ASIA

RISK REPORT
THE TOP CONCERNS
OF ASIAN RISK MANAGERS

MALAYSIA

IN ASSOCIATION WITH

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 Asia Risk Report | MALAYSIA

TOP RISKS

Regulation: a risk
manager’s friend

Risk professionals at the StrategicRISK Asia roundtable in Malaysia agreed

that compliance made it easier to get boards on side

F 
ive hundred years ago, the the government makes it easier for risk “Regulation is healthy – but it has to
South-East Asian coastal area managers to implement and enforce be done on the right footing.”
around Malacca became of matters. Some risk managers look on While primarily positive, Bin Mohd
strategic significance when it regulatory compliance as an opportunity Zain also recognises how time-consuming
was conquered by Portugal. to put their ideas across and also to ensure compliance can be for risk managers.
Malacca kept this prized status when it commitment from their boards. “We must keep our knowledge base up
was subsequently taken over by the Dutch “While the board will always give its to date with the latest regulatory changes,
in 1641 and later Britain, following the support to these initiatives it is usually the which is sometimes difficult when we have
1824 Anglo-Dutch Treaty. line managers who are more challenging so many to comply with – up to 40 at any
Today the state of Malacca is a World for risk managers to deal with, as they have one time in Malaysia alone – and this is
Heritage site and one of now-independent a lot of other things to do. Risk management without all the ones impacting on our
Malaysia’s most important destinations for is another obstacle for them. So when they operations outside the country.”
tourists who want to peer into the country’s see that what they need to do is mandatory, But he also has a solution: “The best
rich history, sample its fascinating culture, it makes it easier for us.” thing risk managers can do is to engage
or simply take a ride on one of its unique Chemical Company Malaysia head of more with the regulators.”
brightly coloured bicycle rickshaws. enterprise risk management Hafsah Malaysia is in relatively good shape
For two days in September, Malacca was Ahmad agrees. “We have seen the board economically, despite the downturn
also home to about100 key risk management taking on regulation and pushing affecting western economies and which is
professionals, as the Malaysian Association governance through instead of leaving now starting to affect some nations in Asia.
of Risk and Insurance Management risk managers to fight our way,” she says. The country enjoyed 6% growth in the
(Marim) hosted its annual conference. “Regulation to an extent may be three years between 2009 and 2012,
They had plenty to discuss in terms of positively viewed as a barrier to entry. according to Bloomberg. And while this
risk as both a threat and an opportunity, as However, when changes are constantly has slowed recently, Malaysia will still
StrategicRISK discovered when it hosted a imposed they are not always welcomed as record 4.5% to 5% growth this year, with
lively roundtable at the event with a group they tie up management resources and the promise of more in 2014.
of Malaysia’s leading risk managers. curb productivity and growth.” As the third largest economy in South-
There was consensus on several points. East Asia, Malaysia remains strong, but its
For many, dealing with the growing amount Compliance with regulation future also depends on its businesses
of regulation now faced by business is a key Marim chairman and Telekom Malaysia staying relevant, and failure to innovate is
issue and most see this in a positive way. group business assurance vice-president a worry for a number of risk managers.
While compliance is sometimes Mohamad Bin Mohd Zain refers to Telecoms firm Maxis Berhad’s head of
complicated, risk professionals in Malaysia certain regulatory aspects as being a business continuity and insurance
do not consider regulation to be a “double-edged sword”. Bernard Lee says: “There is always a fear
hindrance. Instead, they are encouraged “Regulation can be an opportunity but that we are not innovating fast enough.”
by the fact that regulation has, in general, it is also a wider monster as it can also open For Lee the solution is to bring in new
led to better board engagement. up barriers to entry. It can provide an personnel “who can see the future and
Malaysia Airports Holdings head of opportunity for us to move, improve and who know what might be out there”,
risk management Zalina Jaflus explains: innovate but when it comes to regulatory although he admits this is “something
“Risk management is often about issues, there is always greater lenience which is really hard to manage”.
changing the business culture. But towards new entrants to the market, but a He adds: “We have a team that focuses
compliance with regulatory changes from price has to be paid by the incumbents. on new technology, but innovation change

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 MALAYSIA | Asia Risk Report

RISK MANAGER POLL:

