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The Procedures And Methods Of Assessment Of Construction Works Claims

And Compensation For Takaful In Malaysia

Conference Paper · December 2013

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 The Procedures And Methods Of Assessment Of
Construction Works Claims And Compensation For
Takaful In Malaysia
Puteri Nur Farah Naadia Bt Mohd Fauzi1 and Khairuddin Abd. Rashid2

ABSTRACT
In the practice of insurance works in the Malaysian construction industry, the
insurance agreement or Contractor’s All Risk (CAR) policy is essential which specify
details of construction works, liability of insurance coverage, risks, losses and
compensation entitled for the insured upon the occurrence of insurable risks. Despite
the practice of insurance contract for construction in Malaysia where standard policy
and agreement is been applied and used by the parties, the practice of insurance
assessment for compensation and reimbursement of construction works loss
specifically under Contractor’s All Risks (CAR) Takaful policy is based and relied on
custom company-based or in-house reports by the experts which are the loss and
adjusters. Hence, this paper seeks to identify constraints and shortcomings in the
current practice of construction loss assessment for takaful. Besides, this study also
attempts to review current practice in assessing construction works loss under takaful
specifically under Contractor’s All Risk (CAR) Takaful policy. Issues and variety of
approaches and methods used by insurers in making assessment for construction
works loss for takaful are identified through literature review and content analysis.
The review provided comprehensive understanding of loss assessment for
construction works and revealed the lack of standardized industry practice on the
takaful assessment for construction work loss due to absence of reliable and published
guideline or framework. This paper is expected to produce a summary of the takaful
claim assessment methods for construction works loss through synthesis of content
analysis based on the review done. The outcome of the study suggest that further
research is required in order to develop a standard framework of takaful claim for the
assessment of construction works loss in Contractor’s All Risks (CAR) Takaful
policy.
Keywords: construction, compensation, Takaful, assessment, methods

INTRODUCTION
A takaful claim is a request for reimbursement or compensation appealed by the
insured to the insurer upon the occurrence of loss and unexpected events as specified
in a takaful policy (Syed Othman Alhabshi, Kamaruddin Sharif, Shaikh Hamzah
Abdul Razak & Ezamshah Ismail, 2012). The aim objective of compensation of loss is
to provide a fair estimated reimbursement costs to the insured upon any unexpected
events in order to place the insured exactly before the damage occurred. Usually, it is

1
Academic Trainee, Department of Quantity Surveying, Kulliyyah of Architecture & Environmental
Design, International Islamic University Malaysia (IIUM)
2
Dean, Kulliyyah of Architecture & Environmental Design, International Islamic University Malaysia
(IIUM)

626
expected by the insured that a settlement of claim with adequate and accurate
reimbursement be conducted with fairness through a settlement of claim.
Once the insured or takaful participants made contributions payment in the form
of donation (tabarru’) and received a takaful policy, any losses due to unexpected
event or risk as specified in the takaful policy are covered by the insurer or takaful
operator. Upon any unexpected event or risks, the takaful participants are able to
exercise their rights to submit claims and entitled for compensation loss under the
takaful policy. Hence, in order to ensure the efficiency in managing and processing
takaful claims and make certain of that the takaful participants’ rights are duly
honoured, implementation efforts including the practice of a standard takaful claim
management process must be performed and carried out by the takaful operator.
(Rodziah Ahmad & Zairol Azhar Auzzir, 2012; Chamber of Insurance Damages,
2009).
According to Mohd Shukri Salleh (2010) the promptness and fairness in
managing and processing claims including settlement of compensation of claim loss
of the insured’s are the ultimate test of a responsible and effective insurer. Therefore,
it is very essential for a takaful operator to manage and handle takaful claims with
prudent care and details to ensure the rights of the participants and interest of the
takaful fund are equally protected.

LITERATURE REVIEW
i. Takaful claims management and processes
In pursuing the competence of an effective and efficient takaful claims management,
the Central Bank of Malaysia has issued the Guidelines on Claims Settlement
Practices, as the basis for takaful operators in handling general takaful claims and
serve to complement the efforts of the takaful operators with regard to the fraud
control and risk management in order to promote the best practices in claims
management. The guideline specifies the minimum standards for prompt and fair
payment of claims and ensures that payment of claims is made on a timely manner.
Besides, there is a requirement under the guideline for takaful operators to set-up a
claims servicing counter at their head office in order to provide efficient and effective
claim services to claimants (Central Bank of Malaysia, 2006). The takaful claims
process generally involves five (5) procedures or stages as illustrated in figure 1 and
explained in table 1.

3) Claim
5) Claim
1) Claim 2) Claim Investigation 4) Claim
Settlement and
Notification Documentation and Assessment
Compensation
Registration

Figure 1: Five (5) general procedures of takaful claims (Ahmad Mazlan Zulkifli, Badrul Hisham Abd.
Rahman, Nasser Yassin & Jamil Ramly, 2012; Mohd Fadzli Yusof, Wan Zamri Wan Ismail & Abdul
Khudus Mohd Naim, 2011; Nasser Yassin & Jamil Ramly, 2011; Mohd Shukri Salleh, 2010; Central
Bank of Malaysia, 2006; Kasmah Tajuddin, 1996)

Table 1: Note explanations on the five (5) general procedures of takaful claims
No. Procedures Descriptions
1. Claim Notification  The takaful participants are required notify the takaful operator of loss by issuing
a notification letter (Central Bank of Malaysia, 2006). Based on the takaful

