Muhammad bin Ibrahim: Today's risks, tomorrow's claims
Keynote address by Mr Muhammad bin Ibrahim, Assistant Governor of the Central Bank of
Malaysia, at the International Claims Convention 2010 "Today's risks, tomorrow's claims",
Kuala Lumpur, 19 April 2010.
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First of all, I congratulate the Malaysian Insurance Institute, the Australasian Institute of
Chartered Loss Adjusters and the Association of Malaysian Loss Adjusters for their excellent
efforts in jointly organizing this convention, themed "Today's Risks, Tomorrow's Claims". I
understand that this is the leading insurance claims event with an exciting programme for
insurers, loss adjusters, risk managers, claims industry specialists, suppliers and industry
associations. The Convention provides a platform for the relevant parties involved in
insurance claims to examine and deliberate on the growing challenges in insurance claims
with a view to formulate anti-fraud best practices in the insurance industry.
The global insurance industry as a whole remained resilient despite the deepening of the
global financial crisis in 2009 that is expected to potentially lead to more insurance fraud
cases. Whilst the decline in the financial markets has put significant pressure on insurers'
investment portfolios, the aggregate financial position of insurers remained strong to weather
the crisis. The financial sector in Malaysia, following a decade of financial reforms that
include strengthening the regulatory and supervisory framework, and building the domestic
financial infrastructure, is now bolstered by high capitalization levels, sound asset quality and
sustained profitability. As a result, it was well-positioned to weather the deterioration of the
external environment.
The structured development of the insurance industry over the years in particular, spurred on
by various capacity building initiatives, had yielded positive outcomes contributing to
continued growth. The performance of the insurance industry is expected to improve in 2010
on the back of the economic recovery and increasing awareness on the role of insurance as
a protection and financial planning tool. Improvements in the employment market, rising
disposable income and revival in economic activities will generate spins-off to the insurance
sector and create greater demand for insurance products. Nevertheless, the operating
environment for the insurance industry in 2010 is expected to remain challenging. Despite
the optimism on the economic and financial conditions as the financial markets continue to
stabilize in early 2010, the low-yield investment environment will continue to pose near-term
challenges for insurers. In the past, investment earnings had predominantly been relied upon
to offset any setback in insurers' underwriting performance but such expectations may be
altered in the near-term. The financial crisis is a clear reminder for insurers to return to basics
and focus on its core function of sound business underwriting.
The increasing intensity of climate change has heightened the vulnerability of the world at
large to natural disasters and extreme weather conditions. Tsunamis, volcanic ash and
earthquakes, not previously known to strike in generally thought "safe" zones have actually
occurred. Similarly, earthquakes and hurricanes have become more intense causing
multibillion dollar losses to the affected economies. Disaster risk reduction and disaster
management has thus become a focus of Governments to effectively reduce financial and
economic losses. In an industry that is exposed to risks both natural and man-made, this
Convention's theme of "Today's Risks, Tomorrow's Claims" is highly relevant especially with
regards to the challenges of insurance claims. There are three pertinent challenges that I can
think of this morning. Let me briefly share my thoughts on these challenges with you.
Firstly, the critical role of insurers in the various aspects of the claims management value
chain, that is, claims intimidation, fraud detection and prevention, claim assessment and
settlement, and complaint resolution are areas requiring close monitoring by insurers and,
where necessary, timely intervention to detect and prevent leakages. Insurers have to assess
their vulnerability and address the risk of fraud efficiently to reinforce a positive image of the
industry to the public. Customers must be kept informed of the progress of their claims and be
given clear explanation when a claim is rejected or not settled in full. Any delay or perceived
delay in claims processing, particularly for claimants in urgent need of compensation, may be
misconstrued as a deliberate attempt to delay claims settlement resulting in bad publicity and ill
repute for the insurance industry. Each insurer's claims management philosophy should
therefore set out the broad principles for providing high quality service standards. This
corporate claims philosophy should be documented and communicated to all staff for adoption
as a common corporate value that is perceptible to the public.
Secondly, the challenge of detecting and preventing insurance fraud, which is a crime
against all segments of society and not a victimless crime as perceived by many. Due to the
long supply chain and participation of numerous stakeholders, especially in the general
sector, insurance fraud is easily committed and is a major source of leakage for the industry,
thereby hiking up claims costs. Insurance fraudsters are also adept at hiding behind the
protective shield of jurisdictional boundaries. In this regard, the insurance industry can
leverage on the work of the US based International Association of Insurance Fraud Agencies
Inc., which plays an important role in tracking down the insurance fraudsters.
In order to mitigate insurance fraud in the industry, an effective claims information system is
critical to enable early detection of fraud. The infrastructure of such a system must support
the free exchange of information in a timely manner with access provided on an
enterprisewide scale for business intelligence function to facilitate the management and analysis of raw
data and the reporting of trends according to specific parameters. The reports would assist
insurers and loss adjusters in detecting and preventing insurance fraud and effectively
minimize leakages.
Thirdly, the challenge is in ensuring the health of the entire claims management value chain.
The complex nature of claims requires multiple parties with different skill sets and expertise as
well as efficiency in service delivery in order for the claimant to receive fair compensation
expediently. Misconceptions, suspicions and unnecessary disputes must be minimized for the
benefit of all parties. This can be achieved by greater collaboration between parties in the
claims management chain, beginning with the loss adjuster in the field to the insurer
processing the claims. An online electronic platform that supports the integration and alignment
of all the different claim processes should include mobile work units that allow loss adjusters to
capture and transmit information directly in the field. This platform can be an avenue for the
free exchange of information in a timely manner, thereby increasing transparency to an
otherwise convoluted process. Such sharing of information is to the mutual benefit of all who
are involved in ensuring a high level of integrity throughout the insurance industry.
In addition, insurers and loss adjusters should also focus on attracting and retaining
experienced talent that can be the first line of protection against fraudulent behavior. Loss
adjusters play a significant role as independent intermediaries in facilitating a fair and
reasonable compensation for the insured. Due to their investigative capacity, loss adjusters
are also in the best position to assist insurers in detecting and preventing fraud, thus
contributing significantly to the efficacy of the claims process as a whole.
In conclusion, allow me to reiterate the importance of the effective participation of all
stakeholders involved in each stage of claims management to ensure high claims service
standards and fair treatment of customers. Both insurers and loss adjusters must play their
respective roles in value-adding to the claims management process for the effective
functioning and positive image of the insurance industry in the long term.