TOP RISKS FACING BUSINESS
IN MALAYSIA
We polled five risk managers,
asking each for their five top risks
Regulatory change 5 5
Failure to innovate 4 4
Globalisation 3
People – retention and
acquisition of talent
3
Cyber threats and vulnerabilities 2
Reputation damage 2
is definitely something that can keep
management awake at night. Look at what
Contractual risk 1
has happened to Nokia compared with Economic conditions 1
where it was 10 years ago – no one is safe.”
Some risk managers are critical of the Foreign exchange risk 1
insurance industry for failing to provide Intellectual property risk 1
adequate support structures for those
businesses taking a strategic risk through Political uncertainty 1
innovation. But for others, solutions lie
elsewhere, if only risk professionals and Price of commodities 1
businesses would seek them out.
Bin Mohd Zain says: “The insurance Head of business continuity changing the paradigm of social
market is still heavy on pure risk rather than planning and insurance and technical innovations. It’s all
speculative risk. This is not restricted to management at Maxis, Bernard about our tolerance for taking
Malaysia, but also beyond. Most innovation Lee chose failure to innovate risks that address real problems.”
is on the speculative side. So we can go back as his top risk (“The education
to the traditional insurance market. But system is not churning out critical Faisha Shahriman of Malaysia
insurance is only one solution to the many thinkers”), as did the head of Airports Holdings’ risk
facets of risk, and we cannot see insurance group risk management for management division, chose
as the only tool with which to manage risk.” Kumpulan Perangsang regulatory change as his number
Selangor Nuranisah Anis: one: “Unfavourable regulatory
Be proactive to pre-empt problems “Companies face the risk of change will have a significant
When a business is looking to innovate, being irrelevant if they stick impact on large corporates in
quantifying exposures and potential losses to current business models/ Malaysia by increasing operating
can be tricky, but it is not impossible to products and services. They need costs. New structures of fees
calculate, according to Zurich Global to produce more efficient, up-to- and/or charges will have to be
Corporate global relationship leader Steve date products to suit changing introduced and this will have a
Robertson. The issue is what happens next. technologies and lifestyles.” negative impact on customers,
“The numbers are so big,” says clients and/or stakeholders.”
Robertson. “It means a huge amount of Senior manager of group risk
capacity for financial institutions and it management at the Chemical Vice-president of group business
also comes at a price.” Company of Malaysia, Hafsah assurance at Telekom Malaysia
Instead, companies should look for Ahmad also went for failure Mohamad Bin Modh Zain went
assistance from insurers in other ways, to innovate: “As we adapt to for reputation damage: “If
according to Zurich Global Corporate technological changes, we assure a customer doesn’t like your
regional head of IPZ customer, distribution ourselves of being relevant in organisation’s service, they vent
and marketing, Asia-Pacific, Dylan Bryant. a dynamic environment. While on social media and the damage
“Insurers are not just there to transfer adapting and playing catch-up and spread is like wildfire. So
the risk, they are also very good at managing may mean taking the same when it comes to reputation I look
and mitigating those risks, something that risks as the rest of the market, at its effects from the magnitude
is still just emerging in Asia,” Bryant says. disruptive technologies are of the spread.”

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 Asia Risk Report | MALAYSIA

TOP RISKS
MALAYSIA
IN NUMBERS

EMPLOYMENT

1.00 1.00 1.00 1.00 1.00 1.00

0.74
0.69
0.60
0.52 0.51 0.51
0.42 0.45 0.47
0.38 0.41 0.39
0.33 0.38
0.27 0.23
0.17 0.13
0.00 0.00 0.00 0.00 0.00 0.00
Employing Quality Pay and Brain Redundancy Employment
workers of labour productivity drain costs of working age
population

Malaysia NOTE The risk bars indicate the world distribution of the particular risk, from the
lowest scoring country to the highest. The lower the score, the lower the risk or
Asia Pacific
exposure to the particular indicator (a lower score is always positive).
US Source: Zurich Risk Room

