criteria should be considered when choosing an insurance company:

1. Financial strength;
2. Fairness and promptness in processing claims;
3. Ability and willingness to provide service before and after a loss.

An insurance policy is a promise. Like all promises, it is worth no more than the word and the financial strength of the person or company making it. Therefore, the first priority in choosing an insurance company is to be sure the company is strong financially. You may be able to gauge the standing of a specific company from information gathered from insurance agents or advice of your insurance broker or experiences of other policyholders i.e. satisfied customers. An insurance company should also be willing to listen to your insurance requirements and if necessary "tailor" insurance covers to meet your needs.

The consumer should determine the company's reputation for fairness and promptness in settling claims and its reputation for providing service.

(2) Selecting A Good Insurance Agent

The first criteria when selecting a good insurance agent is that he or she must be registered with PIAM before dealing or engaging in any general insurance business.

The General Insurance Agents Registration (GIARR) also regulates the agents as every insurance agent who wishes to be registered will have to first obtain a Certificate of Proficiency in Insurance. Registered agents are then issued with a Certificate of Registration and an Agents Identification Card.

Besides being easily accessible, other pre-requisites of a good insurance agent include possessing:

• a good knowledge of the products and services offered by his principal ie the
  insurance company that he represents.
• strong ethics and the ability to put a client's interest first;
• good communication skills so that the insured understands the needs the insurance fulfills, and the rights and duties created by the contract. Evidence of an agent's knowledge is found in the ability to answer questions clearly and if an answer is not readily available, he knows where to get the answer. Some agents show their desire to add to their knowledge by attending seminars organised by their principals.

It is admittedly difficult for a consumer to form an opinion about an agent's trustworthiness. Knowledge of the agents' reputation, or referral by a satisfied customer is about the only ways available to develop this information. The same reasoning applies to the agent's desire and ability to provide service after the sale.

When in doubt, there is no harm in contacting and making some enquiries at the branch office or the head office of the insurance company which the agent says he represents.

(3) Select A Good Insurance Policy

Whether the insurance policy is deemed good or bad, depends on the consumer understanding of his need for that particular insurance.

A "good" insurance policy should be one that meets the consumer's needs without providing more insurance than is required.

For many consumers, the two largest exposures to loss or damage are the house and car. The consumer's role is easier today, where one or two packaged plans of insurance which can cover most property insurance needs. Some Insureds with unusual property, such as expensive artwork, antiques or coin collections, need to amend the standard policy to tailor the coverage to meet their specific needs.

(4) Proper Amount of Insurance

Choosing the proper amount of insurance, like choosing the proper policy, begins with a knowledge of the need for insurance. The need for insurance is related to the severity and the probability of a potential loss. In property insurance, the need for protection is usually based on either the acquisition cost or the replacement value of a physical asset.

This need can be calculated. In cases of business income insurance or liability claims, estimates of potential losses are needed. It has been suggested that consumers need to understand clearly their exposures to low severity-high frequency losses and high severity-low frequency exposures and purchase their insurance accordingly.

One trade-off that often can be made in property insurance is the choice of a higher deductible in exchange for a lower premium, or an increased upper limit of coverage. The deductible is the portion of the loss the insured is obliged to bear before the Insurer pays the remainder of the claim. The higher the deductible, the larger the loss must be before the Insurer must pay. The higher deductible results in two savings realised by the Insurer, lower settlement expenses and lower total payments for losses (because small claims are not covered). These savings are passed on to the consumer taking the higher deductible. A substantial monetary incentive may exist for the consumer to consider how large a loss can be afforded safely before choosing the deductible amount.

Despite the difficulty in choosing the proper amount of insurance coverage, some common sense rules apply:

1. Insure first those exposures to loss most likely to cause the greatest amount of damage;
2. Never expose to loss more than you can afford to lose;
3. Never risk a great loss (a high percentage of your losses) in exchange for a small gain (saving the insurance premium).

(5) Pay Right Price

Useful hints for consumer will enable them to pay the right price, but few absolute rates exist. The "right price" is the one providing the consumer with the greatest amount of insurance after giving consideration to the other four criteria just described. That is, the right price for insurance is not necessarily the lowest price. The lowest price may come from a company whose financial strength is questionable. It may come from an Insurer whose agents are not trained adequately or from a company whose policies do not offer coverage as valuable as that offered by other companies. For these and other reasons, the consumers should first consider all the other criteria mentioned and then decide on the right price for insurance protection and, indirectly, peace of mind.

Please send your questions on general insurance to:
Persatuan Insuran Am Malaysia,
3rd Floor, Wisma PIAM, 150, Jalan Tun Sambanthan,
50470 Kuala Lumpur.
Tel : 03 - 2274 7395/9
Fax : 03 - 2274 5910

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