KUALA LUMPUR, June 18 — Life insurance companies say they are making losses on their health insurance portfolios despite perceived overall profits, with claims far outpacing premiums in recent years.
This led to insurers recording medical insurance portfolio losses from 2022 through 2024.
Life Insurance Association of Malaysia (LIAM) chief executive officer Mark O’Dell said the industry’s biggest cost driver is the sharp increase in medical claims post-Covid, primarily due to higher volume of hospital admissions rather than the cost of care.
Citing industry data, O’Dell said claims increased 73 per cent from 2022 to 2024, compared to a 21 per cent rise in premiums — a gap that has put “a lot of pressure” on insurers.
“A lot of people have asked, even parliamentarians have asked, insurance companies seem to be making high profit. Why are you raising rates? Well, the medical book of business is a separate line of business and it’s a separate fund.
“You have an investment lien fund, you have a par insurance fund, you have a life fund, and the insurers are obligated to make sure that each of those funds are sustainable,” O’Dell told a health care forum organised by the Universiti Malaya Student Union (UMSU) Faculty of Medicine on May 29.
“So, they are making profits from the other funds and some of the insurers in Malaysia have been around for 100 years, and so, I think we forgive them for making a good profit on their businesses they built up over 100 years.
“But from the medical side, it’s loss-making, and that’s not a good thing because it’s not sustainable.”
O’Dell described Bank Negara Malaysia’s (BNM) interim measures to cap premiums as “not sustainable”, with the industry now under a “ticking clock” to come up with “solutions” to help alleviate some of the problems over the next couple of years.
He said the industry is exploring long-term reforms, including co-payments, mandatory use of generic drugs, publishing average costs of common procedures, and redesigning medical plans with more sustainable benefit structures.
“Policyholder co-payments are needed to align interest, lower cost, and reduce overconsumption,” he said.
BNM’s emergency measure caps premium increases depending on the level — if the total increase is 20 per cent or less, it’s spread out over three years; if it’s between 20 to 40 per cent, it may be spread out over five years; if it exceeds that, it must be explicitly approved by the regulator.
One-Night Hospital Stays, Volume Of Care Fuel Claims
According to LIAM’s internal data, the average annual increase in medical claims over the past seven years — including during the Covid period — was 14.34 per cent. This figure does not account for inflation. But since Covid, claims have escalated.
“For medical claims, even pre-Covid, [it] was beginning to become a problem, and medical premium increases are not new. They’ve been happening for many, many years. But Covid, there was a bit of a respite. In 2020, nobody wanted to go to the hospital, so claims actually went down by 8 per cent. I think it’s the first time ever that medical claims went down.
“In 2021, they were up modestly, but in 2022, 2023, and 2024, they spiked to unprecedented levels. They spiked 33.7 per cent in 2022, and I can tell you from our data, they’re driven mostly from volume,” O’Dell said.
“The average cost of care has played a much smaller part of the claims inflation than the volume piece.”
However, he said the trend has been going down steadily since, with first quarter numbers for this year looking encouraging. “I hope that will continue, and that we’ll really see there’ll be some normalisation in the claims paid.”
O’Dell also flagged the high number of one-night hospital admissions — which made up 35 per cent of total admissions between 2018 and 2024 — as a potential red flag, suggesting that some of these admissions may not have been medically necessary.
“Most plans will not pay a claim because they weren’t admitted. And so the doctor says, ‘Why don’t we admit you overnight for observation?’ and the claim is paid. That case could have probably gone to a general practitioner (GP) clinic, but instead they sought treatment at a hospital where they were admitted to pay the claim, and that adds to the claims inflation,” O’Dell said.
LIAM Admits Missteps In Medical Plan Design, Poor Communication On Premium Hikes
O’Dell, a former chief executive of both AIA and Manulife, also acknowledged that the design of insurance plans has contributed to the overuse of health care services.
“It was missold to some degree,” he said, referring to the early promotion of cashless medical cards in Malaysia. “Agents could say, this is like a credit card. You can go into the hospital and basically you can get anything you want.
“We have to take responsibility for that. And over the years, companies have tried to come up with richer and richer plans, bigger and bigger benefits – you have some plans that have a RM10 million annual limit, unlimited lifetime benefits, and all those things have contributed to the encouragement of consumption and provision of services,” O’Dell said.
He admitted that much of the industry’s communication around premium hikes has failed to gain public trust.
“I have to admit that there’s some improvement needed in the way insurance companies and the industry communicate the need for rate increases. It seems like in hindsight, you just get a letter – and I get my letter as well, right – that says your premium is being increased because of medical inflation, and that’s just insufficient,” O’Dell said.
“So, the industry has to improve the transparency and the explanation about what’s driving things, what’s behind things, so that you and I – and I’m a permanent resident in Malaysia, this is my problem as well – understand what’s going on,” he added.
Basic Medical Plan In The Works
LIAM is now working with BNM and the Ministry of Health (MOH) to develop a basic long-term medical insurance plan for those seeking lower-cost coverage.
“This is something similar that has been done in Hong Kong, in Singapore – it’s really to make sure that people who want to maintain access, regardless of how expensive premiums can be, this is the lower-end choice that allows people to stay in the system and they can access private care and they could also choose to get higher, more expensive and comprehensive coverage if they want to do so,” O’Dell explained.
The association also supports diagnosis-related groups (DRG) pricing, which will be used initially in the government’s pilot Rakan KKM programme, expected to be rolled out by the end of this year.