Failure to seek help from insurers in which many Malaysian companies need causes that pull these bright, young
this way may have something to do with to engage more to deal with concerns individuals – unlike their predecessors
risk management still being reactive rather over employee retention. who were inclined to build on company
than proactive in Malaysia, as Lee explains: As with many other countries, risk loyalty and lifelong career stability.”
“Risk management is often considered by managers in Malaysia are seeing employees With so many workers moving jobs,
businesses here as being like a spare tyre. becoming more transient and motivated protecting intellectual property (IP) is
Only when there is a puncture do they more by loyalty to themselves than to any an increasing worry for risk managers,
realise a spare tyre is needed. particular business. some of whom are looking to insurers
“Crisis drives risk management in Where once employees might have for answers.
many companies, but if these are not stayed with one company for their entire Lee says: “We do have concerns about
managed well they become disasters. To career, many now move on after a few intellectual property, certainly in terms of
get the board to sit up and take notice you years, and they are influenced by a range new technology and manufacturing. We
need some kind of problem to happen.” of different factors. are looking at IP protection from insurers
Some companies are starting to become and if more were providing this type of
more proactive – for example, through the Intellectual property cover cover then it would be easier for us to get.”
way in which they deal with social media. Chemical Company Malaysia’s Ahmad Zurich’s Bryant says that IP is starting
Telekom Malaysia’s Bin Mohd Zain says that even the lure of an otherwise to become an issue that more and more
explains how the company established a attractive benefits package may not be insurers are contemplating for cover, but
Twitter feed for good news. Before this, he enough to tempt ‘Generation Y’. there are other proactive measures
says, 70% of tweets about the business “Particularly for highly specialised businesses can adopt to limit their risks.
“were bashing it”; now the good news feed areas, employee-retention programmes “The key for risk managers is to
has limited this, so the “bashers no longer and investments to recruit and train are understand how to raise the importance of
bash us”. challenged by talents’ tendencies to job intellectual property protection, whether
Social media is one way for a business to hop, seeking the ideal job,” she says. this is through mitigation or other means.
reach out to its customers – particularly “Global warming, deforestation and The industry may never provide an
younger ones – and it is this age group with global headlines ensure no shortage of insurance solution that will meet those

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 MALAYSIA | Asia Risk Report

THOUGHT
LEADERSHIP

JONATHAN RAKE
needs but companies may be able to do Zurich Singapore,
general insurance chief executive
things internally that will mitigate those
risks. Some businesses are making a choice
to not patent because as soon as they do so
their patents become public knowledge
and can be stolen,” Bryant says. “So
instead they keep their formula in a vault.” TAKE ADVANTAGE OF A CAPTIVE AUDIENCE
One area where insurance is becoming
significant in Malaysia, however, is the
provision of takaful – a specialised Islamic A captive is an insurance company that is fully owned by a non-
financial service where money is pooled to insurance parent company, insuring the risk of the parent company
cover losses. and its subsidiaries. It is a great opportunity for any company
While Malaysia is multi-ethnic and that has a strong appetite to retain risk, and a positive loss
freedom of religion is protected, under the history. Additionally, a captive is appropriate for any company
country’s constitution Islam is the state that would like to advance and develop its risk management and
religion. As such, the use of takaful is risk financing.
increasingly popular. Malaysia is fortunate that it has its own captive domicile – right
on its doorstep in Labuan. Labuan is currently the second largest
Halal certification captive domicile in Asia. In 2012 it had more than 40 registered
Ahmad says Chemical Company Malaysia captives, of which 18 are owned by Malaysian companies. While the
went one step further and became the largest Malaysian enterprises have seen the benefits of captives,
first pharmaceutical company in the world other corporations have been slow to pick up and take advantage
to get halal certification (MS 2424) of of this opportunity.
its products. While the reasons may differ for each company, two are usually
“In reference to takaful insurance it raised: insurance premiums are low, and captives are only about tax
makes things tricky,” she says. “To push benefits. The first one cannot be argued with, as there is a persisting
the halal agenda, we would eventually so market, though this is changing. Additionally, captives are not
need to secure halal-compliant insurances about cheap insurance or tax benefits – they are a sophisticated
and financing. risk-management and risk-financing tool.
“The complexity increases further Captives enable a company to analyse and manage risk,
from a regional perspective with various and insure uninsurable or not yet insured interest. They do so in
halal certification between countries. an economic and stable manner across various lines of
Compared with traditional lines, flexibility business that each complement their risk characteristics to create
with takaful insurance products would be a balanced portfolio.
welcomed across the region to provide
regional businesses access to halal- Tax benefits
compliant risk-transfer mechanisms.” While there can be benefits to having a captive, they are more
Capacity is a key issue for many firms circumstantial. The main driver beyond the risk management side
when dealing with takaful, with some is the sharing in profits coming from a positive loss history and
resorting to conventional markets to meet claims experience, which oen brings a realisation and ownership
their needs. of risk through all levels of the company.
However, the availability of options in Insurance and investment income through the profits of
terms of scope and capacity might increase the captive can be partially paid out as dividends or provided
as demand for takaful insurance rises in to the parent company as a loan that provides an offset to
Malaysia. Takaful is already growing faster investment for capitalisation. Captives take risk management
than the conventional insurance sector in off the balance sheet of the parent company and give it its own
the country and providers are likely to balance sheet that allows the parent to have much more oversight
adapt offerings. and control.
Many of the businesses StrategicRISK Asia has the opportunity on its doorstep to take its risk
spoke to in Malaysia are actively management to a new level based on its risk appetite.
considering using takaful, and others are Next time you speak to your insurer or broker, ask them how
likely to follow Chemical Company you could profit more from your positive loss history; how could
Malaysia to become halal businesses. you benefit from introducing a captive as a risk financing and
As Ahmad points out: “We might be management tool for your company in the longer term; or how
the first in halal certification, but we won’t could you improve the portfolio diversification of your captive;
be the last, so eventually there will be what are your insurers’ capabilities of matching your desire for
significant demand.” SR that diversification?

