As part of our upcoming Malaysia Risk Report, we examine the challenges the country will have to overcome as it follows what its people hope is a path to prosperity

Bring a group of risk professionals together in one room and ask them what challenges they are currently dealing with, and you’re guaranteed to come out of it with a list as long as your arm. If you broaden the discussion to encompass the risks they think they’ll be facing in five or 10 years’ time, prepare to be regaled with many possible scenarios ranging from the relatively benign right through to the positively apocalyptic.

This is certainly the case in Malaysia, which is arguably one of the countries in south-east Asia most heavily impacted by globalisation. Economic uncertainty is making the future more of an unknown, and there is much talk about major investment in the region becoming a riskier proposition.

As JLT Malaysia chief executive Michael Leong (pictured) puts it, the country is on the road to major growth but faces some serious obstacles on the way. “Malaysia aims to escape the second-world chasm and join the league of high-income nations by 2020, but the biggest deterrent to this is the lack of skilled human capital,” Leong says.

Leong adds that there is growing demand for individuals with the required knowledge, skills and capabilities to succeed in globalised sectors. “Malaysia is one of the countries that is most affected by brain drain, a major problem in terms of delivering quality and specialised work through the utilisation of the appropriate talent, but also in terms of being unable to retain current local talent or attract foreign talent,” he says.

Marsh Malaysia chief executive CB Lim says this “war for talent” is not just an issue in Malaysia issue, “but a region-wide issue, placing an emphasis on employee health and benefits solutions”.

Faisha Shahriman, who is part of the risk-management division at Malaysia Airports Holdings, points out that when an employee leaves it has been traditionally viewed as the simple loss of a tangible asset. “[However], the impacts are far greater due to the loss of intangible assets such as his or her knowledge, experience and business relationships,” Shahriman says.

The head of group risk management at infrastructure and utility firm Kumpulan Perangsang Selangor, Nuranisah Anis, also lists among Malaysia’s emerging risks talent-pool constraint and competency gaps. He adds that people retention is especially important for the risk-management function. “I think management needs to understand the role of the risk-management department to ensure that the enterprise risk management (ERM) roll out is successful,” he advises.

Vice-president of group business assurance at Telekom Malaysia Mohamad Mohamad Zain agrees that there is a critical shortage of people who are able to manage new business risk. “As such, talent pinching will be a key risk,” he says. Staff retention, especially of risk managers with five to 10 years’ experience, will be a problem for many companies as other firms start establishing their own risk-management units, he says. “Rather than building the expertise in-house, buying over staff from other companies will continue due to the limited supply of qualified ERM practitioners.”

Mohd Zain sees the creation of top quality risk managers as essential to effectively deal with future risks. “Training on ERM is key in providing support from a practical and execution capacity,” he says. “There are still big gaps in risk-management education, hence a great opportunity for trainers in this area.”

Large-scale changes

One of the issues that risk managers in Malaysia are keeping a particularly keen eye on is the accumulation of manufacturing in China. “If something was to go wrong in China, not only Malaysia companies, I think global companies would be affected,” Mohd Zain says. Leong agrees that the growth pressures that the region is currently experiencing will have an impact on the risk landscape as they create large-scale changes over the next five years.

Leong says that this can be seen as either an opportunity or a threat, listing some of the new risks that he believes are likely to emerge as mismanaged urbanisation (leading to environmental damage and pollution, resource scarcity and price volatility, and utility failure and water-supply disruption); an ageing population (requiring retirement income support and acute and long-term care financing, seeing a shift from acute to chronic illnesses, and raising healthcare workforce issues); and corruption (incorporating governance failure, policy distortion and lack of competition).

The managing director of Howden Broking Group’s retail businesses in Asia, V Harikes, says that in his opinion one specific challenge ahead for the insurance industry is the expected liberalisation of Malaysia’s fire and motor insurance sector in 2016. “It is expected that prices will take a big plunge due to the intense competition among the market players,” he says. “Strong bargaining power by the customers is expected as they shop for the widest covers with the most competitive prices.” Harikes predicts that those insurers that make the first move will have a competitive edge over their competitors. “Business strategies will evolve around risk-based pricing, quality service, product innovations and a good delivery mechanism,” he says. “Market leaders will adopt a business model to differentiate themselves from the market norm and focus on niche market and profitable segments.”

Innovative approaches required

The need for organisations to embrace change and drive innovation is echoed by many of Malaysia’s risk professionals. Chemical Company of Malaysia’s senior manager of group risk management Hafsah Zainudin only hopes that local companies have a strong enough appetite for the risk that this entails. “Taking strategic investment risks that deeply reflect problems and opportunities to identify new approaches could ‘move the needle’ significantly for companies,” she says. Zainudin identifies areas such as “the green revolution, public health and climate change” in which bravery and innovative thinking will be required.

JLT’s Michael Leong believes that customers are becoming more demanding in Malaysia, and that there is a corresponding increase in the recognition of creativity and innovation. “In particular, customers demand products that are comprehensive, relevant, packed with user-friendly features, personalised and which come at a reasonable price,” he says. “An organisation’s failure to innovate can have an impact on the company’s resiliency over time and affect its sustainability.”

This is particularly apparent in the area of cyber risk. Marsh’s CB Lim believes that digital threat continues to be significant driver of the risk landscape in the medium term. “Companies are realising that the risks of cyber-attacks extend beyond just privacy breaches, but the revenue and reputation implications associated with a disruption,” Lim says. “Growth and expansion will drive greater demand for sophisticated and innovative risk management and insurance solutions, which is positive for the industry and insurance buyers.”

Lim points out that Bank Negara Malaysia is relaxing its rules on insurance companies and brokers. “[This will] allow them to be more innovative and productive in providing services and solutions to their clients and consumers amidst their continued role to police the financial health in the country.”

More articles, discussions and interviews from our series of country-focused risk reports are available at our Asia Risk Report hub.