8.2 Adjusters, Settlement Methods and Complaints

Study Focus

Loss adjusters are registered professionals who investigate and quantify claims. Settlement can involve cash, repair, replacement or rebuilding under the policy.

Step 4: The Role of Independent Registered Loss Adjusters

When a claim involves substantial sums, complex technical causation, or commercial property, insurers appoint an independent loss adjuster to investigate and assess the claim.

Regulatory Status Under Bank Negara Malaysia

In Malaysia, loss adjusters are independent professional firms that must be approved by Bank Negara Malaysia (BNM) under Section 11 of the Financial Services Act 2013 (FSA 2013) before carrying on adjusting business. Adjusters must operate under strict codes of professional conduct, maintaining independence and technical objectivity.

Important Distinction: A loss adjuster is an independent professional appointed by the insurer (though impartial in evaluating facts), whereas a loss assessor is a public adjuster hired and compensated directly by the insured to prepare and negotiate claims on the policyholder's behalf.

Primary Functions of the Loss Adjuster

1. Site Inspection: Inspecting the accident or fire scene promptly, conducting physical examinations, photographing wreckage, and preserving forensic evidence.
2. Causation Investigation: Establishing the proximate cause of loss in consultation with forensic scientists, fire department investigators (Jabatan Bomba dan Penyelamat Malaysia), and structural engineers.
3. Policy Interpretation and Liability Verification: Reviewing the policy schedule, endorsements, warranties, and exceptions to advise the insurer whether the claim falls within the scope of legal coverage.
4. Quantification of Quantum (Adjustment):
   • Calculating the true pre-loss market value or reinstatement cost of the damaged assets.
   • Applying contract deductions including policy deductibles/excesses.
   • Calculating depreciation for physical wear, tear, and age on indemnity policies, or accounting for betterment when new parts enhance an older asset.
   • Applying the Condition of Average (Under-Insurance Clause) if the sum insured is less than the true collective value at risk.
5. Reporting to the Insurer:
   • Preliminary Report: Issued within days of appointment, outlining initial circumstances, estimated loss reserves, and urgent mitigation measures.
   • Interim Reports: Providing ongoing updates during extended forensic or accounting reviews.
   • Final Adjustment Report: Delivering a comprehensive assessment with detailed calculation sheets, liability recommendations, and the agreed settlement quantum endorsed by the insured via a signed Discharge Voucher.

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Step 5: The Four Primary Methods of Claim Settlement

Under standard insurance contracts, the insurer possesses the legal option to settle an admitted claim through one of four recognized methods. The choice of settlement method rests contractually with the insurer, not the insured, although insurers typically accommodate customer preferences where practical.

                             [ CLAIM SETTLEMENT METHODS ]
                                          |
      +------------------+----------------+-----------------+------------------+
      |                  |                                  |                  |
[ 1. CASH PAYMENT ] [ 2. REPAIR ]                    [ 3. REPLACEMENT ] [ 4. REINSTATEMENT ]
  Direct bank         Restoring damaged                Supplying new      Rebuilding
  transfer or         property to working              equivalent goods   destroyed
  cheque payout       order (e.g. PARS)                (glass, jewelry)   buildings

1. Payment of Cash

Cash settlement is by far the most common method across both personal and commercial lines. The insurer calculates the adjusted net loss (after deducting applicable excesses, depreciation, and salvage values) and issues an electronic funds transfer (EFT) or cheque directly to the policyholder, or jointly to the policyholder and the hire-purchase financier/mortgagee bank named in the policy endorsement.

2. Repair

The insurer undertakes to repair the damaged property back to its pre-loss operational condition. This method is predominantly used in motor vehicle and engineering insurance:

• PIAM Approved Repairers Scheme (PARS): To ensure quality repairs, consumer protection, and cost standardization, insurers commonly require own-damage repairs to be carried out at workshops accredited under the PARS framework or on their panel. Approved workshops must meet equipment and workmanship standards, use computerized repair estimates, and give a warranty on repairs.

3. Replacement

Replacement involves the insurer providing an identical or substantially equivalent new item directly to the insured, rather than paying cash. This method is common for:

• Plate Glass Insurance: Where insurers maintain bulk contracts with glazing contractors who replace shattered panes directly.
• Retail Goods and Office Equipment: Where identical electronics, laptops, or machinery can be sourced from manufacturers at wholesale discount.
• Jewelry and High-Value Articles: In all-risks policies where specialized jewellers craft or provide an equivalent replacement piece.