627
 contract, where the claim notification can be done verbally, the takaful
participant is also required to follow up with a written notification letter to the
takaful operator for the record. The takaful participants may directly notice the
takaful operator of the loss through any kind of communication i.e. email,
telephone, letter or fax.
 Once a notification letter received, the takaful operator will verify whether a
certificate has been issued for the takaful coverage and check on the terms of
coverage provided under a particular certificate (Central Bank of Malaysia,
2006).
 After verification of the takaful policy pertaining to the claim made by the takaful
participant, a claim acknowledgement letter will be issued to the takaful
participant or claimant with details of the expected timeframe for claim
processing and the rights of the certificate holder (Central Bank of Malaysia,
2006).
2. Claim Documentation  Takaful participants or claimants are required to furnish full particular loss occurs
and proof of loss within a stipulated period as specified in the takaful policy.
Mohd Fadzli Yusof et. al (2011) stressed details and data should be made
available by the takaful participants for the notification of loss and claim to
ensure a prompt action of claim management and loss settlement are observed by
the takaful operator.
 Takaful operator will provide the claimants or takaful policy holders a list of
necessary documents to be submitted to ensure the appropriate and sufficient
documents are presented. The takaful operator may also request additional
information and supporting documents for processing the claim (Central Bank of
Malaysia, 2006).
3. Claim Investigation  Takaful operator is required to examine and investigate the validation of the
and Registration claim. The takaful operator will do a preliminary check on the official claim
submitted by the takaful policy holder or claimant in order to decide on the
existence of a valid and genuine claim.
 Upon verification of a valid and genuine claim, takaful operator is required to
proceed to the assessment of the claim by conducting a proper survey and
valuation of the loss. Nevertheless, if the claim submitted is not valid and
genuine, the takaful policy holder or claimant will be informed and noticed of the
decision through verbal and an official rejection letter. Consequently, the claim
procedures and settlement will not be continued.
4. Claim Assessment  Involves loss survey, valuation and estimation cost of the loss
 Takaful operator is advised to appoint licensed/in-house staff adjusters in order to
provide independent professional assessment of the loss giving rise to a claim
and ensures fair compensation to claimants (Central Bank of Malaysia, 2006).
 A loss adjuster is an independent party appointed by the takaful operator as the
expert to evaluate the loss caused to the subject matter of a takaful policy. Loss
adjusters are expert surveyors who perform independently on claims assessment
and provide bulk claims assessment administration services (Ezamshah, 2011).
 Upon valuating and substantiating the claim, the loss adjusters are required to
report the circumstances and nature of the claim to the takaful operator. The
report submitted determined the admissible and amount of loss recomanded for
the takaful operator to make compensation to the claimant as accordance to the
terms and conditions of the takaful policy.
 In the case that the sum covered of the subject matter in the takaful policy is not
accordance or less than the market value, the takaful policy is subject to an
‘average clause’. Referred to Ahmad Mazlan Zulkifli et al. (2012); Mohd Fadzli
Yusof et al. (2011); Mohd Shukri Salleh (2010) under the ‘average clause’ the
claim amount of loss to be compensated to the claimant or takaful policy holder
is based and computed as follows:
Amount Covered
Amount Payable = X Amount of Loss
Market Value of Asset or Property

628
  Takaful operator has full discretion to accept the amount of loss and
compensation as advised by the appointed licensed loss adjuster. After receiving
the loss adjuster’s final report, the takaful operator is required to decide on the
liability and quantum of the claim (Central Bank of Malaysia, 2006).
5. Claim Settlement and  Once the takaful operator has satisfied on the fulfillment of the claimant’s or
Compensation takaful policy holder’s obligations under the takaful policy, the process of claim
settlement will take into part.
 The payment system of in both types of claim settlement is divided into two
namely 1) cash and 2) non-cash. Cash system involves cheque as the method of
payment while non-cash system involves repairs, replacement and reinstatement
methods of the subject matter of the policy.
 Nevertheless, beyond the claims settled by the takaful operator, there are still
disputes arised between the claimant or takaful policy holder and takaful operator
which involve the liability of the claim under the takaful policy and acceptence of
the quantum of claim loss by the takaful policy holder or claimant. Therefore,
when such disputes arise both parties; the claimant or takaful policy holder and
takaful operator may opt a number of resolution channels (Ahmad Mazlan
Zulkifli et al., 2012; Mohd Fadzli Yusof et al., 2011; Ezamshah, 2011).
 In Malaysia, the Central Bank of Malaysia as the takaful regulator body has set
up Claims Mediation Bereaus (CMB) to provide claims disputes resolution
services and assist any takaful parties in resolving disputes. Claims Mediation
Bereaus (CMB) are responsible to investigate and decide on complaints, disputes
or claims in connection with or arising out of takaful policies (Syed Othman
Alhabshi et al., 2012; Ahmad Mazlan Zulkifli et al., 2012; Ezamshah, 2011;
Nasser Yassin & Jamil Ramly, 2011). In addition, the Claims Mediation Bereaus
(CMB) also represent the public and consumer interests and provides the takaful
parties with a free, fast, convenient and efficient avenue in submitting the takaful
disputes resolution as an alternative to the courts

Upon settlement and compensation of a takaful claim, the takaful operator is

required to proceed with final procedures that involve termination of the takaful
policy or reduction and reinstatement of the sum covered in the takaful policy. Mohd
Fadzli Yusof et al. (2011) highlighted that a takaful participant’s policy is
automatically terminated in the event of the followings:

a) A total loss payment made to the claimant or takaful policy holder; or

b) The amount of compensation made to the claimant or takaful policy holder
is equal to the amount of sum covered in the takaful policy

Instead, in the event of a partial loss claim made to the claimant or takaful
policyholder, the amount of claim paid will reduce the amount of sum covered as
stipulated in the takaful policy. It is the responsibility of the claimant or takaful
policyholder to reinstate the sum covered by contributing additional donation
(tabarru’) in order to retain the actual value of the subject matter of the takaful policy.
In the practice of a construction works takaful claim under Contractor’s All Risks
(CAR) Takaful policy, generally, the processes of a CAR Takaful claim are also based
on the five (5) general procedures and stages of a takaful claim as shown in figure 1
and explained in table 1. On top of that, there are specific steps required to be taken
and particular documents to be submitted by the takaful policyholder in particular to
construction works loss in a CAR Takaful claim. Figure 2 demonstrates the takaful
claims processing flowchart specifically for construction works loss in Contractor’s
All Risks (CAR) Takaful.

629
 OCCURRENCE of unexpected event NO

YES

AUTHORITY - Report to the authority NO

YES

NOTIFICATION – Immediately notice the takaful operator & all construction

NO
parties

YES

DOCUMENTATIONS – The contractor collect all the necessary and required

documents and submitted to the takaful operator i.e. drawings & BQ. In the case
NO
where there is a claim, the contractor is required to submit together any suitable and
specific documents as evidence and proof of loss

YES

INVESTIGATION & VALIDATION - The takaful operator investigates and

verifies the validation of the claim. A valid and genuine claim is required to be NO
registered by the takaful operator

YES

ASSESSMENT – The takaful operator appoint a LIABLE – The

loss adjuster to assess the claim. The loss adjuster takaful operator
submit a report to the takaful operator advising on decides on the NO
the quantum of loss recommended to the claimant liability &
or contractor quantum of claim

YES DISPUTE RESOLUTION – The

OFFER & ACCEPTANCE – The takaful takaful operator and claimant or
operator decides on an amount as referred to the contractor decide on adopting any
loss adjuster’s report and make offer for the channels to resolve disputes which are
acceptance of the claimant or contractor i) negotiation; or ii) mediation; or iii)
NO arbitration or iv) litigation

YES

DISCHARGE FORM OFFER & ACCEPTANCE – The

takaful operator make offer based on
the decision mutually agreed by both
parties for the acceptance of the
PAYMENT or COMPENSATION claimant or contractor

POST-SETTLEMENT ACTION – The takaful operator

is responsible to terminate the contractor’s policy or REPUDIATION LETTER – The
reduce/reinstate the sum covered in the contractor’s takaful operator is required to send
policy a repudiation letter to reject and
deny the claim made by the takaful
policy holder or contractor