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 Asia Risk Report | MALAYSIA

THE BIG RISK

Future shock
emerge: mismanaged urbanisation (leading
to environmental damage and pollution,
resource scarcity and price volatility, and utility
failure and water supply disruption); and
corruption (incorporating governance failure,
What challenges will Malaysia have to overcome as it follows what businesses and policy distortion and lack of competition).
V Harikes, the managing director of
its people hope is a path to greater prosperity? Howden Broking Group’s retail businesses in
Asia, says that one specific challenge ahead
for the insurance industry is the expected
liberalisation of Malaysia’s fire and motor

B 
ring a group of risk professionals Nuranisah Anis, the head of group risk insurance sector in 2016. “It is expected
together in one room and ask management at infrastructure and utility that prices will take a big plunge due to the
them what challenges they are firm Kumpulan Perangsang Selangor, intense competition among the market
currently dealing with, and also lists among Malaysia’s emerging risks players,” he says. “Strong bargaining power
you’re guaranteed to come out of it with a talent-pool constraint and competency gaps. by the customers is expected as they shop for
list as long as your arm. If you broaden the She adds that people retention is especially the widest covers with the most competitive
discussion to encompass the risks they think important for the risk management function. prices.” Harikes predicts that those insurers
they’ll be facing in five or 10 years’ time, “Management needs to understand the role that make the first move will have a
prepare to be regaled with many possible of the risk-management department to ensure competitive edge over their competitors.
scenarios, ranging from the relatively benign that the enterprise risk management (ERM) “Business strategies will evolve around
right through to the positively apocalyptic. rollout is successful,” she advises. risk-based pricing, quality service, product
This is certainly the case in Malaysia, which The vice-president of group business innovations and a good delivery mechanism,”
is arguably one of the countries in South-East assurance at Telekom Malaysia, Mohamad he says. “Market leaders will adopt a business
Asia most heavily affected by globalisation. Bin Mohd Zain, agrees that there is a critical model to differentiate themselves from the
Economic uncertainty is making the future shortage of people who are able to manage market norm and focus on niche market and
more of an unknown. new business risk. “As such, talent pinching profitable segments.”
As JLT Malaysia chief executive Michael will be a key risk,” he says. Staff retention,
Leong puts it, the country is on the road especially of risk managers with five to 10 Innovative approaches required
to major growth, but faces some serious years’ experience, will be a problem for many The need for organisations to embrace change
obstacles on the way. “Malaysia aims to companies as other firms start establishing and drive innovation is echoed by many
escape the second-world chasm and join the their own risk-management units. “Rather of Malaysia’s risk professionals. Chemical
league of high-income nations by 2020, but than building the expertise in-house, Company of Malaysia’s senior manager of
the biggest deterrent to this is the lack of buying over staff from other companies will group risk management Hafsah Ahmad only
skilled human capital,” Leong says. continue because of the limited supply of hopes that local companies have a strong
Leong adds that there is growing demand qualified ERM practitioners.” enough appetite for the risk that this entails.
for individuals with the required knowledge, Bin Mohd Zain sees the creation of top- “Taking strategic investment risks that deeply
skills and capabilities to succeed in globalised quality risk managers as essential to deal with reflect problems and opportunities to identify
sectors. “Malaysia is one of the countries future risks effectively. “Training on ERM is new approaches could ‘move the needle’
that is most affected by brain drain, a major key in providing support from a practical and significantly for companies,” she says. Ahmad
problem in terms of delivering quality and execution capacity,” he says. “There are still big identifies areas such as “the green revolution,
specialised work through the utilisation of the gaps in risk-management education, hence a public health and climate change” in which
appropriate talent, but also in terms of being great opportunity for trainers in this area.” innovative thinking will be required.
unable to retain current local talent or attract JLT’s Michael Leong believes that
foreign talent,” he says. Marsh Malaysia chief Large-scale changes customers are becoming more demanding in
executive CB Lim says this “war for talent” is One of the issues that risk managers in Malaysia, and there is a corresponding rise in
not just a Malaysian concern, “but a region- Malaysia are keeping a particularly close eye the recognition of creativity and innovation.
wide issue, placing an emphasis on employee on is the accumulation of manufacturing “In particular, customers demand products
health and benefits solutions”. in China. “If something was to go wrong in that are comprehensive, relevant, packed with
Faisha Shahriman, who is part of the China, global companies, not only Malaysian user-friendly features, personalised and which
risk-management division at Malaysia companies, would be affected,” Bin Mohd Zain come at a reasonable price,” he says. “An
Airports Holdings, points out that when an says. Leong agrees that the growth pressures organisation’s failure to innovate can have an
employee leaves it has been traditionally the region is currently experiencing will have impact on the company’s resiliency over time
viewed as the simple loss of a tangible asset. an impact on the risk landscape as they create and affect its sustainability.”
“[However], the impacts are far greater owing large-scale changes over the next five years. This is particularly apparent in the area
to the loss of intangible assets such as his Leong says that this can be seen as either of cyber risk. Marsh’s CB Lim believes that
or her knowledge, experience and business an opportunity or a threat, listing some of digital threat continues to be significant
relationships,” Shahriman says. the new risks that he believes are likely to driver of the risk landscape in the medium

