KUALA LUMPUR (March 30): Despite a higher level of coverage relative to earlier periods, the December 2021 floods highlighted the significant underinsurance of flood risks, according to Bank Negara Malaysia’s (BNM) latest report.
Data from BNM in its Financial Stability Review for the second half of 2021 on Wednesday (March 30) said the overall economic losses from the December flood events were estimated at RM6.1 billion.
This comprises losses involving public assets and infrastructure (33%), homes (26%), the commercial sector (25%) and vehicles (16%).
However, only RM2.2 billion or 36% of the total were insured or covered, of which 82% were from the commercial sector where coverage levels were generally high.
“Despite coverage against floods becoming more affordable in tandem with the phased liberalisation of motor and fire tariffs, significant gaps remain in flood insurance/takaful protection, particularly among households,” BNM said.
“Only 11% and 16% of motor comprehensive insurance policies/takaful certificates nationwide and in flood-prone areas respectively have flood cover,” it added.
According to BNM, surveys also suggested that many households may not have any form of insurance/takaful cover for their homes, with even less coverage for flood-related losses.
Underinsurance in flood insurance or takaful protection remains prevalent despite a variety of products available in the market, possibly due to a lack of awareness of the availability and utility of such products, BNM said.
This is despite the general reduction in rates that has followed the phased liberalisation of motor and fire tariffs.
Meanwhile, BNM said the large losses during the recent floods are expected to lead to hardening of reinsurance premium or retakaful contribution rates for flood-related cover over the near term.
“This may result in a recalibration by ITOs (insurers and takaful operators) to optimise arrangements for the changing risk profile,” BNM said.
Read more stories from the BNM Annual Report 2021 here.