STOP

630
 Figure 2: Takaful claims processing flowchart for construction works loss in Contractor’s All Risk
(CAR) Takaful

ii. Claims assessment methods and procedures in Contractor’s All Risks (CAR)
Takaful policy
In the current study, the assessment of takaful claim for construction works was
examined in order to identify the methods and procedures in assessing construction
works loss in Contractor’s All Risks (CAR) Takaful policy. The principal
methodology used for the study is critical examination of four (4) National
Association or Government sanction guidelines or best practice on claim assessment.
The four (4) National Association or Government sanction guidelines or best practice
on claim assessment include three (3) guidelines or best practice which are collected
from three (3) different Commonwealth countries and one (1) guideline is collected
from a Middle-East country. Table 2 shows the list of the four (4) National
Association or Government sanction guidelines or best practice on claim assessment
collected.
Table 2: List of the four (4) National Association or Government sanction guidelines or best practice
on claim assessment collected
National Association or
No. Country Guidelines or Best Practice
Government Sanction
International Centre for
Commonwealth country Provision of General Takaful Contracts in
1. Education in Islamic
- Malaysia Takaful: Realities & Challenges
Finance (INCEIF)
Australian and New
Commonwealth country
2. Zealand Institute and Loss Adjusting Practice
- Australia
Finance
Commonwealth country The Chartered Institute of Association of British Insurance (ABI) Blue
3.
– United Kingdom Loss Adjusters (CILA) Book
Middle East country –
Dubai Financial Service
4. United Arab Emirates Islamic Finance Rulebook
Authority (DFSA)
(UAE)

Critical examination of takaful claim assessment in Contractor’s All Risks (CAR)

Takaful policy
National Association or Government sanction guidelines or best practice No. 1:
Provision of General Takaful Contracts: Realities & Challenges, Malaysia
For the purpose of the critical examination pertaining to the assessment of
construction works loss in Contractor’s All Risk (CAR) Takaful claim, the Actuarial
Basis of General Takaful in Takaful: Realities & Challenges serves elaborates and
explains the standard methods required for a takaful policy claims and recognized by
the law to be applied by the experts in conducting claim evaluation and assessment.
The typical takaful claim operations and approaches elaborated include the process of
claims and adjustment by the experts in evaluating claims that is accordance with the
Syariah rules and regulations.
Based on the Provision of General Takaful Contracts in Takaful: Realities &
Challenges guideline, claim evaluation and assessment is divided into four (4) parts
namely 1) details of the claim and policy, 2) general descriptions of the loss involving
the claim made, 3) claim adjustments and quantum of loss and 4) claim and policy

631
 liability and position. Figure 3 and table 3 illustrates the flow and steps taken in
evaluating a takaful claim as specified in the Provision of General Takaful Contracts
in Takaful: Realities & Challenges and salient items and articles of the methods of
valuation respectively.

 Receive reports from loss TAKAFUL OPERATOR  Appoints & instructs a loss adjuster to start
adjuster and decide on with claim assessment.
the liability and quantum  Documents and details of the claim are
of claim submitted together to the loss adjuster

 Prepare reports and LOSS ADJUSTER  Receives instruction and claim documentation
submit to takaful operator from the takaful operator.
for consideration  Starts evaluating the takaful claim

TAKAFUL POLICY  Assists the loss adjuster i.e. provide extra

HOLDER/CLAIMANT details
Incorporate  For a construction works loss claim, the takaful
policy holder or claimant is required to assists
toghether
the loss adjuster by providing the internal claim
adjustment report together with the bill of
quantities, specification and drawings of the
affected construction works

CONSTRUCTION  Assists the loss adjuster in understanding,

TEAM verifying and justifying the construction
documents, drawings etc.

Figure 3: Flow and steps of a takaful claim evaluation as specified in the Provision of General Takaful
Contracts in Takaful: Realities & Challenges

Table 3: Salient items and articles of the methods of valuation of a takaful claim assessment in
particular to construction works loss

PART Items and articles Brief description of the items and articles
 Type of claim and policy i.e. Contractor’s All Risk (CAR) Takaful claim –
Particulars of claim and
Damage to Permanent Works
policy
 Claim registration no. and policy no.
 Name and address of the takaful policy holder or claimant
Personal particulars of  Company’s business portfolio and brief description on any significant changes
PART 1 the takaful policy holder in composition of business that include a description of history, statistics such
Details of as a breakdown of contribution income or case reserves by class of business
the claim  Name and type of accident and loss
Particular details of the
and policy  Location of the accident and loss
accident and loss
 Time, day and date of the accident and loss
Reason and basis of the  Supposed and actual cause of accident and loss
accident and loss
Nature of the accident  Brief description of the accident and loss i.e. Road sections of 150 meters and
and loss 250 meters long experienced landslides

632
 PART Items and articles Brief description of the items and articles
 Brief description of the whole package of the works i.e. road works from
Nature of the works KM45 to KM 190 including street lighting and main infrastructure works
 Name of the contract awarded or on-going works
 Particular details; name, address, qualification of all the consultant and client
Parties involve in the  Consultants – Architect, Engineers, Quantity Surveyors, Land Surveyors and
affected works other related specialists
 Owner and principals – Project manager and end-user
 Duration period of the works as stipulated in the contract
Duration of the works
 Time of the occurrence of loss within the duration period of the works
and particular stage of
the loss  For example – The occurrence of loss is on the third month of the total twelve
PART 2
(12) months of construction period
General
descriptions  Contract value of the works
of the loss  Site experience and observation in particular within the time of the occurrence
involving Matters relating to the of loss i.e. continuous days of heavy rains
the claim works and loss  Site previous damage or defect as per the last visit by the consultant parties
 Discovery or complaints of any similar defect or loss nearby the location of
the accident or loss
 Contract value of the works as per progress of works submitted in the last
contractor’s interim report to the consultant
Progress of works and
 Contract value payment and account details paid to the contractor as per work
account
done on site
 Interim payment certificates to the contractor
Other related and  Specialists investigation and report depending on the specialist works
necessary parties’ report
pertaining to the loss
Best Estimate
 Actual quantum and exact requirements of loss as before the occurrence of
loss including the labour and material/plants/equipment loss
 Calculation and computation are based on the similar method as specified the
contract of the works
 Precise and accurate specifications, conditions, prices, arrangement and
measurement of works as previously done prior to the occurrence of loss
 Bill of quantities, quotation, specification, drawings, labour attendance list
and workers’ card, material/plants/equipment delivery and purchase orders
and bills are essential documents as the basis of the calculation
Replacement
 Estimation of the quantum of loss to repair and replace the loss including the
labour and material/plants/equipment loss
PART 3  Method of measurement similar to the contract of the works
Claim  Suitable and acceptable specifications, conditions, prices and arrangement of
adjustments Valuation Methodology the works loss are allowed prior to the approval of the consultants. Therefore,
and quantum shop drawings are required to ensure same quality and function of the
of loss specifications and condition of works take into place
 Bill of quantities, quotation, specification, drawings, labour attendance list
and workers’ card, material/plants/equipment delivery and purchase orders
and bills are essential documents as the basis of the calculation
Disruptive Estimate
 Due to insufficient records and documents of additional sources related to the
loss of works
 Estimation of the quantum of loss only based on the loss occurred. No
additional estimation of labour, materials, plants and equipment loss.
 Method of measurement similar to the contract of the works
 Suitable and acceptable specifications, conditions, prices and arrangement of
the works loss are allowed prior to the approval of the consultants. Therefore,
shop drawings are required to ensure same quality and function of the
specifications and condition of works take into place

