Malaysia has sufficient capacity for flood insurance
However, unaffordability remains a tall hurdle.
Underinsurance for flood risk areas is one of the major challenges in Malaysia however according to Malaysia Re, the capacity for insurance and reinsurance is sufficient despite low penetration.
According to Zainudin Ishak, President and CEO of Malaysian Re unaffordability is one of the major barriers for many Malaysians.
“The cost for flood insurance is rather nominal. The cover is available as an extension to the standard fire police and costs about 0.086% of the sum-insured. Still, in the personal lines, the pricing of the risk is perceived as high and is often only purchased in flood-prone regions or following recent events,” Ishak said.
In their research, around 5 million Malaysians live in flood-prone areas. Malaysia Re found out that less than 25% of homeowners are flood insured. Additionally, only 5% of vehicles in flood-prone areas are insured against flood.
According to Ishak, the demand for flood cover is greatly influenced by the government’s support of the country’s low-income segment for the loss caused by a disaster. Currently, the Malaysian government assumes the role of an insurer of last resort.
“Although it budgets for these kinds of events, there is a high consensus that historically the government’s bail-out measures have been insufficient to compensate the lower income sections for its losses. Malaysia’s large corporations and public institutions, by contrast, are seen to recognize the risk, whilst SMEs and consumers tend to underestimate it,” Ishak said.
Supply-side shortcomings are rare. Capacity only tightens in flood-prone areas that are mostly inhabited by the country’s low-income population. Flood models have greatly improved and although they might still lack granularity, their availability is continuously improving with vendor models now complementing the most widely used broker and reinsurer models.
“From an insurance point of view, there is a need to push for a deeper discussion to find a solution to better cover the country’s flood risk by bringing together the insurance sector, the regulator, Malaysia’s Natural Disaster Management Agency, and the government. Whilst previously, the focus had been on developing a coverage which foremost addressed the exposure of the lower-income segments of Malaysia’s population, the current wholesome solutions aim to provide faster protection to consumers and encompass all parts of society or policyholders,” Ishak added.
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