High medical cost, low penetration rate make Malaysia an attractive market

  • Lisle: Governments and insurers have to work together

  • Thavarajah: We want our customers to engage with their health

-A +A
This article first appeared in The Edge Malaysia Weekly, on December 5 - 11, 2016.


MEDICAL inflation in Malaysia has been creeping up of late while the majority of the population are under-insured. These are the immediate factors that provide growth opportunities for the local insurance sector, say AIA Group’s top guns.

“When you look at Malaysia in particular, medical inflation has been rising about 13% to 14% annually over four to five years. That is not sustainable ... someone has to pick up that cost. Governments and insurers have to work together,” says Bill Lisle, AIA Group’s regional chief executive.

AIA Bhd CEO Anusha Thavarajah says: “Malaysia’s wide protection gap is valued at over RM2 trillion, and the average sum assured per person in Malaysia is less than RM40,000, whereas it should be about RM200,000.”

“The burden on government has become higher: medical cost, inflation, an ageing population. With that, the regulators would like to see insurance companies play a bigger role to reduce the burden on government and create awareness on the importance of buying life insurance and medical insurance,” she adds.

AIA Bhd is the Malaysian unit of AIA Group.

These are some of the reasons why AIA Group believes its AIA Vitality wellness programme is suitable for this market

“The vitality concept is a shared value concept in the sense that it is good for the individuals as we hope that if you do what you need to do, you’ll live longer; it is good for the company as people can live longer and pay premiums longer; and it is good for society and the community. And if people are healthier, some of the cost doesn’t go back to the government,” says AIA Group CEO Mark Tucker.

“The win-win-win for the individual, society and for the corporation is a very powerful concept. So, this element of shared values brought about by AIA Vitality is important to us. It is part of the purpose of the organisation, which is to support the social economic development in the countries we operate in,” he adds.

Thavarajah says AIA Vitality has registered 26,000 members since it was launched in Malaysia in June.

“It is about changing the role of insurance. In the past, when we sold insurance, it was really about someone suffering a loss. Here, we would like to turn the role of insurance around, engage with our customers and get them to engage with their health. It is a combined approach of providing insurance but focusing on wellness,” she notes (see main story). She says Malaysians should educate themselves more on their health and how to keep a healthy lifestyle. “Statistics show that lifestyle diseases is a big concern in Malaysia. We are the fattest country in Southeast Asia. One in five Malaysians is at risk of diabetes and one in four is at risk of getting cancer by the age of 75,” Thavarajah notes.

“The opportunity here in Malaysia is significant. Bank Negara would like to move the (insurance) penetration here to 75% by 2020. It is currently 40% to 50%,” says Lisle.

He says each market is different and that trying to give a projection of where Malaysia will be in the group is not really relevant. “It is more about continuing the growth here and meeting the opportunity.”

AIA Bhd registered growth of 27% in its value of new business (VONB) to RM673 million for the financial year ended Nov 30, 2015. Its VONB has grown at a compound annual rate of 43.6% since 2013. For the first half ended May 31, 2016, the insurer’s VONB increased 30% year on year. The average VONB growth for the industry was 18% as at Sept 30, 2016, according to the Life Insurance Association of Malaysia.

Using VONB as the benchmark, Malaysia was AIA Group’s third largest growth market in financial year 2015. For 1H2016, the Malaysian market accounted for 7% in terms of VONB by market segment. VONB is a key indicator of the future profitability for insurers.

For annualised new premiums, the AIA Bhd saw growth of 10.7% in FY2015 compared with the industry’s 6%. The Malaysian unit’s operating profit after tax rose by 8% year on year to more than RM1 billion in FY2015.