633
 PART Items and articles Brief description of the items and articles
 Bill of quantities, quotation, specification, and drawings are essential
documents as the basis of the calculation
 Consultants, loss adjuster and claimant are required to have a joint inspection
Joint inspection
on site
 Consultants are required to advise, verify and validate the estimation of
Verification
quantity, items, specifications and price of the loss
 History claim on the claimant’s previous takaful policy
Liability  Investigation of the responsibilities of each consultants of the works loss to
PART 4
ensure that the works are been handled and managed in a proper manner
Claim and
 Investigation on recovery provisions and clause of the takaful policy.
policy Recovery
liability and  Confirm on the takaful policy exclusion and deductible clause
position Claim current  Concluded on a valid claim arises and the Nett adjustment
arrangement and
recommendation

National Association or Government sanction guidelines or best practice No. 2: Loss

Adjusting Practice, Australia
The Loss Adjusting Practice is to provide an introductory qualification and knowledge
on the style, processes and procedures for claims and loss adjustments to the loss
adjusters. The explanations on the claims assessment in the Loss Adjusting Practice
module involve the instruction and planning investigation, key techniques in
collecting and analysis evidence, steps involved in validating claims and establishing
quantum and reporting finding of the loss adjustments investigation and valuation.
Figure 4 illustrates the steps involved in evaluating a takaful claim as specified in the
Loss Adjusting Practice

LOSS ADJUSTER

Receive INSTRUCTION
from takaful operator
STEP 2
YES
NO YES

NEGOTIATE ACCEPTABLE PLAN investigation

NO

NO
REFUSE
instruction STEP 1 STEP 3

RECOVERY CONDUCT
ESTABLISH
RIGHTS Valuation

YES VALIDATION of
STEP 4 claim

NEGITIATION
AND
SETTLEMENT of
claim
634

Pursue recovery
 STEP 5

STEP 6

Figure 4: Steps involved in evaluating a claim as specified in the Loss Adjusting Practice

According to the Loss Adjusting Practice, the claims and loss assessment includes
five (5) major parts which are 1) details of the claim and policy, 2) description of risk,
3) general descriptions of the loss involving the claim made, 4) claim adjustments and
quantum of loss and 5) claim and policy liability and position. Salient items and
articles of the methods of assessment and valuation are given in table 4.
Table 4: Salient items and articles of the methods of assessment and valuation
PART Items and articles Brief description of the items and articles
Particulars of claim  Type of claim and policy
and policy  Claim registration no. and policy no.
 Name and address of the policy holder or claimant
Personal particulars  Company’s business portfolio and brief description on any significant
changes in composition of business that include a description of history,
PART 1 of the policy holder
statistics such as a breakdown of contribution income or case reserves by
Details of the
class of business
claim and policy
Particular details of  Name and type of accident and loss
the accident and  Location of the accident and loss
loss  Time, day and date of the accident and loss
Nature of the  Brief description of the accident and loss i.e. Road sections of 150
accident and loss meters and 250 meters long experienced landslides
 Physical risk includes the structure and location of the premises,
including nature of external and internal linings, age, area, number of
stories, housekeeping, hazardous materials used in construction,
PART 2 neighbouring premises, locality description, nature of contents and
Descriptions of Type of risks details of tenants and leases
risk  Moral Risk relates to the business activities of the premises,
directorships, major shareholders, duration of occupancy
 Physical security of the premises that involves locking devices,
protection doors, windows, fire escapes etc.
 Brief description of the whole package of the works i.e. road works from
Nature of the KM45 to KM 190 including street lighting and main infrastructure
works works
 Name of the contract awarded or on-going works
 Particular details; name, address, qualification of all the consultant and
PART 3 client
Parties involve in
General  Consultants – Architect, Engineers, Quantity Surveyors, Land Surveyors
the affected works
descriptions of and other related specialists
the loss  Owner and principals – Project manager and end-user
involving the Duration of the  Duration period of the works as stipulated in the contract
claim works and  Time of the occurrence of loss within the duration period of the works
particular stage of  For example – The occurrence of loss is on the third month of the total
the loss twelve (12) months of construction period
 Contract value of the works
Matters relating to
the works and loss  Site experience and observation in particular within the time of the
occurrence of loss i.e. continuous days of heavy rains

635
 PART Items and articles Brief description of the items and articles
 Site previous damage or defect as per the last visit by the consultant
parties
 Discovery or complaints of any similar defect or loss nearby the location
of the accident or loss
Other related and  Specialists investigation and report depending on the specialist works
necessary parties’
report pertaining to
the loss
 Comparison between the sums insured given to the loss adjuster by the
Adequacy of sum takaful operator
insured  Actual indemnity or replacement values
 Indication of Building Cost guides are appropriate
Best Estimate
 Actual quantum and exact requirements of loss as before the occurrence
of loss including the labour and material/plants/equipment loss
 Calculation and computation are based on the similar method as
specified the contract of the works
 Precise and accurate specifications, conditions, prices, arrangement and
measurement of works as previously done prior to the occurrence of loss
 Bill of quantities, quotation, specification, drawings, labour attendance
PART 4 list and workers’ card, material/plants/equipment delivery and purchase
Claim orders and bills are essential documents as the basis of the calculation
adjustments and Valuation Replacement/Repair
quantum of loss Methodology  Estimation of the quantum of loss to repair and replace the loss including
the labour and material/plants/equipment loss
 Method of measurement similar to the contract of the works
 Suitable and acceptable specifications, conditions, prices and
arrangement of the works loss are allowed prior to the approval of the
consultants. Therefore, shop drawings are required to ensure same
quality and function of the specifications and condition of works take
into place
 Bill of quantities, quotation, specification, drawings, labour attendance
list and workers’ card, material/plants/equipment delivery and purchase
orders and bills are essential documents as the basis of the calculation
 Consultants are required to advise, verify and validate the estimation of
Verification
quantity, items, specifications and price of the loss
 History claim on the claimant’s previous policy
Liability  Investigation of the responsibilities of each consultants of the works loss
to ensure that the works are been handled and managed in a proper
PART 5
manner
Claim and policy
liability and  Investigation on recovery provisions and clause of the policy.
Recovery
position  Confirm on the policy exclusion and deductible clause
Claim current  Concluded on a valid claim arises and the Nett adjustment
arrangement and
recommendation

National Association or Government sanction guidelines or best practice No. 3:

Association of British Insurance (ABI) Blue Book United Kingdom
The Association of British Insurance (ABI) Blue Book provides suggestion practices
and guidelines for the conduct of material or destruction damage and loss in Great
Britain. The Association of British Insurance (ABI) Blue Book is produced to assists
the experts in their handling of a particular matter pertaining insurance claims and
loss. In overall, the Association of British Insurance (ABI) Blue Book consists of
seven (7) sections that include claim management procedures and recommended
practice for the disclosure of claims history. In particular to the critical examination of

