PETALING JAYA: Last year’s great flood from Dec 16-21 caused economic losses of RM5.3 billion to RM6.5 billion, according to Malaysian Reinsurance Bhd’s (Malaysian Re) latest publication Malaysian Insurance Highlights (MIH 2021) that examines the impact of flooding on the Malaysian economy and insurance markets.
MIH 2021 explores the major challenge of underinsured flood risk in Malaysia whereby on average only about 10% of economic losses are covered. The publication revealed that Malaysia’s insurers shouldered about RM1.5-2 billion (US$360-480 million) or 20% to 30% of the economic losses as a high share of manufacturing properties were hit in the Federal Territory of Kuala Lumpur and Selangor.
Malaysian Re president and CEO Zainudin Ishak said the cost for flood insurance is rather nominal. The cover is available as an extension to the standard fire policy and costs about 0.086% of the sum-insured. 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.
“Mostly homeowners are insured as the banks arrange the cover as part of the mortgage. The lower-income segment of the population, who run a high flood exposure, rely on the government in case of a loss. In the recent flood it supported the people affected with a financial contribution of RM1.4 billion. Currently, we are working with Bank Negara Malaysia (BNM) and Malaysia’s National Disaster Management Agency (Nadma) to develop a solution that ties together those who can afford to insure with those who cannot,” said Zainudin in a statement in conjunction with the launch of the MIH 2021.
MIH 2021 accentuates the need to address the protection gap as flood risk increases, where the demand for flood cover is influenced by the government’s support of the country’s low-income segment for the loss caused by a disaster. This third edition of the MIH also states that the December flood has impacted the pricing for flood coverage in Malaysia’s insurance markets. Insurers are also expected to review their reinsurance structures to ensure they have sufficient coverages in place, due to the changing in understanding of flood risk in Malaysia.
“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 (BNM), Nadma and the government. While 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,” added Zainudin.
MIH 2021 was published in partnership with Faber Consulting AG, a Zurich-based research, communication, and business development consultancy. The findings of MIH 2021 are based on structured interviews with more than 24 executives representing 22 Malaysian insurers, reinsurers, intermediaries, and trade associations.
Zainudin said it has seen last year and in recent months how the livelihood and properties of people and communities across the nation were severely impacted by the flood catastrophe at unprecedented scale and unusual timings.
“The region grapples with the consequences of man-made climate change which has caused greater severity and frequency of floods. Hence, the topic of our publication this year came in timely, and we hope that it will provide an assessment of the current flood risk in Malaysia as well as its main trends and developments.”