Regulation: a risk manager’s friend

Five hundred years ago, the South-East Asian coastal area around Malacca became of strategic significance when it was conquered by Portugal.

Malacca kept this prized status when it was subsequently taken over by the Dutch in 1641 and later Britain, following the 1824 Anglo-Dutch Treaty.

Today the state of Malacca is a World Heritage site and one of now-independent Malaysia’s most important destinations for tourists who want to peer into the country’s rich history, sample its fascinating culture, or simply take a ride on one of its unique brightly coloured bicycle rickshaws.

For two days in September, Malacca was also home to about 100 key risk management professionals, as the Malaysian Association of Risk and Insurance Management (Marim) hosted its annual conference.

They had plenty to discuss in terms of risk as both a threat and an opportunity, as StrategicRISK discovered when it hosted a lively roundtable at the event with a group of Malaysia’s leading risk managers.

There was consensus on several points. For many, dealing with the growing amount of regulation now faced by business is a key issue and most see this in a positive way.

While compliance is sometimes complicated, risk professionals in Malaysia do not consider regulation to be a hindrance. Instead, they are encouraged by the fact that regulation has, in general, led to better board engagement.

Malaysia Airports Holdings head of risk management Zalina Jaflus explains: “Risk management is often about changing the business culture. But compliance with regulatory changes from the government makes it easier for risk managers to implement and enforce matters. Some risk managers look on regulatory compliance as an opportunity to put their ideas across and also to ensure commitment from their boards.

“While the board will always give its support to these initiatives it is usually the line managers who are more challenging for risk managers to deal with, as they have a lot of other things to do. Risk management is another obstacle for them. So when they see that what they need to do is mandatory, it makes it easier for us.”

Chemical Company Malaysia head of enterprise risk management Hafsah Ahmad agrees. “We have seen the board taking on regulation and pushing governance through instead of leaving risk managers to fight our way,” she says. “Regulation to an extent may be positively viewed as a barrier to entry. However, when changes are constantly imposed they are not always welcomed as they tie up management resources and curb productivity and growth.”

Compliance with regulation

Marim chairman and Telekom Malaysia group business assurance vice-president Mohamad Bin Mohd Zain (pictured) refers to certain regulatory aspects as being a “double-edged sword”.

“Regulation can be an opportunity, but it is also a wider monster as it can also open up barriers to entry. It can provide an opportunity for us to move, improve and innovate, but when it comes to regulatory issues, there is always greater lenience towards new entrants to the market, but a price has to be paid by the incumbents.

“Regulation is healthy, but it has to be done on the right footing.” While primarily positive, Bin Mohd Zain also recognises how time-consuming compliance can be for risk managers.

“We must keep our knowledge base up to date with the latest regulatory changes, which is sometimes difficult when we have so many to comply with – up to 40 at any one time in Malaysia alone – and this is without all the ones impacting on our operations outside the country.”

But he also has a solution: “The best thing risk managers can do is to engage more with the regulators.”

Malaysia is in relatively good shape economically, despite the downturn aff ecting western economies and which is now starting to affect some nations in Asia.

The country enjoyed 6% growth in the three years between 2009 and 2012, according to Bloomberg. And while this has slowed recently, Malaysia will still record 4.5% to 5% growth this year, with the promise of more in 2014.

As the third largest economy in South-East Asia, Malaysia remains strong, but its future also depends on its businesses staying relevant, and failure to innovate is a worry for a number of risk managers.

Telecoms firm Maxis Berhad’s head of business continuity and insurance Bernard Lee says: “There is always a fear that we are not innovating fast enough.”

For Lee the solution is to bring in new personnel “who can see the future and who know what might be out there”, although he admits this is “something which is really hard to manage”.

He adds: “We have a team that focuses on new technology, but innovation change is definitely something that can keep management awake at night. Look at what has happened to Nokia compared with where it was 10 years ago – no one is safe.”

Some risk managers are critical of the insurance industry for failing to provide adequate support structures for those businesses taking a strategic risk through innovation. But for others, solutions lie elsewhere, if only risk professionals and businesses would seek them out.

Bin Mohd Zain says: “The insurance market is still heavy on pure risk rather than speculative risk. This is not restricted to Malaysia, but also beyond. Most innovation is on the speculative side. So we can go back to the traditional insurance market. But insurance is only one solution to the many facets of risk, and we cannot see insurance as the only tool with which to manage risk.”

Be proactive to pre-empt problems

When a business is looking to innovate, quantifying exposures and potential losses can be tricky, but it is not impossible to calculate, according to Zurich Global Corporate global relationship leader Steve Robertson. The issue is what happens next.

“The numbers are so big,” says Robertson. “It means a huge amount of capacity for financial institutions and it also comes at a price.”

Instead, companies should look for assistance from insurers in other ways, according to Zurich Global Corporate regional head of IPZ customer, distribution and marketing, Asia-Pacific, Dylan Bryant.

“Insurers are not just there to transfer the risk, they are also very good at managing and mitigating those risks, something that is still just emerging in Asia,” Bryant says.