Malaysia’s central bank has warned that household flood insurance take‑up remains low, including in areas that have experienced repeated flooding, highlighting a broader protection gap in Asian markets amid rising climate risks. Bank Negara Malaysia (BNM) said floods are the country’s most frequent and damaging natural hazard, accounting for about 85% of all disasters recorded since 2000. It noted that climate projections indicate more frequent and more intense flood events in the years ahead. “Scientific projections indicate that both the frequency and severity of flooding are expected to rise with climate change, putting more households at risk of financial loss,” BNM said in comments made to theSun.
During the 2021 floods, roughly two‑thirds of total estimated losses – around RM4 billion – were not covered by insurance, according to BNM. The central bank said this pattern is similar to that seen in many emerging Asian economies, where a large share of natural catastrophe losses is borne by households, businesses, and governments rather than transferred to insurance markets. BNM noted that many Malaysian households already own home insurance or takaful policies, but this does not automatically provide flood protection. Flood cover is commonly offered as an optional rider instead of being included in standard property policies. “Flood protection uptake remains modest, as coverage is usually offered as an optional add-on rather than a standard component, requiring homeowners to make an extra decision and pay additional premiums,” BNM said.
The central bank also pointed to ongoing misconceptions about what existing policies cover. Many homeowners assume that a standard fire or home policy includes protection against flood and other natural hazards. “In reality, flood coverage is commonly excluded unless specifically added, leaving households unintentionally underinsured despite believing they are adequately protected,” the central bank said. Affordability is another constraint, especially for lower‑income households that prioritise day‑to‑day expenses and loan repayments over additional insurance features. This can reduce demand for optional catastrophe riders even in communities that have recently experienced significant flood events.
BNM is supporting lower‑premium insurance and takaful products that provide basic protection, including options for flood cover, to reach lower‑income and first‑time buyers. It cited the Perlindungan Tenang initiative, which offers simple protection products with annual premiums of about RM50 to RM75. The Perlindungan Tenang Voucher programme, introduced in September 2025, allows eligible individuals to use a RM30 voucher to pay for selected Perlindungan Tenang products, some of which include flood cover. According to BNM, the scheme is intended to encourage first‑time purchases of insurance and takaful.
In addition, BNM has introduced the Relief and Adaptation Facility, which provides post‑disaster funding to households and businesses and longer‑term financing for measures such as flood‑proofing, retrofits, and other climate‑related investments. The stated objective is to reduce borrowers’ vulnerability to future events and to encourage investment in infrastructure that can better withstand flooding. “Rising climate risks could lead to higher premiums over time, potentially making protection less affordable and widening the existing protection gap. The financial sector plays a crucial role in supporting household resilience by improving access to suitable and affordable protection solutions, strengthening risk assessment, and enhancing consumer understanding,” BNM said.
BNM said it is working with insurers, takaful operators, government bodies, and industry partners through platforms such as the Financial Education Network and the Joint Committee on Climate Change. These efforts are intended to increase financial literacy and make more detailed flood risk data available to support underwriting, pricing, and customer decisions. “If you live in an area exposed to flooding, flood coverage should be treated as essential protection rather than an optional add-on. Start with what is affordable and build your protection over time. Insurance and takaful cannot remove risk, but they could help reduce financial shocks and support faster recovery when disasters occur,” the central bank said.
BNM’s warning comes as industry research indicates that Asia has the highest share of uninsured natural catastrophe losses worldwide. A report released in November 2025 by MAPFRE Economics, presented at COP30, estimates Asia’s insurance protection gap at 82.8%, meaning only a small portion of climate‑related catastrophe losses is insured. According to the report, insured losses from climate‑related disasters have increased by between 5% and 7% annually since 1992, driven by higher asset concentrations, urban development in exposed zones, and changing climate patterns. The study also notes the growing impact of secondary perils – such as wildfires, droughts, and floods – which occur more often than large‑scale headline events and now account for more than half of global disaster‑related losses. In 2024, global economic losses from natural catastrophes exceeded US$300 billion for the ninth consecutive year, with nearly US$145 billion of that total insured.
The same pattern was evident in South Asia’s 2024 monsoon season, when India, Bangladesh, Nepal, and Pakistan experienced rainfall and flooding above historical averages. Analysis by WTW of the event pointed to increased climate variability and the resulting challenges for insurers in pricing and managing flood risk in densely populated urban areas. Within Southeast Asia, an assessment by the ASEAN Secretariat finds that disaster risk financing frameworks and insurance penetration differ significantly. Indonesia and the Philippines have introduced tools such as catastrophe bonds and national risk pools, while markets including Brunei and Cambodia are still developing core disaster risk management and financing arrangements. Insurance penetration is below 10% in most ASEAN member states, and social safety nets range from broad coverage in Thailand and Singapore to less than 10% of the population protected against disaster‑related financial shocks in several other markets. For insurers, reinsurers, and intermediaries across Asia, Malaysia’s experience reflects both demand‑ and supply‑side constraints in expanding catastrophe cover. The combination of optional flood riders, affordability pressures, and limited risk awareness continues to influence underwriting, pricing, product design, and public–private initiatives intended to address the region’s natural catastrophe protection gap.