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THOUGHT
LEADERSHIP

AN INDIVIDUAL’S VALUE SYSTEM IS DYLAN BRYANT

AT THE CENTRE STAGE OF RISK Regional head of international
customer, distribution and
marketing, Asia Pacific

Senior manager for group and the values he or she adopts.

risk management at the Value systems are dependent on,
Chemical Company of Malaysia and nurtured by, society rather AWARENESS OF CYBER RISKS
Hafsah Ahmad on regulation, than the individual.
responsibility and respect:
“Financial market reforms stem Awareness of cyber risk has been growing steadily
“Risk is created at the point mainly from events that have in recent years. With increased media coverage
where decisions are made. proliferated in the West. While following some high-profile data breaches,
While framework, reforms and noting that risk occurs where regulators imposing or considering cyber legislation
guidelines are useful parameters, there are opportunities – and have all converged to bring this emerging risk to the
most companies realise that the with global connectivity like never forefront of risk managers’ minds. Cyber security
individual’s value system is at before today opportunities are professionals continue to warn of the growing
the centre stage of risk. In our everywhere – it has not helped exposure of information systems. Cyber risks, it can
organisation, we have recognised the credibility of regulations be argued, represent an important risk for all types
this as part of our corporate imposed to date when major of organisations.
culture and practised throughout financial events continue to make Now that cyber risk is discussed at the board
via a much emphasised value the world’s headlines. and executive-management level, the full range of
system based on five pillars: exposures need to be considered. Cyber risks include
passion, excellence, “The positive expectations for risks associated with such things as intellectual
teamwork, integrity, responsibility compliance to engage managers’ property infringement, stolen or lost data, cloud
and respect. holistic introspection of the computing, violation of privacy laws, social media,
company’s knowledge, experience mobile devices and bring-your-own devices.
“At the heart of the Asian value and capabilities and to promote According to several recent surveys, organisations
system lies the basic belief a self-regulatory culture for risk are adopting various strategies to address these
system in the form of various improvement is undeniable. risks. Increasingly we are seeing organisations
religions. These are as alive today However, the efficacy of these adopting an enterprise-wide, or at least a
in Asia as any time in its past, objectives can be lost when multi-departmental, approach to cyber-liability
as can be seen in the religion regulations are imposed upon risk management. With the small but growing
demographic of the region. By businesses without appropriate insurance solutions available in the market,
observation of the abundance timing. Constant regulatory there are increasing options for risk managers to
and usage of mosques, churches changes may cause operational address the potential costs associated with a loss
and temples, the majority can be disruption as valuable resources as a key element of the organisation’s cyber risk
said to be practising believers. are channelled to compliance management strategy.
A critical point is when we realise issues. Compliance for the sake Currently IT departments continue to lead the
that a higher sense of integrity of complying does not way when it comes to data security and privacy
correlates deeply with the necessarily mean improved initiatives in most organisations. However, risk
conscience of the decision-maker standards or competencies.” managers are beginning to play a more significant
role in the development of a response strategy
and in the discussion on transferring that risk. A
2012 survey conducted by Advisen in the US found
term. “Companies are realising that the risks ‘Growth and that: “The percentage of organisations where risk
of cyber attacks extend beyond just privacy management/insurance led the data security risk
breaches, to the revenue and reputation
expansion will management programme increased slightly to about
implications associated with a disruption,” drive greater 15%, as compared with about 13% in 2011.” Another
Lim says. “Growth and expansion will demand for key finding from the survey was that in nearly 80% of
drive greater demand for sophisticated and sophisticated organisations with multi-departmental data security
innovative risk management and insurance and privacy teams, the risk management/insurance
solutions, which is positive for the industry and innovative department is represented on the team.
and insurance buyers.” risk A key area that will become increasingly important
Lim points out that Bank Negara Malaysia management’ for organisations in Asia will be around the evolving
is relaxing its rules on insurance companies data-breach reporting requirements. Currently, most
and brokers. “[This will] allow them to be countries in the region now require the reporting of
more innovative and productive in provid- such incidents. The key decision for the board going
ing services and solutions to their clients forward will be where the risk management for cyber
and consumers amid their continued role to liability will sit; will it be the IT department or the
police the financial health in the country.” SR risk-management department?