636
the construction works loss assessment, section four (4) of the Association of British
Insurance (ABI) Blue Book provides guidelines for claim management including
procedures and format of an insurance loss report as the propose practice to be
observed by the experts in assessing claims and loss.
Besides, section seven (7) of the Association of British Insurance (ABI) Blue
Book provides sample of the construction claims assessment format report as a
recommended practice for the disclosure of claims history which involved the steps
and valuation method in assessing a construction claims and loss. Figure 5 illustrates
the flow of loss assessment procedures as proposed in the Association of British
Insurance (ABI) Blue Book.
Based on the Association of British Insurance (ABI) Blue Book, the loss
assessment proposed for adjusters reports for construction works is divided into four
(4) major parts which are 1) details of the claim and policy, 2) general descriptions of
the loss involving the claim made, 3) claim adjustments and quantum of loss and 4)
claim and policy liability and position. Salient items and articles of the methods of
assessment and valuation are given in table 5.

Situation 1 – Appointment by the Insurer or Situation 2 – Appointment by the Insured or

insurance company policyholder

 Appoints & instructs a loss INSURER INSURED  Appoints & instructs a loss
adjuster to start with claim adjuster to start with claim
assessment. assessment.
 Documents and details of the claim  Documents and details of the claim
are submitted together to the loss are submitted together to the loss
adjuster adjuster

LOSS
 Receives instruction and claim ADJUSTER  Receives instruction and claim
documentation documentation
 Starts evaluating the claim  Assists the insured to deal with the
insurer
 Act on behalf of the insured in
connection with corporate,
commercial and domestic claims
 Starts evaluating the claim

 Assists the loss adjuster i.e. CONSTRUCTION  Assist the loss adjusters in
provide extra details TEAM organizing emergency works and if
 The insured is required to assists necessary arrange alternative
the loss adjuster by providing the accommodation or in the case of
internal claim adjustment report commercial losses temporary
together with the bill of quantities, premises to enable trading to
continue
4 – Bahrain;
specification and drawings of the
Sample
affected construction works Takaful/Retakaful Module in Central Bank of the
 Assists Bahrain
loss adjuster in
 Assists the loss adjuster in understanding, verifying and
Rulebook
understanding, verifying and justifying the construction
justifying the construction documents, drawings etc.
documents, drawings etc.  Assists the loss adjuster i.e.
provide extra details

Figure 5: Flow of loss assessment procedures as proposed in the Association of British Insurance
(ABI) Blue Book

Table 5: Salient items and articles of the methods of assessment and valuation

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 PART Items and articles Brief description of the items and articles
Particulars of claim  Type of claim and policy
and policy  Claim registration no. and policy no.
 Name and address of the policy holder or claimant
Personal particulars  Company’s business portfolio and brief description on any significant changes
PART 1 in composition of business that include a description of premises, history,
of the policy holder
Details of statistics such as a breakdown of contribution income or case reserves by
the claim class of business
and policy  Name and type of accident and loss
Particular details of
 Location of the accident and loss
the accident and loss
 Time, day and date of the accident and loss
Nature of the  Brief description of the accident and loss i.e. Road sections of 150 meters and
accident and loss 250 meters long experienced landslides
 Brief description of the whole package of the works i.e. road works from
Nature of the works KM45 to KM 190 including street lighting and main infrastructure works
 Name of the contract awarded or on-going works
 Particular details; name, address, qualification of all the consultant and client
Parties involve in  Consultants – Architect, Engineers, Quantity Surveyors, Land Surveyors and
the affected works other related specialists
 Owner and principals – Project manager and end-user
 Duration period of the works as stipulated in the contract
Duration of the
 Time of the occurrence of loss within the duration period of the works
works and particular
stage of the loss  For example – The occurrence of loss is on the third month of the total twelve
(12) months of construction period
PART 2  Contract value of the works
General  Site experience and observation in particular within the time of the occurrence
descriptions Matters relating to of loss i.e. continuous days of heavy rains
of the loss the works and loss  Site previous damage or defect as per the last visit by the consultant parties
involving  Discovery or complaints of any similar defect or loss nearby the location of
the claim the accident or loss
 Contract value of the works as per progress of works submitted in the last
contractor’s interim report to the consultant
Progress of works
 Contract value payment and account details paid to the contractor as per work
and account
done on site
 Interim payment certificates to the contractor
Discovery of the  Photographs of the site features, location, details and condition
affected works or  A rough sketch or diagram and compass reference are very helpful
loss
Other related and  Specialists investigation and report depending on the specialist works
necessary parties’
report pertaining to
the loss
PART 3  Comparison between the sums insured given to the loss adjuster by the insurer
Claim Adequacy of sum with the actual estimation loss
adjustments insured  Actual indemnity or replacement values
and  Indication of Building Cost guides are appropriate

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 PART Items and articles Brief description of the items and articles
quantum of Estimated Maximum Loss (EML)
loss  Actual quantum and exact requirements of loss as before the occurrence of
loss including the labour and material/plants/equipment loss
 Professional fees and/or Debris Removal Costs to be included
 Calculation and computation are based on the similar method as specified the
contract of the works. Where contract of works does not specify details
calculation, the Estimated Maximum Loss (EML) is expressed separately as a
percentage of the total sum insured on each of the insured property.
Valuation  In normal circumstances, EML percentage is judged to be in excess of 80% a
total loss should be assumed.
Methodology
 Precise and accurate specifications, conditions, prices, arrangement and
measurement of works as previously done prior to the occurrence of loss.
However, suitable and acceptable specifications, conditions, prices and
arrangement of the works loss are allowed prior to the approval of the
consultants. Therefore, shop drawings are required to ensure same quality and
function of the specifications and condition of works take into place
 Bill of quantities, quotation, specification, drawings, labour attendance list
and workers’ card, material/plants/equipment delivery and purchase orders
and bills are essential documents as the basis of the calculation
 Consultants are required to advise, verify and validate the estimation of
Verification
quantity, items, specifications and price of the loss
 History claim on the claimant’s previous policy
Liability  Investigation of the responsibilities of each consultants of the works loss to
PART 4
ensure that the works are been handled and managed in a proper manner
Claim and
policy  Investigation on recovery provisions and clause of the policy.
Recovery
liability and  Confirm on the policy exclusion and deductible clause
position Claim current  Concluded on a valid claim arises and the Nett adjustment
arrangement and
recommendation

National Association or Government sanction guidelines or best practice No. 4:

Islamic Finance Rulebook, United Arab Emirates (UAE), Dubai
The Islamic Finance Rulebook established by Dubai Financial Service Authority
(DFSA) guides any authorized party who carries on any financial service as Islamic
Financial Business including takaful. Chapter 8 of the Islamic Finance Rulebook
contains the requirements applying to entities that carry on insurance business or
insurance intermediation as takaful. The rules and regulation of takaful business under
the Islamic Finance Rulebook must comply with the requirements in the Prudential –
Insurance Business Module (PIN) of Dubai Financial Service Authority (DFSA).
The Prudential – Insurance Business Module (PIN) of Dubai Financial Service
Authority (DFSA) specifies management and supervision of insurance operations
including calculation of insurance adequacy and loss. The loss assessment and
evaluation in the Prudential – Insurance Business Module (PIN) of Dubai Financial
Service Authority (DFSA) involves four (4) parts that are 1) details of the claim and
policy, 2) general descriptions of the loss involving the claim made, 3) claim
adjustments and quantum of loss and 4) claim and policy liability and position.
Figure 6 demonstrates the flow of loss assessment procedures in the Prudential –
Insurance Business Module (PIN) of Dubai Financial Service Authority (DFSA) while
salient items and articles of the methods of valuation are specified in table 6.

