Malaysian Insurance Sector Set For Major Reforms Under Reset Initiatives

By Nur Athirah Mohd Shaharuddin

KUALA LUMPUR, March 2 (Bernama) -- The Malaysian insurance industry is poised to enter a new phase of major reforms under government-led RESET initiatives, including the introduction of the medical and health insurance/takaful (MHIT) plan and diagnostic-related group (DRG) pricing to address rising medical costs.

Life Insurance Association of Malaysia (LIAM) chief executive officer Mark O'Dell said industry players support the MHIT initiative, which is scheduled to come into force in January 2027.

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"The industry is very supportive because it promises to be more affordable and sustainable, which will help at least two major population groups.

"First, we hope it will bring more middle-class people into the private health insurance ecosystem, as well as provide those experiencing affordability or sustainability issues with an option that is adequate yet more affordable," he told Bernama.

RESET initiatives (Regulatory Enhancement for Sustainable and Efficient Takaful/Insurance), a government-led programme involving Bank Negara Malaysia (BNM), the Ministry of Finance (MOF), the Ministry of Health (MOH) and other stakeholders, aim to modernise and strengthen Malaysia’s insurance and takaful framework.

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Commenting on whether the base MHIT plan's annual limit of RM100,000 or RM150,000 is sufficient, O'Dell said industry data showed the average claim currently stands at about RM12,000, suggesting the limit would cover the majority of cases.

The base MHIT plan is designed to remain affordable while providing meaningful coverage by setting annual limits that cover common and high-volume treatments in private hospitals, he said.

He added that more complex and costly treatments that exceed these limits are expected to continue being handled by the public healthcare system, as MHIT complements rather than replaces public healthcare.

On current claims trends, he said respiratory illnesses and gastrointestinal conditions remain among the highest in claim volume, noting that these are common medical conditions expected to be covered in 99 per cent of treatment cases.

O'Dell characterised DRG, another major reform from the MOH, as a "complex packaged pricing" mechanism that will alter the dynamics between payers and healthcare providers.

He explained that under the framework, hospitals would agree to a fixed payment covering the full course of treatment, rather than billing separately for each service, effectively requiring providers to manage costs more efficiently rather than passing them on under the existing fee-for-service model.

"This is well underway, but it will take time to implement because it is quite complex, so it will be introduced gradually.

"Hopefully next year we might see 20 to 30 per cent of procedures under DRG, and the proportion will increase year by year," he said.

Responding to the proposal for discussions between the MOF and the Employees Provident Fund (EPF) to potentially allow withdrawals for products under the base MHIT plan, O'Dell said this step is a positive development.

"But this will be an individual choice for consumers, allowing one additional avenue to help fund their MHIT.

"So I think it is a good thing. They must be able to make their own decisions about how to utilise their EPF," he noted.

To comply with the new reforms, LIAM has collaborated with the Malaysian Takaful Association (MTA) and the General Insurance Association of Malaysia (PIAM) to introduce the Medical Claims Inflation Report.

He said the report is expected to be released in the coming weeks to clarify the actual medical claims inflation rate and address the many differing figures circulating in the market.

LIAM has also completed a nationwide claims database, another regulatory initiative, which will enable the accurate calculation of the medical claims inflation rate.

The figure will be published annually for the benefit of policyholders and the general public, he said.

Preparation for MHIT Rollout

O'Dell said that significant work by the working group, comprising BNM, MOF, MOH and industry players, is being actively carried out together with appointed consultants to oversee the implementation of the MHIT plan.

"There is a lot of work to be done, but we are confident that the MHIT plan can be delivered in 2027.

"The heavy lifting is starting now, with task forces, working groups and other efforts needed to make decisions, draw up guidelines and support the basic MHIT plan," he added.

On prospects, he said Malaysia's insurance industry is expected to remain cautious in 2026 and 2027 as significant changes take place.

New customers may adopt a "wait-and-see" approach with the MHIT rollout in 2027, while agents will need to adjust from selling MHIT as a rider to offering it as a standalone product.

Despite the upcoming adjustments, O'Dell expressed confidence in the industry's resilience, noting that insurers are generally able to adapt to substantial changes over time.

-- BERNAMA