PETALING JAYA: The interim measures introduced by Bank Negara to address the rising cost of medical insurance premiums could pose some earnings pressure on insurers.
Commenting on these measures, Kenanga Research said chief among them is annual premium adjustments to medical and health insurance and takaful products with repricing to be staggered over a minimum of three years at an annual cap of 10%.
Overall, it said this is mildly negative for insurers as premium adjustments may not sufficiently keep up with the pace of medical cost inflation.
“Following the three-year premium adjustment period, we opine that insurance and takaful operators (ITOs) would face greater earnings pressure should claims be made greater than it could be adjusted for.
In addition, the leeway for lapsed policyholders to reinstate older policies without additional underwriting requirements could also expose a higher claims probability.
“Overall, it could lead to a higher combined ratio for ITOs in the medical segment, notwithstanding medical inflation is expected to persist beyond the three-year premium adjustment cycle.
“With regards to the ITOs under our coverage, medical insurance makes up less than 10% of total gross premium contributions in both LPI Capital Bhd
and Syarikat Takaful Malaysia Keluarga Bhd, and therefore are not expected to be significantly dented by the interim measures.
“Most of their claims paid are derived from motor (50%) and credit-related products (50%),” the research house said.
The research house, however, said it is mildly positive on this latest development to private healthcare operators which provides medium-term relief and not as bad as initially feared pending more clarity from the diagnostic-related group (DRG) system.
In fact, it noted that hospitals under its coverage namely IHH Healthcare Bhd and KPJ Healthcare Bhd have been embarking on value-based healthcare, which is similar to the DRG system.
Pending further development and clarity on the DRG, Kenanga Research continues to remain positive on the long term growth prospects of the healthcare sector.
The research house said the sector would continue to be underpinned by an ageing population, rising affluence and rising cases of chronic diseases globally.
Its top pick remains IHH.
