BN To Tame Medical Inflation

Bank Negara will come out with a framework as soon as possible to reduce the inflation of medical insurance, which now stands at 12%.

Governor Datuk Muhammad Ibrahim said the current inflation rate is quite high, thus requiring measures to address the issue.

He said rising medical claims had increased pressure on medical insurance premiums.

"On average, medical insurance claims rise 14% annually," Muhammad said during the announcement of the country's second-quarter gross domestic product (GDP) figures in Kuala Lumpur on Friday.

Net claims paid to policyholders increased to RM4.9 billion in 2016 compared with RM4.5 billion in 2015, owing to demand for better healthcare, ageing population and higher prevalence of chronic and lifestyle diseases.

He also said the increase in the cost of drugs and treatments were among the factors that led to the higher insurance claims.

On the presence of foreign insurance companies in the domestic scene, some of whom did not adhere to Malaysia's ownership laws, Muhammad said the central bank had urged these insurance companies to fulfil their promises.

"That is what we are asking after giving the licence (to insurance companies) to operate in Malaysia... however, this also depends on the size of the company; smaller companies will deal with smaller problems and vice versa," he said.

It has been reported that foreign insurers in the domestic market have been instructed to find local partners and to involve local partners as stipulated in Malaysia's ownership laws.

Bank Negara had reportedly issued a directive in April to Tokio Marine Holdings Inc, AIA Group Ltd, Great Eastern Holdings Ltd and Prudential to submit the names of the local partners, who will take over 30% shareholdings in their operations.

Following the liberalisation of foreign ownership, Malaysia requires foreign insurance companies and takaful operators to comply with 30% local participation in their companies and keep 49% to 70% foreign equity in their company.

In another development, broader risk factors, namely, vehicle model, driver's experience, driving behaviour and vehicle's security features are now taken into account to determine motor insurance premiums compared to factors such as the insured's age, vehicle age and past claims records.  

In 2016, 19,307 vehicles were stolen and insurers paid RM77.8 million in theft claims for the top three vehicle models, namely, Toyota Vellfire, Mitsubishi Pajero and Toyota Hilux.