639
 Receive reports from loss TAKAFUL OPERATOR  Appoints & instructs a loss adjuster to start
adjuster and decide on with claim assessment.
the liability and quantum  Documents and details of the claim are
of claim submitted together to the loss adjuster

SYARIAH  Appointed by the takaful operator

ADVISORY BOARD  Advise in terms of the Syariah regulations to
be complied by the loss adjuster
 The loss adjuster report submitted to the
takaful operator will be reviewed by the
Syariah advisory board before proceed with
claim settlement

 Prepare reports and LOSS ADJUSTER  Receives instruction and claim documentation
submit to takaful from the takaful operator.
operator for  Starts evaluating the takaful claim
consideration

TAKAFUL POLICY  Assists the loss adjuster i.e. provide extra

HOLDER/CLAIMANT details
Incorporate  For a construction works loss claim, the takaful
policy holder or claimant is required to assists
toghether
the loss adjuster by providing the internal claim
adjustment report together with the bill of
quantities, specification and drawings of the
affected construction works

CONSTRUCTION  Assists the loss adjuster in understanding,

TEAM verifying and justifying the construction
documents, drawings etc.

640
 Figure 6: Flow of loss assessment procedures in the Prudential – Insurance Business Module (PIN) of
Dubai Financial Service Authority (DFSA).

Table 6: Salient items and articles of the methods of valuation

PART Items and articles Brief description of the items and articles
Particulars of claim and  Type of claim and policy
policy  Claim registration no. and policy no.
 Name and address of the takaful policy holder or claimant
Personal particulars of the  Company’s business portfolio and brief description on any significant
changes in composition of business that include a description of history,
takaful policy holder
PART 1 statistics such as a breakdown of contribution income or case reserves by
Details of class of business
the claim  Name and type of accident and loss
Particular details of the
and policy  Location of the accident and loss
accident and loss
 Time, day and date of the accident and loss
Reason and basis of the  Supposed and actual cause of accident and loss
accident and loss
Nature of the accident  Brief description of the accident and loss
and loss
 Brief description of the whole package of the works
Nature of the works
 Name of the contract awarded or on-going works
 Particular details; name, address, qualification of all the consultant and
client
Parties involve in the
 Consultants – Architect, Engineers, Quantity Surveyors, Land Surveyors
affected works
and other related specialists
 Owner and principals – Project manager and end-user
 Duration period of the works as stipulated in the contract
Duration of the works
 Time of the occurrence of loss within the duration period of the works
and particular stage of the
loss  For example – The occurrence of loss is on the third month of the total
PART 2 twelve (12) months of construction period
General  Contract value of the works
descriptions  Site experience and observation in particular within the time of the
of the loss occurrence of loss
Matters relating to the
involving  Site previous damage or defect as per the last visit by the consultant
the claim works and loss
parties
 Discovery or complaints of any similar defect or loss nearby the location
of the accident or loss
 Contract value of the works as per progress of works submitted in the last
contractor’s interim report to the consultant
Progress of works and
 Contract value payment and account details paid to the contractor as per
account
work done on site
 Interim payment certificates to the contractor
Other related and  Specialists investigation and report depending on the specialist works
necessary parties’ report
pertaining to the loss

641
 PART Items and articles Brief description of the items and articles
Full Amount Estimate
 Actual quantum and exact requirements of loss as before the occurrence
of loss including the labour and material/plants/equipment loss
 Only with the concern, agreement and approval of the takaful
policyholder or claimant are allowed. Approvals of the consultants are
required for all suitable and acceptable specifications, conditions, prices
and arrangement of the works loss. Therefore, shop drawings are
PART 3 required to ensure same quality and function of the specifications and
Claim condition of works take into place
Valuation Methodology  The full amount estimate including the replacement or repair value must
adjustments
and not be more than the insured value as stipulated in the takaful policy.
quantum of  Calculation and computation are based on the similar method as specified
loss the contract of the works
 Precise and accurate specifications, conditions, prices, arrangement and
measurement of works as previously done prior to the occurrence of loss
 Bill of quantities, quotation, specification, drawings, labour attendance
list and workers’ card, material/plants/equipment delivery and purchase
orders and bills are essential documents as the basis of the calculation
 Consultants are required to advise, verify and validate the estimation of
Verification
quantity, items, specifications and price of the loss
 History claim on the claimant’s previous takaful policy
 Investigation of the responsibilities of each consultants of the works loss
Liability
PART 4 to ensure that the works are been handled and managed in a proper
Claim and manner
policy  Investigation on recovery provisions and clause of the takaful policy.
Recovery
liability and  Confirm on the takaful policy exclusion and deductible clause
position Claim current  Concluded on a valid claim arises and the Nett adjustment
arrangement and
recommendation

METHODOLOGY
Essentially, it is considered appropriate for both main parts stated above to be
synthesized and synchronized. The synthesis and synchronization aim to produce a
basic flowchart prior to the assessment of construction works loss in takaful and
standard methods in assessing loss for construction works in Contractor’s All Risk
(CAR) Takaful Policy. In the synthesis and synchronization, it is identified that the
flow and methods of assessment for construction works loss are considered
omnipresent in which they are present in at least two or three of the selected
documents. Hence, the synthesis and synchronization focus on the items and elements
that are omnipresent or similar.

FINDINGS
A summary of basic flow and involvement of parties prior to the assessment of loss
for construction works in Contractor’s All Risk (CAR) Takaful Policy is identified.
Figure 7 demonstrates the preliminary outlook of the basic flow and involvement of
various parties in evaluating and assessing works loss including for construction
works in takaful.

