Factors affecting flood insurance purchase in residential properties in Johor, Malaysia

Abstract

Abstract. High-impact floods have become a virtually annual experience in Malaysia, yet flood insurance has remained a grossly neglected part of comprehensive integrated flood risk management. Using discriminant analysis, this study seeks to identify the demand-side variables that best predict flood insurance purchase and risk aversion between two groups of residential homeowners in three districts of Johor State, Malaysia: those who purchased flood insurance and those who did not. Our results revealed an overall 34 % purchase rate, with Kota Tinggi district having the highest (44 %) and thus the highest degree of flood risk aversion. The Wilks' lambda F test for equality of group means, standardised discriminant function coefficients, structure correlation, and canonical correlation has clearly shown that there are strong significant attribute differences between the two groups of homeowners, based on the measures of objective flood risk exposure, subjective risk perception, and socioeconomic cum demographic variables. However, the measures of subjective risk perception were found to be more predictive of flood insurance purchase and flood risk aversion.

Preface: Flood-risk analysis and integrated management

“…However, practical experience also shows that flood-prone households often do not voluntarily purchase flood insurance, even if cost-effectiveness is given (Kunreuther, 1996). In their contribution, Aliagha et al (2014) examine factors that influence homeowners to purchase flood insurance in Johor, Malaysia. Using discriminant analysis, they identify the demand-side factors that best explain the purchase of flood insurance and risk aversion.…”

Green and Sustainable Commercial Property Supply in Malaysia and Nigeria

“…The basis for the adoption was that the study involved the analysis of differences in perception of two groups of sample populations. Discriminant analysis is a multivariate statistical technique that allows researchers to make comparison between two or more defined groups on a set of variables measured at interval scale (Aliagha and others ). This could be achieved by a statistical decision rule of maximizing between‐group variance to the within‐group variance (Hair, Anderson, and Tatham ).…”

Determinants Of The Intention To Purchase Flood Cover: An Empirical Evidence From A Flood-Prone Area In Malaysia

“…Flood occurrence in Malaysia is the country's worst unavoidable nightmare in the way it affects the environment and the people. Malaysia has experienced more than 20 major flood events in the past century (Aliagha, Jin, Choong, Jaafar, & Ali, 2014). This is especially in 2014, in what was described as the worst monsoon floods to have occurred in Malaysia in decades.…”

“…The government has attempted for years to overcome the flood issues, especially in Kelantan, through structured and non-structured measures. Structural means inclusion of embankments, pond and pump house (Aliagha et al, 2014), whereas non-structural method refers to flood mitigation measures in the form of early warning systems, flood mapping and flood forecasting (Shafiai & Khalid, 2016). Despite all these efforts, losses due to flood are still on the rise.…”

“…Motivation for this study is that flood cover has been omitted as a vital part of flood management unlike in Germany (Atreya, Hanger, Kunreuther, Linnerooth-Bayer & Michel-Kerjan, 2015) where flood insurance is compulsory. Similarly, the United States and the United Kingdom had long before included flood insurance in their flood risk management as a non-structural flood mitigation measure (Aliagha et al, 2014). The latest penetration rate of flood cover in Malaysia was below 10%, which reflects a slight growth in the penetration rate from 2007 (5%) to 2018 (<10%) (Tan, 2018).…”