Malaysia's insurance and takaful sector faces rising long-term risk from climate change, but analysts are of the view that the outlook remains positive according to a new sectoral report.
The newspaper, Borneo Post, cited the report that was published by MBSB Investment Bank, which said that the outlook remains positive as the sector’s tailwinds outweigh its headwinds. It added that climate-related physical damages, especially to property, escalated sharply over the past five years, following global trends.
The report said that flood events, especially, have resulted in losses of billions of Malaysian ringgit but insurance payouts remain relatively low as Malaysian Re has said that widespread floods in 2021 caused MYR6.1bn ($1.505bn) in losses but only MYR2bn of insurance payouts were made.
“The federal government instead has been increasing disaster relief spending and disaster preparedness budgets, which help smoothen the losses when insurance does not provide payouts; however, this distorts the market, thus keeping premiums artificially low and public expectations high,” said the MBSB report.
In addition, the private insurance sector has been criticised for not pulling its weight and may likely be under increased scrutiny as catastrophe damages continue to ramp up. “This will be especially true if flood damages to property start to erode banking asset quality and recovery ability.”
MBSB notes that the Persatuan Insurans Am Malaysia (PIAM or General Insurance Assocation of Malaysia) has suggested that a key solution to managing such losses would be to raise awareness of flood and natural disaster coverage options for homeowners given that over 50% of households remain uninsured against fire and natural disasters. In Malaysia, flood coverage is usually an optional add-on to fire insurance policies.
Looking ahead, the MBSB report outlined several possible outcomes if catastrophic losses continue to rise, including tighter reinsurance terms, higher premiums, stricter underwriting standards and greater government intervention.