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 Asia Risk Report | MALAYSIA

RISK MANAGERS’ VIEWS

How do risk professionals rate the general level of enterprise risk management (ERM) maturity
in Malaysia? And do they see a strengthening of risk management on the back of stronger
engagement from the boards of Malaysian organisations?

Faisha Shahriman, Bernard Lee, head of Mohamad Bin Mohd Zain,

risk management business continuity vice-president group
division, Malaysia planning and insurance business assurance,
Airports Holdings management, Maxis Telekom Malaysia

ERM maturity level in Malaysia is at a ERM maturity in Malaysia is Using [Dr David] Hillson’s five-stage
well-defined stage especially for large moderate to good, especially among maturity model, I would rate the
corporates in Malaysia. The ERM listed companies. Small and medium ERM maturity level in Malaysia to be
processes are well defined across the enterprises are strengthening risk at ‘normalised’ (scale of three from
organisation, quality people are being management on the back of stronger five). Improvement is on its way and
assigned to execute ERM tasks, and there are engagement by the boards of Malaysian the [significant] leap will happen when
continuous efforts between companies in organisations, especially in financial and government agencies start embracing ERM.
Malaysia to embed the ERM culture by 24/7 service such as utilities. ERM in
way of benchmarking visits between recent years is an audit committee item in “Risk management is definitely
companies, forums, seminars, conference most government-linked companies and strengthening, and the tone from the top is
and training. listed companies. key. For public limited companies, risk
management is a compulsory agenda in
“Engagement by the boards of Malaysian “I see risk management standards and board meetings and most plcs now
organisations has increased due to the practices being more ingrained within have established dedicated board
implementation of the Malaysian Code organisations to help management to risk committees to discuss
on Corporate Governance in Malaysia. In better handle new challenges. At best, risk risk management strategy and
addition, The Statement on Internal Control management is going to play a more crucial efficiency before reporting on this in
– Guidance for Directors of Public Listed advisory role within the corporate structure. the company’s annual report.
Companies was introduced to further assist However, it will be a struggle to
the board in making disclosures concerning achieve the prominence of such
risk management in the internal traditional roles such as tax, audit
controls of the company and and so on.
hence requires commitment and
engagement by the board related to
risk management.

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 MALAYSIA | Asia Risk Report

“Boards nowadays are more aware of the importance of risk management rather than
just regarding it as a compliance matter.”
Nuranisah Anis, head of group risk management, Kumpulan Perangsang Selangor