 Receive reports from loss TAKAFUL OPERATOR  Appoints & instructs a loss adjuster to start
adjuster and decide on with claim assessment.
the liability and quantum  Documents and details of the claim are
of claim submitted together to the loss adjuster

642
SHARIAH  Appointed by the takaful operator
ADVISORY BOARD  Advise in terms of the Shariah regulations to be
complied by the loss adjuster
 The loss adjuster report submitted to the
Figure 7: Preliminary outlook of the basic flow and involvement of various parties in evaluating and
assessing works loss including for construction works in takaful

643
 The methods of assessment of loss for construction works were listed and examined. Table 7 provides summary of the said methods of
assessment.
Table 7: The methods of assessment of loss for construction works based on the four (4) selected documents
Malaysia; Actuarial Basis of General Takaful United Kingdom; Association of British United Arab Emirates (UAE); Islamic
Australia; Loss Adjusting Practice
in Takaful: Realities & Challenges Insurance (ABI) Blue Book Finance Rulebook
Details of the claim and policy Details of the claim and policy Details of the claim and policy Details of the claim and policy
1. Particulars of claim and policy 1. Particulars of claim and policy 1. Particulars of claim and policy 1. Particulars of claim and policy
2. Personal particulars of the takaful policy 2. Personal particulars of the policy holder 2. Personal particulars of the policy holder 2. Personal particulars of the policy holder
holder 3. Particular details of the accident and 3. Particular details of the accident and loss 3. Particular details of the accident and loss
3. Particular details of the accident and loss loss 4. Nature of the accident and loss 4. Reason and basis of the accident and loss
4. Reason and basis of the accident and loss 4. Nature of the accident and loss 5. Nature of the accident and loss
5. Nature of the accident and loss
Descriptions of risk
1. Type of risks
General descriptions of the loss involving the General descriptions of the loss involving General descriptions of the loss involving General descriptions of the loss involving
claim the claim the claim the claim
1. Nature of the works 1. Nature of the works 1. Nature of the works 1. Nature of the works
2. Parties involve in the affected works 2. Parties involve in the affected works 2. Parties involve in the affected works 2. Parties involve in the affected works
3. Duration of the works and particular stage of 3. Duration of the works and particular 3. Duration of the works and particular stage 3. Duration of the works and particular stage
the loss stage of the loss of the loss of the loss
4. Matters relating to the works and loss 4. Matters relating to the works and loss 4. Matters relating to the works and loss 4. Matters relating to the works and loss
5. Progress of works and account 5. Other related and necessary parties’ 5. Progress of works and account 5. Progress of works and account
6. Other related and necessary parties’ report report pertaining to the loss 6. Discovery of the affected works or loss 6. Other related and necessary parties’ report
pertaining to the loss 7. Other related and necessary parties’ report pertaining to the loss
pertaining to the loss
Claim adjustments and quantum of loss Claim adjustments and quantum of loss Claim adjustments and quantum of loss Claim adjustments and quantum of loss
1. Valuation Methodology 1. Adequacy of sum insured 1. Adequacy of sum insured 1. Valuation Methodology
2. Joint inspection 2. Valuation Methodology 2. Valuation Methodology 2. Verification
3. Verification 3. Verification 3. Verification
Claim and policy liability and position Claim and policy liability and position Claim and policy liability and position Claim and policy liability and position
1. Liability 1. Liability 1. Liability 1. Liability
2. Recovery 2. Recovery 2. Recovery 2. Recovery
3. Claim current arrangement and 3. Claim current arrangement and 3. Claim current arrangement and 3. Claim current arrangement and
recommendation recommendation recommendation recommendation

644
 As explained, due to the omnipresent of the methods of assessment identified in the four (4) selected documents, therefore the methods in
assessing construction works loss are synthesized and synchronized in order to produce a standard methods of assessment for construction works
loss in takaful. Technically, in the synthesis and synchronization, there are five (5) steps that include five (5) dimensions as the basis elements on
the methods of assessment for construction works loss in takaful identified. Table 8 provides the preliminary outlook on the salient items and
elements of each dimensions of the method of assessment for construction works loss in takaful

Table 8: Preliminary outlook on the on the salient items and elements of each dimensions of the method of assessment for construction works loss in takaful
DIMENSION Items and articles Brief description of the items and articles
 Type of claim and policy
Particulars of claim and policy  Claim registration number
 Policy and reference number
 Name and address of the takaful policy holder or claimant - Full description of the claimant including name, address, date
of birth, occupation, nationality and marital status
DIMENSION Personal particulars of the  Status of the takaful policy holder
1 takaful policy holder
 Company’s business portfolio and brief description on any significant changes in composition of business that include a
Details of the
description of history, statistics such as a breakdown of contribution income or case reserves by class of business
claim and
policy  Name and type of loss
 Location of loss/ Geographical areas of the loss
Particular details of the accident  Time, day and date of loss
and loss  Reporting date of loss
 Opening date of the file
 Situation of loss business
 Physical risk includes the structure and location of the premises, including nature of external and internal linings, age,
DIMENSION area, number of stories, housekeeping, hazardous materials used in construction, neighbouring premises, locality
2 description, nature of contents and details of tenants and leases
Type of risks
Descriptions  Moral Risk relates to the business activities of the premises, directorships, major shareholders, duration of occupancy
of risk  Physical security of the premises that involves locking devices, protection doors, windows, fire escapes etc.
 Risk improvement – recommendations regarding risk improvement, such as reducing fire hazards or improving security
DIMENSION  Detail descriptions of the extent loss to the building/contents/insured item and comments on repair/total loss
3  Description of the nature and extent of the loss is required divided between policy items, e.g. plant & machinery,
General Nature of the works contents, stock and any other property involve
descriptions  Basic reason of the loss
of the loss  Nature of loss – description of the loss of property, age, condition, indemnity and salvage value and/or repair costs

645
DIMENSION Items and articles Brief description of the items and articles
involving the  Circumstances of loss – reference will be made to any witness statements and statements by the insured and/or tenant,
claim which should be attached to the report where possible. Available photographs to give a word picture of the scene shall be
attached, scanned or digitally forwarded.
 Quality of information pertaining to the affected works loss i.e. contract value of the works
 Site experience and observation in particular within the time of the occurrence of loss
 Description of premises and business loss - Brief description of construction, age, condition and location; nature of the
takaful policy holder’s trade or business with particular reference to the use of the affected part of the premises and the
processes are required
 Item and plan numbers should be quoted if possible. Where there is no plan a rough sketch or diagram is required.
Compass reference points should be used where possible
 Site features; slope of land; location; size and type of trees; location of drainage, ground conditions, and relevant details
of surrounding land or features must be indicated
 Digital photographs are required where relevant
 For business interruption claims – describe the effects of the loss on the business, including any influencing effects of the
actions (or lack of actions)
 Parties involve in the affected works - Clear definition and appropriate levels of delegation of authority; Clear definition
of management and experts responsibility; Particular details; name, address, qualification of all the consultant and client;
Minimum standard of documentation
 Description of project – Name of the contract awarded or on-going works; a good description of works, their value,
commencement and estimated completion date, and progress to the time of loss. Comment on compliance with local
authority and building code requirements are needed as well
Contractual obligation
 Contract conditions – all parties to the contract should be described together with the contractual relationship including
the responsibility for insurance matters plus loss. A copy of the contract should be obtained or, a minimum, copies of
extracts of relevant sections
 Contract value of the works as per progress of works submitted in the last contractor’s interim report to the consultant
 Duration of the works and particular stage of the loss
 Progress of works and account
 Brief description on the assumptions of cause of loss
 Particular details on the person that discovers the loss or accident. Interpretation, environment on how the individual
Discovery of the affected works discover the accident or loss
or loss  Description on any alarm systems
 Provide full details where the cause results from or is in any way connected or associated with a feature of the structure,
contents or any process carried on

