Speech by Parliamentary Opposition Leader, DAP Secretary-General and MP for Tanjung, Lim Kit Siang, in the Dewan Rakyat on Thursday, 14th July 1994 on the Insurance Amendment Bill
DAP calls for a full inquiry into Bank Negara’s six-year record as the supervisory guardian of the insurance industry
DAP calls for a full inquiry into Bank Negara’s six-year record as the supervisory guardian fo the insurance industry
Mercantile Insurance Sdn. Bhd. is the third insurance company to be liquidated, after the First General Insurance Sdn. Bhd. (FGI) in 1977 and the SEG Insurance Sdn. Bhd. (SEG) IN 1988.
The whole purpose of placing the insurance industry under the supervision of Bank Negara in May 1988 is to put the insurance industry on a firm footing to effectively meet the growing insurance needs of the public.
The liquidation of Mercantile Insurance Sdn. Bhd. six years after the Bank Negara had assumed supervisory responsibility over the insurance industry must be regarded as a major failure of Bank Negara.
Mercantile Insurance Sdn. Bhd. was the ‘king’ of the motor industry, controlling about 30 per cent of the country’s market share in motor insurance.
If the Mercantile Insurance Sdn. Bhd. was in such a bad financial mess, why did the Bank Negara take three years after it had assumed supervisory responsibility over the insurance industry to realise the magnitude of the problem and only took over Mercantile Insurance Sdn. Bhd. in March 1991?
It is clear that Bank Negara as Director-General of insurance must bear responsibility for its failure to take earlier actions against Mercantile Insurance Sdn. Bhd., in view of its pre-eminent position as ‘king’ of the motor insurance industry, to protect the interests of the policyholders.
Bank Negara again failed in its responsibility to the public when after its take-over the Mercantile Insurance Sdn. Bhd. in March 1991, the Bank Negara’s appointees gave a public assurance of ‘business as usual’ and even urge agents to reassures policyholders who wanted to cancel their policies of the financial stability of Mercantile Insurance. “Mercantile Insurance can and will undertake to meet its obligations”, they declared!
In its 1991 report released in March 1992, the Director-General of Insurance said hat the take-over of Mercantile was “part of Bank Negara’s overall strategy to rehabilitate ailing and delinquent insurers” and that although the final results of the action taken against Mercantile might only be seen by 1993, “the situation could only get better under the new management”.
Such assurance was even given in the 1993 Report of the Director-General of Insurance made public in March this year.
Thus, in the forward of the Bank Negara Governor dated 1st March 1994, the then Bank Negara Governor, Tan Sri Jaffar Hussein gave the public the impression that the solvency problem of Mercantile Insurance was being resolved when he said: “The solvency margin of the insurers improved in 1992 as a result of their enhanced capital bases, as well as better operating results.”
On the basis of this assurance by Bank Negara, the public bought new or renewed motor insurance policies from 1992 until May 17, 1994.
When Bank Negara liquidates Mercantile Insurance Sdn. Bhd. leaving the 264,000 policy holders and 43,000 claimants in the lurch, it is Bank Negara and not the Mercantile shareholders who had failed them.
When the Finance Minister, Datuk Seri Anwar Ibrahim, announced on 29th March 1991the take-over of Mercantile Insurance Sdn. Bhd. by Bank Negara, the country was told that Mercantile had about 500,000 policyholders. It is only on May 17 this year, some three years later, that the country is informed that Mercantile actually had about 800,000 policyholders during the Bank Negara takeover.
How could such a colossal blunder be ,made by Bank Negara?
In November 1992, Bank Negara called upon the Mercantile shareholders to bring in fresh capital of RM556.2 million to rectify the solvency deficiency as at December 31, 1991, but they had failed to do so.
Seventeen months later, on May 17, 1994, Bank Negara again called on the Mercantile shareholders to inject RM383.4 million to rectify its solvency deficiency.
What did the Bank Negara do in the intervening 17 months to protect the interests of the policyholders and the public?
Bank Negara now explains that Mercantile was experiencing a slow and painful death, and its position become more critical in the second half of 1993 and early 1994 when its cash flow position deteriorated alarmingly.
If the financial crisis at the Mercantile had been so critical for so long, then why didn’t Bank Negara have the foresight to table the present Insurance Act amendment bill to Parliament last year or latest in the last Parliamentary meeting in April – so as to give better protection to the policyholders and the public?
Ever since its takeover of Mercantile Insurance in March 1991, Bank Negara had been talking about drafting a comprehensive revised insurance law to improve the operating efficiency of insurers with better accountability.
Such a comprehensive revised insurance law has not sen the light of the day – and it is poor reflection on Bank Negara that it had not been able to present the present amendment earlier to give better protection to policyholders and the public.
The Parliamentary Secretary to the Finance Ministry, Datuk Dr. Affifudin Omar told Parliament two days ago that Bank Negara had lodged police reports in connection with its investigations into Mercantile Insurance Sdn. Bhd.
Why has Bank Negara taken such an inordinately long time – more than three years – to institute action against those responsible for misappropriations, criminal breach of trust and mismanagement as to create the massive Mercantile Insurance Sdn. Bhd. scandal.
When did Bank Negara lodge the police reports and what are the police doing about it? Is it because a former MCA Deputy Minister was Chairman of Mercantile Insurance Sdn. Bhd. that Mercantile Insurance was given special treatment?
I am still waiting for instance for the Bank Negara’s investigations into the Rakyat Mercant Bankers’ Berhad, especially with regard to 110 phantom accounts involving RM330 million – involving influential UMNO leaders as well as Tan Sris.
Why is the Bank Negara so slow with its investigations?