Comment by V.K. Chin

                  THE on-going restructuring of commercial banks, finance companies and
                  merchant banks should act as a wake-up call for the insurance and stock
                  broking industries.

                  The speed with which the Government is undertaking this massive exercise
                  shows that it will tolerate no nonsense from the players involved.

                  The message is: either do it voluntarily or the relevant regulatory authorities will
                  have to step in to sort things out.

                  There are just as many insurance companies as there are banks, finance
                  companies and merchant banks.

                  Many of them are really small in terms of capitalisation and should sell or
                  merge with bigger groups.

                  In spite of Bank Negara's best efforts to get them in the past to inject more
                  capital into their operations, the insurers concerned have not been very
                  responsive.

                  In fact, some of them have adopted a very negative attitude towards any reform
                  and do not seem to be too worried about possible action which can be taken
                  against them.

                  In the banking sector, the problem is non-performing loans while in the
                  insurance industry, the bane of its members is excessive claims, especially
                  where general insurers are concerned.

                  In the insurance business, apart from mismanagement, there is also the
                  problem of malpractice involving improper use of funds as well as false or
                  inflated claims.

                  Many of the insurers are too small to survive on their own and it will be too
                  much to expect them to just close shop as they have many customers as well.

                  If they should have to close for financial reasons, then many of their
                  policy-holders will be left in the lurch and this will create a lot of problems all
                  round.

                  Those facing such financial difficulties are in this position usually because of
                  mismanagement as some of the major shareholders are really not interested in
                  the insurance business.

                  They are in it mainly because they wish to use these companies as a cash cow
                  as hundreds of millions of ringgit in premiums can be collected on a yearly
                  basis.

                  All local insurers, both life and general, are heavily dependent on reinsurers and
                  other arrangements to farm out their policies, retaining only a small portion of
                  the premiums.

                  These reinsurers are all major foreign companies with vast financial resources
                  and expertise to absorb claims which may arise, irrespective of the amount
                  involved.

                  Without such outside assistance, most of the local insurers will not be able to
                  carry on with their operations as a sizeable motor or fire claim is sufficient to
                  cause a big dent in their finances.

                  Merging the insurance companies may therefore be more difficult than getting
                  the other financial institutions to group together.

                  The Director-General of Insurance, who is also the Governor of Bank Negara,
                  will need to step in to sort things out.