Malaysia and the Asia Pacific countries have experienced great change in recent times. In the early nineties the economy in the region boomed, but in the middle to late nineties it slowed, and crashed in many countries. Malaysia responded to the crisis by imposing exchange control, as well as other fiscal measures. The effects were both dramatic and impressive, and clearly demonstrated the Government of Malaysia to be independently-minded and forward-thinking.
Throughout the period of turbulence and change, the domestic Malaysian insurance market positioned itself carefully to respond to both the clients' changing needs and those of the market itself, as well as the national interest, from a macroeconomic perspective.
Bank Negara Malaysia, the insurance market regulator, identified the need to retain premiums in Malaysia. To do so, the Large and Specialised Risks Scheme was introduced to stem the outflow of premium. The Scheme sets out the guidelines for insurance of major risks in Malaysia, and is managed by Malaysian National Reinsurance Berhad. This independent initiative has assisted the market in understanding the complexities of major risks. Furthermore, it has helped the local market and its members to consolidate their position as the underwriter of these risks. Despite the retention programme, the Malaysian market is still dependent upon treaty support. In addition, in order to protect the balance sheets of the Malaysian insurance companies, Bank Negara Malaysia has recently introduced guidelines for the relative financial standings of reinsurance security.
Going forward, it is easy to see growth of the influence that Malaysia now enjoys in the Asia Pacific region. Several neighbouring countries are studying the Malaysian market as a role-model for their own, and Kuala Lumpur holds potential for growth as a regional hub. Malaysia is situated centrally in the region, and now has in operation one of the finest new airports in the world, so regional travel presents no problem. In addition, with the availability of first-class office space at a fraction of the rental cost in Singapore or Hong Kong, combined with a highly experienced work force and ease of global communication, it is possible to see Kuala Lumpur becoming increasingly established as a major centre for international and regional risks.
Opportunities in energy
Malaysia is a substantial oil and gas producer, the revenues from which have underwritten much of Malaysia's impressive modern infrastructure in Kuala Lumpur. The money has also helped to underwrite the cost of the financial crisis. Neighbouring countries, notably Indonesia, Thailand, and Vietnam, must be searching for the means to replicate such a successful formula. However, there is an inevitable downside to the oil and gas production business: pollution.
As an oil producer, Malaysia will increasingly become involved with global pollution problems. Various environmental pressure groups now enjoy a global voice, and lawsuits abound. The cost to companies and individuals to defend these actions is well documented, and is an area that will see a growth in insurance purchase, since protection against liability issues is an escalating concern. Increasing overseas oil and gas investment will also create further opportunities for the insurance markets generally, if underwritten carefully.
As the market continues to evolve, the need for independent consultancy will increase, and established independent international brokerage operations with offices in Kuala Lumpur and Labuan, such as The Miller Insurance Group, should be well positioned to move forward in both this and the more traditional specialised brokerage services. However, if any overseas company is to trade successfully in the market they must be prepared to invest in local representation.
The Malaysian market is preparing itself for increased competition, inevitable when the barriers are brought down and it is transformed into a newly liberalised, free insurance environment. However, the future looks bright for Malaysia generally and its insurance industry in particular, which has responded well to change and created a sound trading platform on which it can move forward with confidence into the new Millennium.
Mark Stevens of The Miller Insurance Group has been in Kuala Lumpur since 1993, after spending over 30 years in the London market. He specialises in energy, marine and construction-related business. Harry Bennett is based in the London offices of The Miller Insurance Group, and has 30 years' experience working in the London and international insurance markets, specialising in major property and liabilities risks.