WE NEED TO TALK MORE ABOUT

BUSINESS RISKS IN THE BOARDROOM

The chairman of the Malaysian Association in low-lying areas,” he says. “In Marim,
of Risk and Insurance Management what we have done for the past two years
(Marim) believes it is time to raise is engage with a few non-government
awareness of how risk management organisations to work with us to improve
and business-continuity management the knowledge and assessment of
(BCM) can lessen the effects of disruptive resilience management. For example,
incidents on Malaysian businesses we have been working with one of the
and society. He also advises Malaysian public universities talking about disaster
businesses to focus their resources on prevention and resilience.”
delivering resilience and protecting On another risk-related issue,
reputation. Bin Mohd Zain worries that Malaysian
Mohamad Bin Mohd Zain, who is companies don’t do enough to protect
also vice-president of group business their reputations. “They think the news
Nuranisah Anis, head of assurance at Telekom Malaysia, says is only being spread in the domestic
group risk management, Marim was actively aligning risk environment, but we know for a fact
management with BCM in an attempt to that a lot of Malaysian companies are
Kumpulan Perangsang streamline both proactive and reactive now going overseas and we can also see
Selangor risk management for business. “[We] will that investors are looking at Malaysia
also try to open up the gaps between and asking how we manage ourselves,”
ISO 31000 risk management and he says. “If there is a reputation risk
Based on my observation, some ISO 22301 BCM to see where both to be managed, it will not only impact
companies in Malaysia are still trying standards can be harmonised as our domestically, but also internationally.
to improve their ERM practices. I say future standard rationalisation, enhancing “Another concern that I have is
this because when companies started operational risk management to cover whether the board is putting enough
the establishment and implementation contingency planning and disaster time and resources in discussing and
of ERM frameworks in 1999–2000, it was recovery elements,” he says. challenging business risks in
mainly owing to the need to comply with Bin Mohd Zain says that one of the boardroom.”
Bursa Malaysia’s requirement for listed Malaysia’s most pressing catastrophe- Bin Mohd Zain sees the increasingly
companies, but most companies failed to related issues was flooding. “You can see international nature of business as part
ensure that the ERM process was sustained in Malaysia now that those areas that were and parcel of globalisation, which he
and embedded in their processes and previously flood-prone areas are no longer views as both a risk and an opportunity.
company culture. There is a lot more to flooding, but the flood is happening in “As a risk manager in telecommunications,
be done in regard to understanding the areas that never had flood before,” he I see it as more opportunity than risk,”
ERM process itself and to move into a more says. “The risk is in the lack of readiness. he says. “What we are seeing now with
sophisticated phase; for example, the Are the people and companies in those globalisation is that we have a better
establishment of key risk indicators. areas ready for floods, especially from the ground to actually export our services
perspective of BCM? How strong and receive partners who can work with
“Boards nowadays are more aware of the are their BCM programmes and diversity us and improve our deliverables. Of
importance of risk management rather of resources? course, when you have partners you have
than just regarding it as a compliance “In Malaysia we have been talking partnership risks that you have to look at,
matter. The revised Malaysian Code of about climate change for the past five but you manage your risk well and you get
Corporate Governance 2012 and the years, but I don’t think much has been things done.”
new ISO 31000 has helped in getting done except for small government
stronger buy-in from the board and activities looking from the perspective of
top management. providing shelter.”
Bin Mohd Zain adds that the Malaysian
government was starting to embrace risk
management as a way of both dealing
with nat cat threat and reducing waste
in government spending. “But from a
company perspective, we have to have a
more practical approach, especially when
we get the companies that have facilities

www.strategic-risk-global.com/asia 9

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 Asia Risk Report | MALAYSIA

BROKERS’ VIEWS

The region’s brokers give their thoughts on the general level of enterprise risk management
(ERM) maturity in Malaysia. We also ask them whether there are any specific issues relating to
arranging insurance cover in the country, and if interest in captives is growing

V Harikes, managing Michael Leong, chief CB Lim, chief executive,

director, Howden Broking executive, JLT Malaysia Marsh Malaysia
Group’s retail businesses,
Asia

Except for the multinational The level of ERM maturity in ERM is slowly gaining traction in
corporations and large corporate Malaysia can be described through Malaysia, primarily in the large,
business organisations, the use of a bell-curve, ranging listed corporate sector where
ERM initiatives have not reached from level 1 at the far left, shareholder value is the primary
the desired level. The SMEs, representing a low level of maturity, driver for ERM adoption. The
large enterprises and businesses are to level 5, where level of ERM maturity is at mid-market sector is beginning to look at
relying on insurance as a ready form of an advanced stage. The shaded area under ERM more frequently, as they understand
risk management. the curve is where the majority of the benefits of taking a holistic risk
Malaysian organisations sit. Towards the management approach, such as volatility
“The central bank (Bank Negara Malaysia) left, the approach to risk management is reduction, which is especially important
introduced the Internal Capital Adequacy more ‘transactional’; as it shifts to the right, for companies with smaller balance sheets.
Assessment Process in September 2012. it becomes more ‘strategic’.
Under these guidelines, insurers are “Labuan is making a significant name for
required to assess whether the risk-based “The marine and energy market is very itself in the captives industry, with heavy
capital framework adequately captures limited as most of the Malaysian insurers promotion and awareness campaigns.
their own company’s specific risk profile have rather small capacity, and the treaty Labuan provides a viable alternative to the
and quality of risk management. An reinsurance facility available to them is also traditional captive centres such as
insurer must ensure it can meet the capital limited in scale and restricted to certain Singapore and Hong Kong.
requirement on an ongoing basis that is type of activities and policy wordings. Shariah-compliant captives have not
commensurate with its risk profiles and Given this limited capacity and risk surfaced yet in Labuan, but there have
business plan. appetite, local insurers have no been some activities to attract such
alternative but to rely heavily on captives. We do expect to see one
“Generally, the markets are soft and we are support from foreign reinsurers to two captives up by 2014.
seeing an increase in reinsurance capacity residing in Labuan or overseas.
available in the domestic and Labuan
offshore markets.