646
DIMENSION Items and articles Brief description of the items and articles
 Where the cause is not established detail possibilities and investigations made or planned
 Describe location and point of origin/entry/incident
 Details material first ignited/involved
 Comments on adequacy in terms of the value at risk
Adequacy of sum insured  Comparison between the sums insured given to the loss adjuster by the takaful operator
 Indication of Building Cost guides are appropriate
1. FIXED METHOD
Actual Outcome – Maximum Reimbursement
 Actual quantum and exact requirements of loss as before the occurrence of loss including the labour and
material/plants/equipments loss
 Professional fees and/or Debris Removal Costs to be included
 The full amount estimate including the replacement or repair value must not be more than the insured value as stipulated
in the takaful policy. The amount of reimbursement shall not be more than the amount to repair or replace the property
with materials of similar type and quality
 The reimbursement of a property at the time of loss will be on actual cash value basis
DIMENSION  Obsolescence and deterioration of the neighbourhood where the property is located may also be considered to the
4 quantum of actual cash value of the property
Claim  Calculation and computation are based on the similar method as specified the contract of the works. Where contract of
adjustments works does not specify details calculation, the actual estimation amount is expressed separately as a percentage of the
and quantum Valuation Methodology total sum insured on each of the insured property.
of loss  The Calculation and computation system of claim adjustment should be based on statistical evidence on a consistent basis
and are properly categorized. Therefore, bill of quantities, quotation, specification, drawings, labour attendance list and
workers’ card, material/plants/equipments delivery and purchase orders and bills are essential documents as the basis of
the calculation
 Precise and accurate specifications, conditions, prices, arrangement and measurement of works as previously done prior
to the occurrence of loss. However, suitable and acceptable specifications, conditions, prices and arrangement of the
works loss are allowed prior to the approval of the consultants. Therefore, shop drawings are required to ensure same
quality and function of the specifications and condition of works take into place
 Only with the concern, agreement and approval of the takaful policy holder or claimant are allowed. Approvals of the
consultants are required for all suitable and acceptable specifications, conditions, prices and arrangement of the works
loss.
2. OPTIONAL METHOD
Replacement Values

647
DIMENSION Items and articles Brief description of the items and articles
 Estimation of the quantum of loss values for replacement
 Cost of the quantum of loss to repair and replace the loss including the labour and material/plants/equipments loss
 Suitable and acceptable specifications, conditions, prices and arrangement of the works loss are allowed prior to the
approval of the consultants. Therefore, shop drawings are required to ensure same quality and function of the
specifications and condition of works take into place
 Due to insufficient records and documents of additional sources related to the loss of works
 Estimation of the quantum of loss only based on the loss occurred. No additional estimation of labour, materials, plants
and equipments loss.
 Assessment date
 Estimated cost of damage
Claim adjustment  Should be backed up by quotations based on the scope of works, where applicable
 Where the contents loss is substantial, a schedule of loss should be completed detailing each item
 Joint inspection and verification by the loss adjusters and operator
Other related and necessary  Adjuster’s and investigator’s reports where applicable
document
 Consultants are required to carry out regular reviews of the actual outcome of the estimate made for claim settlement
purposes to check for inconsistencies and to ensure that procedures remain appropriate
Verification  In the case if some of the claim have been paid to the takaful policy holder based on the actual outcome estimate, the
reviews and verification must be done by the experts that include the use of statistical techniques to compare the
estimates with eventual cost of settling claims, after deducting the amounts already paid
 Takaful operator must maintain and implement an Islamic Financial Business policy and procedures manual for Fund in
respect of Syariah compliance
Fund for claim settlement
 The fund use for the purpose of claim settlement or takaful shall be updated and record to be presented to the Syariah
Supervisory Board for review and advise
 History claim on the claimant’s previous policy
 Policy liability confirmation
DIMENSION  Confirm on the policy exclusion and deductible clause
5  Full details are required where there is any breach, whether or not it has any bearing on the loss
Claim and Liability  Verification of the policy exclusions and liability
policy liability  Pro-Liability clause:
and position  Apply when the same property is being covered by two (2) or more takaful providers
 This clause spreads the obligation to pay a claim among the operators covering the same loss. The operators share of
the loss based on the proportion of coverage each operator has written on the property

648
DIMENSION Items and articles Brief description of the items and articles
 Example: a property valued at RM800, 000 is covered by three (3) operators. The first provider offers coverage of
RM100, 000, the second RM300, 000 and the third RM400, 000. Thus, if a loss of RM200, 000 occurs, then the first
operator will indemnify; RM100, 000/RM800, 000 x RM200, 000 = RM25, 000. The formula applies to the second and
third operator as well.
 Exclusion or deductible - Confirm on the takaful policy exclusion and deductible clause
 Deductible clause:
 Two (2) different types of deductibles in a takaful property contract:
 Straight deductible: The participant is required to pay certain amount of loss first before the takaful operator pays
anything. Example: if deductible for a property policy is RM30, 000 and the loss is RM500, 000. Thus, the participant
will only receive indemnification of RM470, 000. The participant will have to bear the first RM30, 000.
 Aggregate deductible: All losses during a specified time (say a year) are added together to satisfy the deductible. The
operator will pay all losses that are over and above the aggregate deductible amount. Example: if the aggregate
deductible amount of a property policy is RM150,000 and if during a specified time of the policy there are four (4)
claims of RM50,000, RM100, 000, RM70, 000 and RM150, 000. Thus, the deductible limit will be met by the second
claim; the third and forth claim will be paid in full to the participant
 Reasons of having deductible clause are to reduce or eliminate small claims which are expensive to handle and process
and to curb the moral and morale hazards that will encourage the participants to be more honest and careful with regard to
the prevention of loss and protection of their property
Recovery  Identification of potential or rejected recovery and justification
Claim current arrangement and  Concluded on a valid claim arises and the Nett adjustment
recommendation

649
CONCLUSION & RECOMMENDATION
This paper reported on a study of the practice of insurance assessment for
construction works loss specifically under Contractor’s All Risks (CAR) Takaful
policy. The findings of the study provides a summary of the methods and procedures
applied in assessing construction works loss in takaful that include five 950 practical
steps and dimensions as the basic elements in the assessment of construction works
loss. A summary of the methods of assessment for construction works loss in
Contractor’s All Risks (CAR) Takaful Policy that is considered appropriate for the
use and practice by the Malaysian construction industry has been identified and
provided.
Further research is required and recommended in order to develop and complete a
standard framework or guideline of the methods in assessing construction works loss
in takaful.

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651

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