CPD SEMINAR 260117 Drputeri Handout Notes

UNDERSTANDING &
APPLICATION OF
INSURANCE & TAKAFUL
FOR CONSTRUCTION
WORKS
ASSISTANT PROF. DR. PUTERI NUR FARAH NAADIA
MOHD FAUZI
DEPARTMENT OF QUANTITY SURVEYING, KAED
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA (IIUM)
CPD SEMINAR/BQSM/CKUB JKR
Asst. Prof. Dr. Puteri Nur Farah Naadia Mohd Fauzi

Kullliyyah of Architecture and Environmental Design, IIUM
Academic/Professional Qualification
B.QS (Hons) (IIUM); Ph.D (IIUM); Graduate Member of Board of Quantity Surveyor Malaysia
(BQSM) Register Member of Royal Institution of Surveyors Malaysia (RISM)
Affiliation
Assistant Professor at the Department of Quantity Surveying, Kulliyyah of Architecture and
Environmental Design (KAED), International Islamic University Malaysia
Member
A member of the Procurement and Project Delivery System Research Unit, International
Islamic University Malaysia, Kuala Lumpur and committee of the Journal of Quantity Surveying
and Construction Business
Industry Experience
QS at Juruukur Bahan Malaysia (JUBM) and involved with the renovation of Monash University
and Development of Emerald West Plan, Rawang
CPD SEMINAR - ACTIVITIES

SESSION 1 SESSION 2 SESSION 3
• Introduction • Insurance of Works • Shariah Compliance

Insurance
• Construction • Contractor’s All Risks
Insurances (CAR) • Claims – Processes
& Procedures
• Workshop
INTRODUCTION
UNDERSTANDING OF
CONSTRUCTION INSURANCES
SESSION 1
Content
• Introduction
• Insurance
• JKR 203A 2010 – Construction Insurances
INTRODUCTION
• Risks exposure
• Construction – more risks exposure, involve huge amount to deal
with risks/damages
• Must have protections – Insurance
– the procurement of insurance is a condition precedent to the commencement of
the works for the contractor to insure works against loss and damage as
prescribed by major standard forms of construction contracts
Risks
• Existence of risks – people requires protection
• Risks – Situation or condition in which there is an exposure to loss
or adversity
• Risks are to be handled
• Handling risks = mitigate risks
Risks mitigation
Risks
Avoidance
Risks Risks
Sharing Reduction
Risks
mitigation
Risks Risks
Transfer Retention
Risk avoidance
• Conscious effort by an individual or firm to avoid exposure to a
particular risk.
• However, by doing so, an individual or firm loses out on the
potential profit where no risk occurs
• Not suitable to be applied in construction
Risk Reduction
• Risk reduction also refers to loss control reduction that includes
techniques to reduce the potential severity of losses that do occur.
• For instance, a 2-hour fire rated door is designed and constructed to
allow time to put out a fire that may reduce the risk of loss by fire
• Applied in construction practice i.e. design
Risk Retention
• The process of retaining the risks where the risks are already at an
acceptable level
Risk Transfer
• Transferring or shifting risks, which are not avoided or
retained through a contract or an agreement.
• There are two (2) ways of transferring a risk
– 1) through an insurance contract in which a contracted
compensation is paid to the insured by the insurer in the event of
risk occurrence, and
– 2) through a non-insurance transfer that refers to methods other
than insurance by which a risk is transferred to another party
Risk Sharing
• The risks are shared with others who have a similar nature of risk.
• In the event of loss and damage occurring from insurable risks, the
loss and damage will be shared accordingly between various
related parties.
• This practice is also called mutual protection and indemnity or
Takaful.
• Takaful is an Islamic insurance, and alternative to conventional
insurance
Risks
• Risks mitigation
Method Description
Risk Conscious effort by an individual or firm to avoid exposure to a particular risk. However, by doing so,
Avoidance an individual or firm loses out on the potential profit where no risk occurs
Risk Risk reduction also refers to loss control reduction that includes techniques to reduce the potential
Reduction severity of losses that do occur. For instance, a 2-hour fire rated door is designed and constructed to
allow time to put out a fire that may reduce the risk of loss by fire
Risk The process of retaining the risks where the risks are already at an acceptable level
Retention
Risk Transferring or shifting risks, which are not avoided or retained through a contract or an agreement.
Transfer There are two (2) ways of transferring a risk, 1) through an insurance contract in which a contracted
compensation is paid to the insured by the insurer in the event of risk occurrence, and 2) through a
non-insurance transfer that refers to methods other than insurance by which a risk is transferred to
another party
Risk The risks are shared with others who have a similar nature of risk. In the event of loss and damage
Sharing occurring from insurable risks, the loss and damage will be shared accordingly between various
related parties. This practice is also called mutual protection and indemnity or Takaful. Takaful is an
Islamic insurance, and alternative to conventional insurance
Insurance
• Process of transferring risks
• Parties – 1) individual 2) An approved insurance company
• Exchange of the payment of premium
• The premium would be utilized for compensation or reimbursement
• Arising from occurrence of specified risks
Insurance
• Insurance – 1) transfer of risks by a person or an entity to
the insurance company, 2) a scheme (in the exchange of
premium) which provides security to a person or his
belongings in the occurrence of risks
• Insurance contract requires two parties entered into a
financial agreement whereby one party agreed to
compensate the other party if it results from the
occurrence of specified events.
• Premium is the amount to be paid for an insurance
contract or policy and could be regarded as the
transferring of some or all of the risks of loss and damage.
• The insurance policy is an agreement setting out the

