Rising Flood Insurance and Risk in Malaysia

Malaysia’s insurance sector is increasingly confronted with the mounting challenges posed by natural disasters, particularly floods, which have emerged as the nation’s most significant environmental hazard. The recently released Asia Pacific October 2025 Market Watch report highlights how seasonal monsoon patterns, coupled with climate-related damages, have intensified both the frequency and financial impact of flooding events.

The country experienced a major flood in 2021, resulting in economic losses of approximately USD 1.25 billion and substantial repercussions for the insurance and reinsurance markets. While the northeast region of Malaysia faced renewed flooding in November 2024, major urban centres were relatively less affected, limiting overall economic damage. Nonetheless, the risk of persistent flooding remains a central concern for both insurers and reinsurers, particularly in terms of underwriting exposure.

In Malaysia, flood coverage is typically offered as an add-on to motor or property insurance policies. Since 2021, the adoption of flood insurance has increased, largely due to reduced premium costs. Five years ago, including flood coverage under a motor policy would cost around 0.5% of the total policy value. Progressive tariff liberalisation has reduced this in some cases to 0.25%, raising concerns that the pace of risk growth may outstrip premium income.

Key Market Trends

Motor insurers are closely monitoring road safety trends, as post-pandemic rises in vehicle accidents have constrained premium growth. Police statistics indicate a 6.3% increase in accidents in 2024, down from 10% in 2023. Meanwhile, the health sector continues to present significant challenges, with expenditure rising 15% in 2024, markedly above the regional average. Insurers have implemented incremental premium increases, while the central bank has directed balanced adjustments over three years, temporarily pausing hikes for policyholders over 60.

The non-life insurance market in Malaysia demonstrated steady growth in 2024, with total gross written premiums reaching USD 6.5 billion. This sector comprises 19 conventional general insurers and 4 non-life takaful providers. Adoption of Islamic insurance (takaful) continues to rise, bolstered by government initiatives to position Malaysia as a global Islamic finance hub. Takaful premiums reached MYR 5.9 billion in 2024, representing roughly 20% of total non-life GWP, with a segment of customers shifting from conventional insurance to takaful offerings.

Gallagher Re cautions that maintaining an appropriate balance between natural disaster risk and evolving market trends is critical for insurers. Responsible expansion of coverage, combined with robust risk management strategies, will be essential to safeguard both the sector’s stability and policyholder interests.