How is Malaysia’s P&C market responding to Covid-19?

April 6 2020 by Yvonne Lau

Malaysia’s general insurance market has been trying to turn over a new leaf.

In recent years, Bank Negara Malaysia (BGN), the country’s central bank and financial regulator, set out a framework for market liberalisation, opening up and reform. Guidelines include the detariffication of fire and motor – P&C’s largest sectors – in a bid for greater market competitiveness and uptake.

In the fourth quarter of 2019, Malaysia’s economy recorded 3.6% growth — the lowest level since 2009, says the General Insurance Association of Malaysia (PIAM).

With national economic woes amidst a demanding market transformation, PIAM warned that the general sector will continue to stagnate in 2020 — difficulties compounded even further by the Covid-19 outbreak.

“For smaller businesses, [the focus is on] managing their cash flow and viability in the coming months – [and] insurance may therefore be deprioritised as a result.” Derek Roberts, AmGeneral Insurance

This will be sure to impact insurers and reinsurers as clients struggle with cashflow and business interruption.

As of April 5, Malaysia has recorded 3,483 Covid-19 infections. In response, the government has implemented strict movement control orders (MCO) until at least April 14.

Understanding the impact
The Covid-19 tremors will be felt sector-wide and market players expect all lines of businesses to be impacted.

Zainudin Ishak, president and chief executive of Malaysian Re, told InsuranceAsia News (IAN) that business interruption, event cancellation, medical expenses, travel and casualty claims are coming.

Ishak added a caveat: “[However], potential claims from business interruption/contingent BI are relatively remote as the trigger is physical damage to insured property by an insured peril.”

Based on preliminary estimates, noted Ishak, the Malaysian market will see some contraction in (re)insurance premiums from retail businesses – such as fire, health, personal accident and motor — for the year’s first half. The recession may continue into the second half, depending on how quickly the global economy recovers from the pandemic.

SME worries
SME and commercial lines could shoulder the largest shocks as businesses are disrupted by mandatory closures (for non-essential services) leading to a loss in revenue.

Malaysia’s SME market employs a majority of the national workforce, and there are concerns that up to 25% of sector jobs could be lost.

Derek Roberts, chief executive of AmGeneral Insurance, noted to IAN: “For smaller businesses, [the focus is on] managing their cash flow and viability in the coming months – [and] insurance may therefore be deprioritised as a result. [In other sectors] such as motor, [they will] be impacted less in terms of gross written premiums (GWP).”

Defaults on loan payments may also occur.

Aldrin Wong, chief executive and managing director of Sedgwick Malaysia, told IAN: “The MCO may take its toll on [SME] businesses who will then default on loan payments, and [lead to an increased number of] fraudulent claims. Disgruntled workers may misappropriate company funds and may give rise to fidelity guarantee claims. Insurers will inevitably engage loss adjusters to investigate these claims.”

Malaysia’s market is facing concurrent pain points of transformation and regulatory changes, economic adversity and Covid-19 stresses.

There is a market consensus that claims frequency will decline as business activity contracts during the outbreak period – with the caveat that false claims will be on the rise.

After the MCO is lifted and enterprises are back to normal capacity, “losses such as break-ins, water damage or fires would have been discovered in business premises, [leading to] a surge in claims. Insurers would want to settle genuine claims quickly – and loss adjusters who deploy fast-track claims settlements methodology will be relatively busy [during this period],” commented Wong.

There will be an inevitable increase in business interruption claims – “coverage for BI losses from Covid-19 closures and MCO is far from clear,” added Wong. This means a potential upswing in litigation and associated services from loss adjusters to determine the circumstances surrounding the loss.

“Based on experience, the level of fraudulent claims tend to increase with economic slowdown – something the industry needs to work jointly to resolve,” Roberts said.

Looking ahead
Malaysia’s market is facing concurrent pain points of transformation and regulatory changes, economic adversity and Covid-19 stresses.

“The industry should brace for a year with flat if not negative growth. Whilst it presents financial and liquidity hardship to the businesses – and to a certain extent GWP industry-wide – insurers need to come out with innovative solutions and proactively manage bad debts. Investment strategies and operational models will also be key,” noted Roberts.

It will be up to market players, stakeholders and regulators to tackle the current crisis and move forward together.

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