risks covered and the circumstances, the allocation of
payment if such risks or loss occurs, and the duration or
period of the insurance contract.
• In the practice of insurance of works in the Malaysian
construction industry, a contractor will pay premium for
the exchange of insurance policy to an approved
insurance company.
Insurance
Agreement (Insurance
Contract / Policy)
Insurance
Policy Holder Company
(The Insured) (The Insurer)
Exchange of payment
(Insurance Premium)
Figure 1: Relationship of an insurance contract (Puteri Nur Farah Naadia, 2010)

Insurance in Malaysia
• In Malaysia, the contract of insurance is governed under Insurance
Act 1996
• Insurance Act 1996 - requires two parties to enter into a financial
agreement;
• 1) the insured and
• 2) the insurer,
• The insured agreed and paid the premium
• In return the insurer agreed to compensate the insured if it results
from the occurrence of specified events
Insurance Act 1996

Interpretation
• Part 1; Preliminary
• Act 56 – ‘Insurance includes reinsurance’
Construction Insurances
Personal
injuries and
damage to
property
Construction
Insurances
Workmen
Compensation
Insurance of or Employees’
works Social Security
Act 1969
(SOCSO)
Personal injuries and damage to property
No. of clauses Brief Descriptions
P.W.D. 203 & 203A Standard Forms of A wide indemnity clause which the Contractor
Contract Rev 1/2010 indemnifies the Government or Employer
14.0 – Indemnity in respect of personal against personal injury or death to any
injuries and damage to property person connected with the execution of the
15.0 – Insurance against personal injuries contract works
and damage to property It also covers liability for injury or damage to
PAM Standard Form of Contract 2006 (with property that is connected with the execution
quantities) of the contract works
18.1 – Contractor’s indemnity against injury Generally, a CAR Policy complies with this
or death insurance under section ‘Third Party Liability’
18.2 – Contractor’s indemnity against loss
and/or damage
19.1 – Contractor to insure against injury to
person and loss and/or damage of property
Workmen Compensation or Employees’ Social
Security Act 1969 (SOCSO)
16.0; 16.1 – Indemnities to Government in respect Under the Workmen Compensation Ordinance
of claims by workmen; Workmen Compensation 1952, the Contractor is also required to procure
17.0; 17.1 – Employees’ Social Security Act 1969; insurance policies for all liabilities arising out of
Registration with SOCSO claims by any workman employed in connection
PAM Standard Form of Contract 2006 (with with the contract works
quantities) The Contractor need not procure workmen
18.3 – Contractor’s indemnity against claims by compensation insurance policies for workers
workmen employed whom are covered under Employees’
19.2 – Employees’ Social Security scheme for Social Security Act 1969 (SOCSO). SOCSO
local workmen generally encompasses workers employed for
19.3 – Insurance for local workmen not subject to wages under a contract of service or whose
SOCSO monthly wages do not exceed RM2000.00
19.4 – Workmen compensation insurance for This insurance is a separate insurance and not
foreign workers included in a Contractor’s All Risks (CAR)
Insurance of works
P.W.D. 203 & 203A Standard The Contractor is required to
Forms of Contract Rev 1/2010 procure insurance against loss
18.0; 18.1(a) – Insurance of Works; and/or damage to the contract
Taking insurance works and unfixed materials and
PAM Standard Form of Contract goods brought to site against a
2006 (with quantities) variety of perils
20.A; 20.A.1 – Insurance of the
new buildings/works – By the A Contractor’s All Risks (CAR)
Contractor; Contractor’s risks – Takaful policy complies with this
New buildings/works insurance under two (2) sections
that are 1) Materials damages and
2) Works insured
Further Activities and Inputs

