GOOD MORNING, SHAH ALAM
From his perspective in the third row, John Treme
could make out the colorful costumes and motions
of the dancers below him.
Treme, the risk manager for Vitalex, a
pharmaceutical manufacturer based in Pennsylvania,
was attending a performance of Joget Lambak, a
traditional dance of Malaysia. The occasion was the
grand opening of a Vitalex factory in Shah Alam, one
of Malaysia’s manufacturing cities.
Normally, Treme wouldn’t be at an event like
this. But he’d been conducting some business with
a local insurance partner and happened to be in
country on the event date: In other words, the
timing was right for him to get a ticket.
Treme might’ve been feeling kind of lucky — but
To a focused, open observer, the movements
of the assembled dancers and the music of their
accompanying musicians were mesmerizing. John
Treme, however, was a man easily distracted by
his vivid imagination, combined with a razor-sharp
memory that wouldn’t leave him alone.
As Treme watched the dancers, a strong, steady
breeze, laden with moisture, passed through the
“Breeze … storm … tropical storm … typhoon.”
Treme’s overactive mind skipped through the severity
escalations unbidden. It was just what his brain did.
His brain also harassed him with the memory
of his instructions from treasury when he’d been
sent to bind the property coverage for the factory
in Shah Alam.
some fairly tense discussions with Terra Firma Ltd.,
a U.S.-based carrier with an A+ rating, which had
been on Vitalex’s program for years, long before he
came to work for the company.
The Vitalex facility in Shah Alam cost $250
million to build. Against some rather stiff resistance
from the underwriters at Terra Firma and Vitalex’s
broker, Treme prevailed in placing a $5 million
property policy to cover the facility.
The reasoning from the Vitalex C-suite was that
the company’s layers of reinsurance on its master
global program were robust enough to pick up any
slack should the Shah Alam factory suffer a sizable
loss. And there was that aforementioned shield
of good fortune the company deluded itself into
thinking would last forever.
John Treme was two hours back in country and
in his hotel, preparing to visit the typhoon-ravaged
Shah Alam factory when he got a disturbing text
“Please get here ASAP. I have bureaucrats on my
It was from Smitty Fields.
When Treme got to the factory, the damage the
facility suffered was clearly visible. Siding was torn
off three-quarters of the manufacturing space and
parts of the roof appeared to be missing. And that
was just on a cursory glimpse. Happily, or perhaps
unhappily, some of the office space appeared to be
There were two matching black SUVs parked
conspicuously near the front entrance. When Treme
got to Smitty Field’s office, the men who drove those
SUVs were waiting.
“The cavalry’s here,” Smitty said with something
resembling a smile when John walked into the office.
John barely had time to shoot Smitty a
questioning look before Sam Yei spoke.
“You are Mr. Treme, correct?” Mr. Yei asked.
“Yes, I am,” Treme said. “How can I help you
Ben Razak consulted a file briefly before
A U.S. pharmacy company with ambitions in Asia sees its prospects hindered when a typhoon exposes the inadequacies of its local insurance
policies. Relationships between the insured, the carrier and the broker become
strained to the breaking point when regulators in Malaysia view the company’s
risk transfer approach with a jaundiced eye. BY DAN REYNOLDS
“Just get us some basic property coverage with
a local partner; we’ll let the global master property
program handle the overflow if there ever is any,”
the company treasurer told Treme at the time.
That put Treme in a tough spot. It went against
his nature to not do as he was bidden. Still, the idea
of “basic” coverage in typhoon country gave him
“What if something happens?” he asked himself
when he couldn’t sleep at night.
“What if we get hit?”
“What are we doing in Malaysia in the first
place?” he asked himself in his weaker moments.
He very well knew what Vitalex was doing in
The company had the right specialty with its
focus on products in oncological medicine.
Pharmaceutical products in that area were high-growth. But sales in the mature markets like the
U.S. and Europe were flat. If Vitalex was going to
succeed in the highly competitive world of global
pharmacy sales, it needed to move aggressively into
high-growth markets like Asia.
It also needed to keep costs down, hence the
treasurer’s concerns about what he perceived as
duplicative or redundant insurance coverages.
A colorful flourish by one of the dancers and
a particularly loud sequence from the Malaysian
drummers brought Treme back into the moment,
somewhat. He reassured himself by counting the
offshore layers of reinsurance that Vitalex had on its
master global program.
“We’re going to be okay,” he said softly, but still
out loud. One of his co-executives looked over at
him with concern.
As it turned out, John Treme’s worries were
justified. It was really just a matter of time.
Eighteen months after the Vitalex factory in Shah
Alam began production, Typhoon Ahayan roared
up the Straits of Johor, packing wind
speeds of more than 100 miles per
hour. The typhoon slammed directly
into Shah Alam, causing substantial
wind and water damage to Vitalex’s
“How bad is it?” Treme asked
the plant’s manager, when power
was restored sufficiently for phone
service, two days after the storm.
“You better get over here,” said
Smitty Fields, the plant manager.
A MORTAL BLOW
Due to a nice run of luck, Vitalex
thought of themselves as the chosen
ones due to their long string of
uninterrupted business with no major
In placing the coverage for the
Shah Alam factory, Treme engaged in