A Matter of Risk: Insurance in Malaysia, 1826-1990

Chapter 10: Consolidation of the Insurance Industry, 1948–65

392 A Matter of Risk CHAPTER 10 Consolidation of the Insurance Industry, 1948–65 Amidst political changes in Malaya and the region, 1948−65 was a period of transition for the insurance industry. Political uncertainties in surrounding states were as much a concern to some insurers. There was conflict in China, French Indo-China and later in the Korean Peninsula. In neighbouring Indonesia, Republican forces were resisting the return of the Dutch, and there was ethnic tension in Ceylon. These events affected insurance investments and business, as several insurance companies in Malaya had operations elsewhere in the region. The Korean War lifted commodity prices around the world, particularly for tin and rubber, which led to some early difficulties for insurance. Then there was the constitutional transition in Malaya; and insurance companies, especially foreign ones, had to adapt to changing political and business expectations. Many returning companies had rebuilt their business beyond pre-war levels, while new companies were established. Among the new companies were local ones set up in the Federation of Malaya and Singapore. With the growth in the number of insurance companies, there was pressure on the insurance associations to adjust to the new business environment. Where insurance associations had previously represented mainly overseas insurers’ interests, they now reflected a more local and national concern. Insurance associations still had to contend with non-tariff competition; and in this, they continued to work with the influential London tariff associations. The government began to turn its attention to the insurance industry. As a start, it amended the Workmen’s Compensation Scheme in the context of the Emergency and rising living costs. 392 Consolidation of the Insurance Industry, 1948–65 393 Developments in the Region Insurance companies, including overseas ones with offices in Malaya, experienced anxiety over reports of fighting in the former Dutch colony. Just before the end of the Second World War, Dutch, British and other foreign insurers pooled their resources to provide insurance facilities for Indonesia under an arrangement similar to the Malayan Insurance Group planned in London. The “Bataviasche Versekering Unie”, or Batavia Insurance Pool, functioned for several years amidst serious military actions that were disruptive to economic activities in Java and other parts of the country.1 According to a Post Magazine report, several British insurers were underwriting accident insurance in Indonesia. British insurers, including those based in Malaya, held a significant share of estate insurance there. Tobacco and other estate produce was insured under marine policies on a crop contract basis and reinsured with fire offices, while estate buildings were insured for fire. Much of the business was obtained on the Amsterdam market, although some was contracted in Singapore or Penang. In 1949 there were reports that fighting had led to the destruction of about 80 per cent of the tobacco crop in Indonesia, with losses estimated at some £1.6 million. Given the unsettled situation, the insurance of estates was no longer regarded as attractive. And with the security situation deteriorating, a number of insurance companies were leaving out the riot and civil commotion clauses. Some reinsurance was placed with fire companies, mainly for estate buildings and other risks on land. Only with the end of fighting between the Dutch and Republican forces was the Batavia Insurance Pool ended.2 However, there were still political uncertainties in Indonesia, especially with unresolved issues in Netherlands-Indonesia relations. In December 1957, the Indonesian government seized 40 Dutch ships in retaliation against continued Dutch control of West Irian. Most of these ships were insured with Lloyd’s of London under policies that would force them to be declared a total loss if they were detained longer than four months. The huge losses would wipe out a number of Lloyd’s underwriters and undermine the worldwide insurance market. That could leave many international risks uninsured and have repercussions on international trade and shipping. On this occasion the British government was unwilling to intervene, while the Dutch government could do little. It was left to Lloyd’s to send a delegation to convince the Jakarta government that the detention of the ships was harming British interests as well. Just as it appeared that the insurers would miss the deadline, the Indonesian government relented and released the ships.3 Elsewhere in the region, insurance business was still difficult. In Japan, British insurers in 1950 continued to be part of a pool of insurers called the 394 A Matter...