Insurance: Medical insurance premiums rising at an unsustainable rate, says LIAM

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on September 21, 2020 - September 27, 2020.
Insurance: Medical insurance premiums rising at an unsustainable rate, says LIAM
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Medical insurance premiums in the country have been increasing at an unsustainable rate in recent years. Such a trend could render medical insurance plans unaffordable to many people, including those from the middle-income group, says Mark O’Dell, CEO of the Life Insurance Association of Malaysia (LIAM).

According to him, medical insurance premiums have been increasing at an annual rate of 6% to 8% over the past few years. This is something the association is looking very closely into to discover the root causes and to find solutions. “We need to be aware of those drivers that contribute to higher medical insurance premiums and try to take the right actions moving forward,” says O’Dell.

One of the reasons for the increase is the high medical costs. According to Willis Towers Watson’s 2019 Global Medical Trends Survey Report, Malaysia was ranked No 2 out of 13 countries in Asia in terms of medical costs.

Last year, medical costs in the country increased 13.1%, mainly due to the availability and adoption of new medical technologies and equipment. The countries with the highest increase in medical costs were Vietnam (16.3%), followed by Malaysia, the Philippines (11.5%), Indonesia (10.8%) and China (10.7%).

But these costs are not the only factor to the high medical insurance premiums, says O’Dell. “It is a broader issue. It has to do with the design of these medical insurance plans or particular hospital charges, which include consultation fees, hospitalisation fees, the cost of operating theatre and more. There are many components to it. We want to identify the main drivers and take some action together with other stakeholders to address the issue.”

These stakeholders are the insurers, Ministry of Health, private healthcare service providers and medical insurance policyholders.

O’Dell says this is one of the main reasons why the Medical Cost Containment Task Force (MCCTF) was established by LIAM, the General Insurance Association of Malaysia (PIAM), Malaysian Takaful Association (MTA) and Bank Negara Malaysia last year. It carried out an independent study on the key drivers of increasing medical insurance premiums.

“The study has been completed, although it has not been fully analysed yet. We will announce it to the public later this year,” he says.

He adds that the issue of escalating premiums is not unique to Malaysia. In fact, Singapore acted last year to contain the rising medical insurance premiums in the city state.


Photo by Suhaimi Yusuf/The Edge

One of the things the Singaporean government did was to introduce co-insurance plans. Put simply, policyholders of co-insurance plans pay a lower medical insurance premium in exchange for paying a fixed percentage of the medical costs in their claims.

While co-insurance plans are not new in Malaysia, there are currently very few of them in the market, says O’Dell. More co-insurance products could be introduced in the future to counter the rising medical insurance premiums trend.

Under these plans, the fixed medical costs required to be paid by policyholders can be affordable, he says. “We are not talking about a large amount of cost-sharing by policyholders. It could be RM500 or 5% to 10% of the bill with a maximum cap. It does not need to be burdensome to policyholders. I would personally buy such a product if the premium were attractive.”

He adds that this is a suggestion that could be proposed by the MCCTF.

Penetration rate still far from 75% target

Meanwhile, LIAM, MTA and Bank Negara are conducting an independent study on ways to increase the country’s insurance penetration rate, specifically among the lower-income group, says O’Dell.

He says this is an important initiative as the country’s insurance penetration rate was at about 54% last year, still far from the 75% target set by the previous government. “The target was quite an ambitious one. The 54% rate [still] hasn’t moved much at all.”

The key reason for the low penetration rate lies in the B40 group, many of whom do not have life insurance coverage as their income is only sufficient to cover their daily expenses. “Among the entire B40 group, perhaps only 10% of them have life insurance coverage,” says O’Dell.

In addition, life insurance products may need to be distributed differently to this group instead of the usual agency channel route, which is one of the issues the independent study is looking into.

“Distributing life insurance policies to this group through agents is not working. The ticket sizes are small while the time required to educate them on insurance is long. We need a more efficient method to distribute these products to them and in larger volumes,” says O’Dell.

“We hope the industry can come out with better ways to reach out to the B40 with the eventual findings of the independent study. It will need another six months or so to be completed.”

He adds that several insurers launched Perlindungan Tenang recently, which is a simple and affordable life insurance plan for people from all income groups. One of its main goals is to provide life insurance coverage to those from the lower-income group.

A search online shows that three insurers currently offer such a product — AIA Public Takaful, Prudential BSN Takaful and Takaful Ikhlas. Consumers will only need to pay RM39 to RM75 a year to receive life insurance coverage of RM10,000 to RM40,000.

“About 50,000 of these policies have been distributed so far. It is a good result, although the number is still small compared with the country’s population,” says O’Dell.

More than a million people deferred premiums amid the pandemic

Mark O’ Dell, CEO of the Life Insurance Association of Malaysia (LIAM), says that as at Sept 2, more than a million people affected by the pandemic had opted to defer their life insurance premium payments for three months. “The total amount of premium payments being deferred is more than a billion ringgit.”

He adds that there are 13 million policyholders in the country, which means about 7.7% of the total policyholders opted to defer their premium payments.

Earlier this year, LIAM and the Malaysian Takaful Association announced the option to defer the payment of life insurance premiums/takaful contributions from April 1 to Dec 31.

O’Dell says policyholders affected by the ongoing pandemic can still apply to defer their premium payments through various means until the end of the year. He adds that the deferred number does not include policyholders who have restructured, or intend to restructure, their life insurance policies and payments. These policyholders can opt to continue paying their premiums, albeit with a lower amount in exchange for less life insurance coverage.

Meanwhile, O’Dell says, it is hard to predict how many policyholders in the country will cancel their life insurance policies as it is the first time in Malaysia’s history that insurers are providing policyholders a plan to defer premium payments. However, industry players are not particularly worried about a huge dropout rate yet.

“I haven’t heard from our members that this is a major concern. We will only know the actual rate at the end of this year or early next year, as insurers have provided policyholders a three-month grace period [to make their premium payments],” he says.

O’Dell says more people have bought life insurance products online since the Movement Control Order (MCO) was implemented in March. However, the number of purchases is still small compared with other channels.

“More agents are reaching out to their prospects online. It is a pleasant surprise to see how our agents can do this,” he says.

“However, looking at it from a purely digital distribution basis [where consumers buy products online directly without going through an intermediary], it is still not happening in a big way. No one has cracked the code yet. The amount of life insurance products sold purely through digital distribution is less than 1% of the total industry.”

However, more start-ups are entering the life insurance space and O’Dell says he is glad to see more people buying such policies online.