Muhammad bin Ibrahim: De-risking Asia - the growing role of selfinsurance Keynote address by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Asian Captive Conference 2017 "De-Risking Asia: The Growing Role of Self-Insurance" Kuala Lumpur, 16 August 2017. * * * It is probably fair to say that captives have had, at best, an uneasy relationship with regulators. Captive insurance did not get off on the right foot with regulators. In the early days of the modern captive, efforts to regulate captives were mostly ill-suited to the nature of the captive business. Prudential and market conduct regulations intended for the protection of the general public were applied equally to traditional and captive insurers. This reduces the cost savings that captives were set up to achieve. In response, captives relocated and domiciled in jurisdictions with less onerous regulations, which on hindsight is an onerous consequence. Fast-forward half a century, captives are have an entrenched reputation for being tax evasion vehicles of large corporations. Offshore centers that are hosts to many captives have come under greater scrutiny, with stronger tax and regulatory regimes back on the cards to haunt the industry. We seem to have come full circle, and possibly still without a clear grasp of how captives, as well as the economics in which they operate, have fundamentally changed over time. This raises a risk that the captive and regulatory community may yet find itself caught wrong-footed (again! ), with potentially higher stakes at hand.
As disruptors, their business models and risk profiles, are often unique. Much of their competitive edge is derived from concepts and technologies that are new to the market. Ride-sharing platforms such as Uber and Grab are built on seamless apps that work exactly the same whether in London, New York or Kuala Lumpur. From an insurance perspective, however, trans-border solutions for such businesses are substantially more complicated. The ride-sharing model combines private vehicles with commercial use. The seamless insurance coverage for Uber drivers that integrates exposures from private and commercial use, and satisfy the mandatory requirements under different domestic laws, are not yet fully developed in all markets. This example calls for bespoke and efficient solutions which may not be readily available in certain traditional insurance markets. To put this in perspective, Google has projected that Southeast Asia’s web-generated business will multiply over 6 times to $ billion by 2025, from $ billion in 2015. The massive impact of technology on the world as we know it, will create new insurance gaps and demand for bespoke solutions. This will set the stage for captives to take on a more active role in the risk management ecosystem. Companies that are altering the business landscape will need creative and efficient risk transfer solutions that address their unique business needs. Used alongside other risk management strategies, including the traditional insurance market, captives allow companies to design an optimal risk transfer structure.