“The Labuan International Business and

Financial Centre has made the captive
insurance market one of its main growth
targets and is aiming to become a
major jurisdiction for captive
insurance in the Asia-Pacific region.

10 www.strategic-risk-global.com/asia

10_11_BrokerView_Malaysia13 10 30/10/2013 15:30

 MALAYSIA | Asia Risk Report

“The mid-market sector is beginning to look at ERM more frequently, as they understand
the benefits of taking a holistic risk-management approach, such as volatility reduction,
which is especially important for companies with smaller balance sheets.”
CB LIM, chief executive, Marsh Malaysia

BROKER POLL: THE TOP

RISKS FACING BUSINESSES
IN MALAYSIA
Malaysian We polled three brokers, asking each

insurance industry for their top five risks

booming, says PM People – retention and

acquisition of talent 3
Economic growth and high-income population driving demand Failure to innovate 2
Globalisation 2
Photo: Malaysian government via Wikimedia Commons

Malaysia’s insurance industry

has significantly progressed in Regulatory change 2
terms of growth and development
in recent years, according to
Reputational damage 2
Prime Minister Datuk Seri Najib Cyber threats and vulnerabilities 1
Tun Razak.
Sixty-year-old Najib, who is Economic conditions 1
also Malaysia’s finance minister, Political uncertainty 1
said that the penetration rate in
recent decades, as measured by Supply-chain disruption 1
the number of life policies to
total population, had increased
from 31% in 2000 to 55% in
2013. “Total premiums to gross V Harikes chose the compliance requirements.
domestic product increased from retention and acquisition While it leads to better
4.1% to 4.5% over the same of talent as his top risk: board engagement and
period,” he added. Najib noted that the “Malaysian skilled workers impetus to embed a
The prime minister was operational management and are in high demand as strong risk management
speaking to more than 5,000 financial standing of Malaysian the South-East Asian culture in the
people at the International Dragon insurers had improved markedly. economies expand. This organisation, on the
Awards (IDA 2013), held in He said that a more positive has led to a brain drain in other hand, it also
Kuala Lumpur in August 2013. public perception of the industry certain areas where the has the potential to
IDA 2013, which highlighted was being reinforced by liberal- domestic labour market increase the costs of
the achievements of several isation measures that aimed to has proved less attractive operating a business,
insurance and financial services support further development in than the opportunities reduces attractiveness of
professionals in Asia, was run in the industry. “Proposed new offered overseas. A similar investments
conjunction with the 17th Malaysia legislation for our financial sector pattern is emerging and changes the
Chinese Life Insurance Congress. … will provide a solid foundation with foreign labour that competitive landscape.”
The prime minister conceded for the insurance industry going previously may have been
that Malaysia’s insurance industry forward,” he said. attracted to Malaysia CB Lim chose
was relatively small by Structural reforms had led to now choosing to work in cyber threats and
international standards, but said the insurance industry’s transition other countries where vulnerabilities as his
that demand would increase towards more market-based pric- wages may be higher and top risk: “This area
significantly in line with projected ing mechanisms in key market opportunities greater.” continues to rank high
economic growth. He said that segments, Najib said. They had on everyone’s list, as the
growth would be assisted by the also “improved efficiency in the Michael Leong went for interdependency between
fact that a high proportion of insurance ecosystem and streng- regulatory change as his supply chains, technology
Malaysia’s population were high- thened the framework for number one: “Regulatory and revenue continues
income earners. consumer protection”, he said. SR change leads to stricter to increase.”

www.strategic-risk-global.com/asia 11

10_11_BrokerView_Malaysia13 11 31/10/2013 12:09

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us means we
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