Reinsurers and insurers play vital roles in funding financial coverage during natural tragedies such as floods. Find out more now.
Flood is considered the worst and most frequent disaster in Malaysia, causing the highest average annual losses. Unfortunately, this is evident in the recent flood of December 2021, resulting in the deaths of 50 people, displacing more than 120,000, and causing an estimated economic loss of damage of RM5.3 billion to RM6.5 billion.
This article highlights the importance of reinsurance in supporting insurers with the necessary resources to cope with similar future events.
Insurers Burden the Losses of Flooding
During the recent flood, Malaysian insurers and reinsurers have proven that they have sufficient capacity to meet the risk of flood, where around RM1.5 billion to RM2 billion was shouldered by Malaysia’s insurers, or around 20% to 30% of losses. The bulk of these losses was in the Federal Territory of Kuala Lumpur and the State of Selangor, which hosts a high number of manufacturing properties.
Currently, the government assumes the role of a last resort insurer, especially for the lower-income segment of the population, which relied heavily on aid from the government in the recent flood.
Although they were supported with a financial contribution of RM1.44 billion, there is a high consensus that the government’s bail-out measures have been insufficient to compensate for the losses.
This reliance is heavily due to flood insurance being perceived as expensive. As a result, flood cover is often only purchased in flood-prone regions or following recent events.
Importance of Reinsurance
Based on the numbers, it is clear that insurers are better equipped with the resources to fund financial coverage for natural disaster events.
However, while insurers and reinsurers have proven that they are adequately capitalised to shoulder the risk, many insurers were still hit hard by the recent flood.
Moving forward, the impact of the December 2021 flood will influence Malaysia’s insurance markets as a surge in demand for insurance coverage is expected. Other than that, climate change has also become one of the drivers for purchasing more flood protection, with more people realising that weather patterns have changed, and catastrophes occur more frequently.
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Reinsurance helps provide the necessary financial support and liquidity for insurance companies to continue providing coverage to clients, especially during tragedies. Head over to https://www.malaysian-re.com.my/ to find more insights into reinsurance.
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