Muhammad bin Ibrahim: Towards resilience - are we on the right path? Keynote address by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Malaysian Insurance Summit (MIS) 2017 "Towards Resilience: Are We on the Right Path? ", Kuala Lumpur, 30 October 2017. * * * Nearly 30 years ago, the Governor of Bank Negara Malaysia highlighted several challenges facing the insurance industry in Malaysia at the “Malaysian Insurance Industry Seminar” organised by the Malaysian Insurance Institute (MII). He made four observations in his speech: Insurance companies accounted for only 3% of the assets of the Malaysian financial system. Only 1 in 10 Malaysians had a life insurance policy. Foreign insurers were at best, agents for their head offices. There was no urgency to develop local underwriting and management expertise. Due to lack of local technical expertise, the sector was significantly dependent on the international reinsurance market. This in turn curtailed the development of local expertise, perpetuating a vicious cycle. A “Stock-take” on the Insurance and Takaful Industry’s achievements and shortcomings In the decades since, the Bank has implemented major reforms to strengthen market participation, improve transparency and professionalism in sales practices, and encourage the development of domestic underwriting capacity to optimise retention of reinsurance and specialised risks. In 2009, foreign equity participation in the sector was liberalised further. After almost three decades of BNM taking over the task of regulating the insurance industry, it is worth for us to do a brief stock take.

The repatriation of funds will be even larger if we compute the amount over a longer period. Such arrangements are extractive in nature, and will have longer term implications for the development of a strong domestic industry. We need higher reinvestment by insurers to support the protection and risk management needs of our population and businesses. Intra-group reinsurance arrangements have also resulted in unnecessary outflows when such risks are well within the capacity of the onshore market. A handful of insurers have continued to disregard arrangements that have been put in place to optimise onshore capacity, ceding large amounts to group reinsurers. This is not an acceptable behaviour. It must change. Going forward, we expect insurers to review these practices and fully support optimisation arrangements. In parallel, more must be done to develop domestic underwriting expertise, especially in specialist risks. More must be done to create high income jobs. More needs to be done to improve remuneration packages at entry and middle levels, to attract young talents and retain expertise. The data we collated is stark. It is a clear conclusion. The data points to a prolonged underinvestment in talent, with fewer than 1 in 10 of the industry workforce today having any form of professional qualification. From another angle, the industry has yet to realise its potential, in part due to a lack of long-term commitment from domestic shareholders. The industry needs domestic shareholders that have a long term outlook and can support the deepening of our market.