4. Reinstatement

Reinstatement refers specifically to the rebuilding, reconstruction, or structural repair of damaged buildings, or the complete replacement of plant and machinery on the same site. Reinstatement is governed by specific policy conditions:

• Under a standard Reinstatement Value Clause, the insurer pays the full cost of rebuilding the structure to a condition substantially equal to, but not better or more extensive than, its condition when new, without deducting depreciation for age or wear.
• The insured must commence rebuilding with reasonable dispatch, and work must comply with current municipal council (Pihak Berkuasa Tempatan - PBT) building bylaws.

Comparative Analysis of Settlement Methods

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Step 6: Post-Settlement Principles: Salvage and Subrogation

Once an insurer settles a total loss or replaces damaged property, two foundational doctrines of indemnity law come into operation:

Salvage Handling and Rights

When an insurer pays a claim on a total loss (constructive or actual) basis—such as compensating the full market value of a burnt motor vehicle or destroyed warehouse stock—the ownership of the damaged residual property (the salvage) transfers entirely to the insurer.

Under the principle of indemnity, the policyholder cannot claim full monetary compensation and retain the damaged wreckage. Retaining both would generate a financial profit from the misfortune, violating the core objective of indemnity. The insurer liquidates the salvage through authorized auctions or scrap metal processors to offset its gross claims payout.

Subrogation Recoveries

Subrogation is the equitable doctrine that entitles an insurer who has fully indemnified its insured to "step into the shoes" of the insured and pursue any legal remedies, damages, or financial recoveries available against a negligent third-party tortfeasor who caused the loss.

Key rules governing subrogation in Malaysia include:

• The insurer exercises subrogation in the name of the insured, not in its own corporate name.
• The insurer's recovery is strictly capped at the amount of indemnity actually paid to the insured. Any excess recovery beyond the claim payment and legal costs belongs to the insured.
• The insured must provide full cooperation, executing documents and testifying in court if necessary, and must not compromise, waive, or release the third party from liability without the insurer's consent.

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Step 7: Dispute Resolution Framework in Malaysia

When disputes arise over claim repudiation, the interpretation of exclusions, or the amount payable, policyholders have a structured, multi-tier route to resolution.

                        [ DISPUTE RESOLUTION TIERS ]
                                     |
     +-------------------------------+-------------------------------+
     |                               |                               |
[ 1. INTERNAL COMPLAINT ]  [ 2. FINANCIAL MARKETS     ]       [ 3. CIVIL COURT ]
[    TO THE INSURER     ]  [    OMBUDSMAN SERVICE     ]       [   LITIGATION   ]
  Complaints unit and        Free, independent scheme         Sessions Court or
  written final decision     for claims up to RM 250,000      High Court

1. Internal Complaint to the Insurer

BNM requires every licensed insurer to have an effective complaints-handling function. A dissatisfied policyholder first lodges a complaint and receives a written final decision, which must tell the complainant that the Financial Markets Ombudsman Service is available.

2. The Financial Markets Ombudsman Service (FMOS)

The Financial Markets Ombudsman Service (FMOS) took over from the Ombudsman for Financial Services (OFS) on 1 January 2025. It is an independent, free dispute resolution scheme approved by Bank Negara Malaysia and the Securities Commission.

Key Operational Rules of FMOS:

• Monetary Limit: FMOS hears disputes involving direct financial losses of up to RM 250,000, covering motor, non-motor, travel and third-party property damage claims alike.
• Exclusions: Claims for third-party bodily injury or death, commercial decisions such as pricing or underwriting, and disputes already in court are outside its scope.
• Time Limitation: The dispute must reach FMOS within six (6) months of the insurer's final decision, or after the insurer fails to respond within 60 days of the complaint.
• Process: A Case Manager first seeks a mediated settlement and may issue a Recommendation; either party may then refer the dispute to an Ombudsman for adjudication.
• Binding Nature of Decisions: The Ombudsman's Decision is binding on the insurer. A complainant who rejects it remains free to take legal action in the civil courts.

3. Civil Court Litigation

Disputes above the FMOS limit, claims outside its scope (such as third-party bodily injury), and cases where the complainant rejects the Ombudsman's Decision are resolved through the Malaysian civil courts:

• Sessions Court: Claims up to RM 1,000,000.
• High Court: Claims exceeding RM 1,000,000 or involving complex legal interpretation.