Closing the insurance & family takaful protection gap

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KUALA LUMPUR (Oct 28): The Edge in its latest cover story reported that Malaysia is underinsured and without timely policy intervention, the odds look stacked against many who seek to protect themselves and their dependants against a rising number of risks and challenges.

In its cover story, the Edge’s Cindy Yeap wrote that while the total sum insured rose to RM1.96 billion in 2016 and the headline insurance penetration rate has hovered at about 55% for at least the past five years, the actual rate was only 35% in 2015 after eliminating multiple ownerships by the same policyholder, citing Bank Negara Malaysia.

While 35% of the population have at least some form of life insurance or family takaful policy, that does not necessarily reflect adequacy of protection, said the Edge.

The weekly said coverage of households in the bottom 40% (B40) income group is only 4%, according to Bank Negara Malaysia’s 2015 Financial Capability and Inclusion Demand Side Survey.

The magazine said affordability was the main reason for not buying a policy or allowing one to lapse.

It remains a key issue for respondents, according to a recent online survey by The Edge and iMoney Group.

The Edge said even among the insured, there is an estimated average protection gap of RM553,000 to RM723,000 per family, which is the amount needed for them to maintain their existing standard of living if a primary wage earner should pass away, according to the central bank’s Financial Stability and Payments Report 2016.

The report had cited a 2012 industry study on underinsurance in the country, said the weekly.

According to the study by the Life Insurance Association of Malaysia and Universiti Kebangsaan Malaysia, the probability of underinsurance is high at between 94% and 98%. The average protection gap is RM642,000 for families whose primary wage earner had some form of life insurance but zero medical insurance coverage, compared with RM723,000 for breadwinners without any life or medical insurance.

For each family member, the average protection gap was RM100,000 to RM150,000 — “quite far” from the per capita sum insured in Malaysia of about RM34,000, according to the 2012 study.

The RM553,000 protection gap for families whose breadwinner has some form of life and medical insurance (after taking into account savings) points to a sizeable inadequate insurance coverage, even though the real protection gap would be smaller if the family has more than one breadwinner or income provider. It could also be higher if the lost breadwinner is between 26 and 45 years old, for which the study found higher instances of underinsurance compared with other age groups.

For a better understanding of the insurance sector and the challenges faced by uninsured Malaysians, read the latest edition of the Edge for the week of Oct 30 – Nov 5 available at newsstands now, or save by subscribing to us for your print and/or digital copy. 

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