Malaysia: SME face underinsurance risk
Source: Asia Insurance Review | Jan 2019
There is a clear trend of underinsurance in Malaysia because the vast majority of policyholders do not increase the value of sum insured annually, despite rising inflation and appreciation of assets over time, notes AIG Malaysia Insurance.
Rising business costs and increased domestic competition, coupled with regional trade market turbulence, all pose challenges to small and medium enterprises (SMEs) turning a profit.
As a result, entrepreneurs tend not to prioritise insurance and risk management, exposing the business to unforeseen financial losses arising from incidences such as fire, flood or theft, said Mr Krishna Moorthi Sri Ramalu, SME head at AIG Malaysia Insurance, in an article in the Malaysian Reserve.
Claims data from AIG shows fire risk is the most significant risk for SMEs in Malaysia, accounting for a majority of SME claims in the recent years. Fire losses also increased y-o-y in 2017 in both claims count and claims amount.
In addition, over 85% of SMEs are exposed to business interruptions from fire or property damage as they are not adequately covered. Despite these alarming figures, only close to 15% chose to buy business interruption insurance.
With only close to 15% of insured policyholders having purchased flood cover, the low take-up rate raises concerns on whether SMEs fully comprehend the risk of natural disasters to their business continuity. Burglary, or theft, is also a common insurance business claim. In the last three years, 15% of total SME claims were for burglary. A