KUALA LUMPUR - A review of the insurance industry’s performance in 2024 will undoubtedly have to include the backlash faced by the insurance and takaful industry after it announced a steep hike in medical insurance premiums.
The premium hike for medical insurance surprised policyholders who are already paying high monthly premiums and becoming concerned about whether they can maintain paying for their coverage and the long-term sustainability of insurance policies.
For the rakyat, it is now a struggle to access private medical care without health or medical insurance due to high charges as well as rising living costs.
Many are questioning the decision of insurers and takaful operators (ITOs) to raise premiums, reportedly by 40 to 70 per cent, despite reports of strong profits and consistent revenue growth from insurers and private hospitals.
Additionally, private hospitals have shown strong financial performance, driven by increased demand for healthcare services and rising medical costs.
To justify the higher premiums, the Life Insurance Association of Malaysia (LIAM), the Malaysian Takaful Association (MTA), and the General Insurance Association of Malaysia (PIAM) said the industry experienced an unprecedented cumulative medical claims cost inflation rate of 56 per cent from 2021 to 2023.
The surge in claims was attributed to various factors, such as the rising costs of medical treatments, advanced healthcare technologies and increased utilisation of healthcare services, which have made premium repricing an unavoidable measure.
The issue also caught the attention of members of Parliament (MPs), who raised the matter in the Dewan Rakyat, prompting a closed-door briefing to all MPs on the medical insurance premium hike.
On Dec 10, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim allayed public concerns over the premium hikes when he said that BNM and the Health Ministry (MoH) will decide on a control mechanism to ensure premium hikes are reasonable and do not burden the people.
This was further reinforced by Finance Minister II Datuk Seri Amir Hamzah Azizan at the Dewan Negara when he said that BNM will announce further details on interim measures to address the rise in insurance premiums soon.
On Dec 13, Communications Minister Fahmi Fadzil said the central bank needed a little more time before making an announcement.
BNM announces interim measures on MHIT premium adjustments
Meanwhile, BNM announced on Dec 20 that interim measures to help manage the impact of medical and health insurance and takaful (MHIT) premium adjustments, with ITOs to spread out the changes in premiums over a minimum of three years for all policyholders affected by the repricing.
The central bank said this measure will remain in place until the end of 2026.
"With this measure, at least 80 per cent of policyholders are expected to experience yearly premium adjustments, due to medical claims inflation, of less than 10 per cent,” it said.
BNM said another interim measure is for policyholders aged 60 and above who are covered under the minimum premium/contribution plan of the MHIT product they purchased.
It said the measure would require ITOs to temporarily pause premium adjustments for one year from their policy anniversary.
"Besides, policyholders who have surrendered or whose MHIT policies have lapsed in 2024 due to the repricing can reach out to their ITOs to request a reinstatement of their policies based on the adjusted premium under this measure without additional underwriting requirements.
"Also, all ITOs will provide appropriate alternative MHIT products at the same or lower premiums for policyholders who do not wish to continue their existing MHIT plans that have been repriced,” it said.
Reviewing repricing strategies
BNM had, earlier on Nov 28, directed ITOs to review their repricing strategies for a more reasonable implementation, considering the impact on policyholders and participants.
The ITOs are required to offer viable options for policy owners and takaful participants who are significantly impacted by the higher premiums or contributions to continue having insurance or takaful coverage.
Meanwhile, the National Association of Malaysian Life Insurance and Financial Advisors (NAMLIFA) has strongly urged BNM and the Ministry of Finance (MoF) to temporarily halt medical premium repricing exercises.
Its president, Krishnan Appanu, suggested that ITOs explore the possibility of introducing staggered premium increases with flexible payment plans that ease the burden on consumers.
He said that BNM, together with the MoF and MOH, is currently looking into it and will issue strict guidelines to ensure that ITOs take several factors into account, such as inflation.
Earlier this year, BNM required ITOs to introduce a co-payment option for their MHIT products by Sept 1, 2024, aiming to offer more sustainable and affordable options.
The new regulation has sparked some confusion among the people, depicting the co-payment as compulsory, which might affect existing consumers who have already purchased full coverage MHIT plans.
However, BNM and industry leaders are working to clear things up, assuring the co-payment for MHIT products is optional with lower premiums and does not affect existing consumers.
BNM said that the premium or contribution level for MHIT products with co-payment features is 19 per cent to 68 per cent lower compared to similar products without co-payment features, depending on the level of co-payment.
Overall performance of life and general insurance, takaful industry in 1H 2024
In the Financial Stability Review First Half 2024 released by Bank Negara Malaysia (BNM), it was reported that the overall profitability of life insurance and family takaful funds has increased to RM8.4 billion in the first half (1H) of 2024, as compared with RM6.0 billion in 1H 2023 and RM3.2 billion in 2H 2023, respectively.
"Overall profitability of insurance and takaful funds increased on strong investments and improved underwriting performance,” BNM said.
The central bank said the sustained growth in new business premiums continued to support the overall profitability of life insurance and family takaful funds, with new business premiums expanding by 11 per cent in 1H 2024, led by medical and health products as well as investment-linked products.
Meanwhile, operating profits were broadly sustained in 1H 2024 at RM1.7 billion in the general insurance and takaful sector, compared to RM1.3 billion in 1H 2023.
"Underwriting performance was supported by sustained growth in gross direct premium from the motor segment, stemming from higher car sales in tandem with favourable economic conditions and successful new model launches, including electric vehicles.
"This was despite higher provisions for motor claims (1H 2024: RM600 million; 2H 2023: RM300 million) commensurate with robust business growth, as well as rising repair costs,” it said.
BNM added that lower claims from significant flood events compared to previous years and sustained investment income also helped support the operating profits of general ITOs.
Sectorial outlook in 2025
The higher tax relief on medical insurance, which was raised to RM4,000 under Budget 2025 from RM3,000 previously, will likely support growth in the insurance industry in 2025.
However, BNM opined that uncertainty in financial market conditions will continue to present a key downside risk to ITOs’ earnings, given their sizeable exposures to bond and equity investments.
"Further losses from medical inflation could increase risks of reduced access to affordable medical insurance and takaful coverage, leaving households potentially more vulnerable to financial shocks,” it said.
Additionally, exposures to climate events, particularly floods, could see increased volatility in the performance of general ITOs, BNM added. - BERNAMA