Malaysia: Federation of Malaysian Consumers Associations appeals to regulator to intervene in medical insurance repricing

| 15 Sep 2020

The Federation of Malaysian Consumers Associations (FOMCA) has called for the government and Central Bank of Malaysia (BNM) to intervene to halt repricing of the medical insurance premium.

FOMCA, a not-for-profit national non-governmental organisation, is the umbrella body for 13 consumer associations in Malaysia.

Datuk Dr Marimuthu Nadason, FOMCA President, said in a statement, reproduced in full below:

Insurance is a necessity these days especially medical insurance. This is due to unpredictable circumstances and uncertainties in our daily life. Insurance is supposed to protect the policyholders or their families if any undesirable event happens to them.

Ironically, insurance companies are not portraying as what they are championing, health care protection at the time of need. The insurance companies are increasing their medical premiums at the time when not only our nation but the whole world is under the attack of the pandemic Covid-19. The economy of many countries are at stake, including Malaysia. Many Malaysians of all walks of life have lost their jobs and some even had to take substantial pay cut. According to Malaysian Institute of Economic Research (MIER), 2.4 million workers will be laid off their jobs.  Looking at these statistics, it is rather alarming as many will be going through uphill tasks to put food on the table.  If the insurers are increasing the premium at this juncture, it is akin to rubbing salt to the wound.

Insurance company will see a drastic increase in life policy lapses as many will not be able to keep up with the premiums. Although the moratorium is given for three months, but the policy holders have to pay in full after the moratorium. With repricing and paying in full, it is going to be a double whammy for them.

Federation of Malaysian Consumers Associations (FOMCA) proposes to BNM to postpone any repricing exercise so as not to burden the policyholders who are already facing economic hard ship.

It would indeed be a great loss if consumers who have been actively advised on the importance of insurance by the agents from the National Association of Life and Takaful (NAMLIFA), are unable to pay their premiums and eventually their policies lapse; that indeed would be a great waste.

The government and Central Bank of Malaysia (BNM) must intervene to halt repricing of the medical insurance premium immediately. It is also pertinent to note, the occupancy at hospitals has drastically reduced since MCO was imposed resulting in insurers saving more in hospital costs. They have to be more conscientious of the suffering of many Malaysians especially those who are in B40 and M40.


Curbing medical inflation

Earlier this year, BNM had suggested ways to curb medical inflation.

The growing availability of private healthcare as an alternative to public hospitals has been accompanied by a rise in demand for medical and health insurance and takaful (MHI) in Malaysian, it said.

This is a significant and growing product segment, accounting for 15.5% of total gross premiums in the life insurance and family takaful sector last year, according to BNM in its 2019 annual report.

Malaysia’s cost of medical care has been reported to be rising above the global average and is among the highest in Southeast Asia.

Between 2016 and 2019, MHI claims grew by 11.6% a year. This trend has increased pressure on the underwriting performance of MHI providers, given that rising claims have continued to outstrip the increase in premiums.

Over the same four-year period, MHI premiums grew on average by 9.5% a year. In that period, 96 MHI products were repriced, affecting 4.5m policies. This is a concern as more expensive premiums make coverage increasingly unaffordable to many, said BNM.

Read more: 1H2020: Malaysia's life insurance industry posts fall of 12.6% y-o-y in total premiums

Factors driving claims inflation

Factors driving MHI claims inflation include the longer lifespan of Malaysians who have access to better and more advanced medical care.

At the same time, there are a number of other factors driving unwarranted increases in medical costs. There are anecdotal accounts of healthcare providers who engage in price differentiation, charging higher if a patient is insured. This is exacerbated by the “buffet syndrome” where policyholders seek to maximise the value of premiums paid. Hence, they tend to utilise medical services with little incentive to consider the associated costs. These behaviours contribute to escalating costs that are ultimately translated back into higher premiums.

Insurance claims data analysed over 2013 to 2018 show that hospital supplies and services form the largest component of claims costs and is one of the main factors driving the increase in hospital charges.

Considerations moving forward

The ecosystem for medical services in Malaysia involves many stakeholders including payers, healthcare providers, regulators, managed care organisations and end consumers. Accordingly, containing medical claims inflation requires coordinated actions that address the different incentives at play.

The Bank has issued the Guidelines on Medical and Health Insurance Business which set out minimum standards for insurers and takaful operators to promote sound underwriting and pricing practices.

While recognising the need for insurance premiums to adjust in line with claims experience, the Bank requires insurers and takaful operators to provide policyholders who have been impacted by repricing actions with options to maintain or to vary their medical coverage.

Read more: Asia: 1,600 qualifiers honoured at the first APFinSA Awards

Longer-term solutions to curb medical inflation

However, longer-term solutions to promote the sustainability of MHI protection call for deep reforms in a number of areas. As a start, there is a need to provide greater public transparency of the various costs of medical procedures. This can be achieved through the publication of reference benchmark costs for common medical procedures.

In order to encourage a collective responsibility to ensure affordable access to MHI protection for all, the adoption of co-payments or deductibles in MHI plans which can give policyholders more control over the costs of their healthcare decisions is also important.

There is also a need to facilitate the standardisation and collection of data that can be used by both the medical and insurance and takaful industries to increase efficiency, reduce waste, prevent fraud and improve product design. This calls for, among others, the application of a consistent diagnostic classification standard and standardised formats for billings to increase cost transparency.

The digitalisation of medical records and integration of health information systems also have the potential to generate significant operational efficiencies and contribute towards moderating medical claims inflation.


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