Newsbreak: Foreign insurer’s money to anchor medical scheme for the poor

This article first appeared in The Edge Malaysia Weekly, on October 22, 2018 - October 28, 2018.
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A large foreign-owned insurance company has proposed to contribute RM2.3 billion to RM2.5 billion to set up a medical scheme for the poor in exchange for an exemption from having to sell a 30% stake to local investors as required by Bank Negara Malaysia.

Sources familiar with the discussions between the insurer, Bank Negara Malaysia and the Ministry of Finance (MOF) say an additional RM500 million to 600 million will also be made available for scholarships in healthcare. The discussions are in a very advanced stage and the parties hope to strike an agreement soon.

This deal can help fund the national healthcare insurance scheme for the poor announced by Prime Minister Tun Dr Mahathir Mohamad when tabling the 11th Malaysia Plan in Parliament last Thursday, sources say.

Mahathir did not say how the scheme was to be funded or how it would work.

Sources who told The Edge about the proposal declined to name the insurer. The two largest foreign-owned insurance firms in Malaysia are AIA Bhd and Great Eastern Life Assurance (M) Bhd.

The Edge understands that based on a sum of RM2.5 billion, the medical insurance will cover an estimated five million people in the B40 group, with each getting coverage of RM10,000 a year for up to 10 years.

“If all the foreign-owned insurance companies participate in this scheme, the amount of money available will be around RM10 billion and that will be very substantial ,” says one source. “This scheme will provide medical coverage for the poor without burdening the government’s financial and hospital resources.”

The contribution is worked out based on 30% of the projected profits of the insurance companies over 10 years.

Sources say the requirement that foreign insurers must sell down their stakes will benefit only the institutions that take up the 30% stakes that will be available.

“The poor will not benefit from divestment of equity stakes by the (foreign) insurers as they will not have the chance to participate in it,” says a source. “Through a medical scheme, the profits of insurance companies will be shared with the B40 group, otherwise, it is always the well-to-do and shareholders who benefit.”

The government will set up a national insurance trust fund to manage the scheme. At this juncture, the mechanics of the trust are unclear. If the proposal gets the nod, the insurers are likely to appoint a manager to ensure that the pool of profit grows.

The healthcare trust is expected to help reduce the burden on the government, which is bearing the growing cost of public healthcare services. In recent years, due to smaller allocations, government hospitals have been charging the public for certain medicines.

Shareholders of foreign insurers have benefited enormously from their presence in the Malaysian market. Bank Negara estimates that a total of RM16.5 billion, or 70% of total profits attributable to foreign shareholders of insurers, were repatriated over the period from 2008 to 2017 in the form of dividends. In addition, foreign insurers repatriated an estimated RM1.3 billion in management fees and outsourcing arrangements to foreign affiliates between 2014 and 2016.

It is learnt that the foreign insurance companies are rather reluctant to part with their equity interest although they are said to be in talks with government-linked institutional funds such as the Employees Provident Fund and Kumpulan Wang Persaraan (KWAP).

To recap, Malaysia liberalised the foreign ownership rules in 2009 under the Financial Sector Master Plan and increased the limit of foreign equity participation in insurance companies and takaful operators to 70% from 49%.

On top of that, Bank Negara allowed higher foreign equity participation for foreign insurers that are able to facilitate the consolidation and rationalisation of the insurance industry. Eleven insurers — including Great Eastern, AIA and Tokio Marine Insuran (M) Bhd — are wholly owned by foreign firms.

Two foreign insurance companies, namely Allianz Malaysia Bhd and Manulife Holdings Bhd, are listed on Bursa Malaysia. Allianz Malaysia’s major shareholder is Allianz SE of Germany with a 65.62% stake, while Manulife Holdings is controlled by Manulife Century Holdings (Netherlands) BV with a 59.45% stake.

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