Malaysia: Majority of SMEs lack Nat CAT insurance
Source: Asia Insurance Review | Aug 2019
The low level of Nat CAT insurance take-up by small and medium sized enterprises (SMEs) has raised questions over whether these entities fully comprehend the risk and consequences of natural disasters to their business continuity.
For instance, according to AIG Malaysia Insurance data, only 15% of insured policyholders have purchased flood cover. This means that more than 80% of SMEs have no coverage against flood peril.
This is despite the fact that in recent years, floods have become more common in cities such as Kuala Lumpur, Penang and Kuching. A study published by the Department of Irrigation and Drainage suggested that some of the main causes of flooding in the country include increased runoff rates due to urbanisation, inadequate drainage systems, siltation in waterway channels and localised continuous heavy rainfall.
Last November, AIG Malaysia Insurance said that statistics showed a clear trend of underinsurance as a vast majority of policyholders did not increase the value of sum insured annually, despite rising inflation and appreciation of assets over time.
Based on data gathered by AIG, over 85% of SMEs are exposed to business interruptions from fire or property damage as they are not adequately covered. In 2017, the Malaysian Fire and Rescue Department recorded MYR5.2bn ($1.27bn) in losses from fire nationwide.
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 last three years. Despite these alarming figures, only close to 15% chose to buy business interruption insurance, also commonly known as consequential loss cover. A