Session 2: Focus
• Construction Insurance – Cl. 18, JKR 203A 2010
• Understanding the policies and operation
WORKSHOP
UNDERSTANDING OF
INSURANCE OF WORKS AND
CAR POLICY/CERTIFICATE
SESSION 2
Content
• Insurance of Works
• CAR Policy/Certificate
• Workshop
Insurance of works
Taking of Insurance
Insurance of works
Taking of Insurance
Insurance of Works
• Condition precedent to the commencement of the works
• Additional provisions of risks that needs to be amended or
expanded to suit the works, such requirements shall be amplified in
the Contract Bills for the risks to be priced by the contractor
• Procure insurance from an insurance company approved by the
Superintending Officer (S.O.) or Employer and to produce the
insurance policy and receipt of premiums paid
• EOT - period of insurance policy must be extended to cover the
additional period of works
Insurance of Works
• Value – Contract Sum
• Duration – Until CPC
• A contractor is required to affect and maintain the period of the
insurance of works policy cover from the date of commencement of
works until the date of Practical Completion
Insurance of works
Default in Insuring
Insurance of works
Payment of Insurance in the Event of any
Loss/Damage
Insurance of works
Cancellation of Insurance Policy
Pre-contract phase
- Tender Documents
- Form of Tender
- Letter of Acceptance
Contract period – Period for Insurance of

AWARD
works
Possession of Site Practical Completion Extension/New Practical

Completion
Contractor submitted Post-contract
insurance cover policy phase
and receipts of - Supervision
premium - Instruction Extension of Time
- Payments
Extension/New Expiry Date
Start Date of Insurance of Expiry Date of Insurance of Works of Insurance of Works
Works
Contractor’s All Risks (CAR)

• 2 forms of insurance practiced in Malaysia’s construction
industry
– 1) conventional
– 2) takaful
• What is CAR?
• Protection covers that is divided into 2 sections
– Section 1: Material Damage
– Section 2: Third Party Liability


Section 1
• Material Damage
• Protection cover against loss and damage to works and
temporary works under construction, materials, plants and
other things brought onto site by the contractor
• Contract works that include all operations to be carried out by
the contractor and his sub-contractors (if any) in compliance
with the construction contract conditions such as temporary
and preliminary works including professional installation (i.e.
worker’s quarters and site offices) and removal of debris,
materials used or stored on site, construction plant and
equipment and professional fees

Section 2
• Third Party Liability
• Provide cover for property damage and bodily injury to
third parties occurring in connection with the construction
contract works
• Include the legal liability attached to the certificate due to
property damage or bodily injury suffered by third parties
that occurs in connection and relation to the contract
works

Provisions
Scope of cover Covered parties Perils cover
Exclusion Extension Sum covered
Premium/ Maintenance
Deductible
Contribution rates period
Workshop Activity
• Understanding of …
• Insurance of Works
• Contractor’s All Risks (CAR) Insurance Policy
• Contractor’s All Risks (CAR) Takaful Certificate
Workshop Activity
THANK YOU
puteri@iium.edu.my
014-9311639

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UNDERSTANDING &

Asst. Prof. Dr. Puteri Nur Farah Naadia Mohd Fauzi

CPD SEMINAR - ACTIVITIES

• Introduction • Insurance of Works • Shariah Compliance

• The insurance policy is an agreement setting out the

Figure 1: Relationship of an insurance contract (Puteri Nur Farah Naadia, 2010)

Insurance Act 1996

Further Activities and Inputs

Contract period – Period for Insurance of

Possession of Site Practical Completion Extension/New Practical

Contractor’s All Risks (CAR)

Contractor’s All Risks (CAR)

Contractor’s All Risks (CAR)

Contractor’s All Risks (CAR)

Contractor’s All Risks (CAR)

Scope of cover Covered parties Perils cover

Exclusion Extension Sum covered

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