Critical safety net

THE Social Security Organisation’s (Socso or Perkeso) Employment Injury Scheme for Non-Work Accidents, or Lindung 24 Jam, is sparking debate among Malaysian workers over whether they should remain in the scheme and whether private insurance is still necessary.

Effective June 1, the scheme provides round-the-clock protection for non-work-related accidents, covering employees even while travelling for personal reasons, spending time with family or carrying out everyday activities.

Benefits include medical treatment, temporary and permanent disability payments, survivors’ benefits, rehabilitation support and a RM3,000 funeral benefit.

Funded entirely by employees, contributions start at 0.75% of monthly wages for the first two years before rising to 1.25% from the sixth year onwards, subject to a salary cap of RM6,000, meaning that if you earn more, the deductions will only be based on the maximum RM6,000 threshold.

Notably, employees can choose to opt out of the scheme and remain in the existing Employment Insurance Scheme, which entails less deductions.

The expanded safety net also raises this question: If they opt to remain in the scheme, will their private insurance still be necessary?

“Stronger Socso benefits should be seen as reinforcing Malaysia’s basic social safety net, not replacing private insurance.

“The purpose and scope of Socso coverage also differ from those of a typical private insurance plan,” senior economist at RAM Rating Services Bhd Woon Khai Jhek tells StarBiz 7.

While the scheme is new to Malaysia, he says the scheme reflects a broader global shift towards strengthening social protection. He notes Malaysia still lags many upper-middle-income economies in social protection coverage, suggesting there remains room to strengthen the country’s safety net.

Woon says economists believe the scheme could generate broader economic and fiscal benefits.

“Broadly speaking, this enhancement also reflects the global trend, whereby the share of the world’s population covered by at least one social protection benefit rose to 52.4% in 2023 from 42.8% in 2015, according to the International Labour Organidation’s World Social Protection Report 2024-2026,” Woon adds.

In Malaysia, the corresponding figure is 29.2%, well below the 71.2% aggregate for upper-middle-income countries.

The consensus among economists is that while the new scheme significantly strengthens social protection, it is unlikely to make private insurance obsolete.

MARC Ratings Bhd chief economist Ray Choy describes the expanded scheme as complementing rather than replacing private insurance, saying it provides “much-needed systemic competition” to insurers that have been regularly raising premiums. Private insurance, however, remains important for higher-income earners seeking broader protection, while Socso fills an important gap for lower-income workers who have traditionally been priced out of the insurance market.

The debate comes as Malaysians grapple with sharp increases in medical insurance premiums, prompting some policyholders to downgrade coverage or surrender policies altogether.

Choy says fears that the Socso scheme could crowd out private insurers are overstated because insurers have historically had limited penetration among lower-income households.

“The private insurance industry has very little coverage of lower-income segments, which is not their target market due to pricing, hence the ‘crowding out’ effect is unlikely,” he says.

Woon shares that view, saying that stronger Socso benefits are “more likely to complement private insurance by helping close protection gaps among those who may not be able to afford private coverage”.

He notes Malaysia’s life insurance and family takaful penetration rate remains around 60% to 70%, well below levels in many developed countries.

“In my view, the bigger policy priority is to expand effective protection for those who currently have none,” he says.

Centre for Market Education chief executive officer Carmelo Ferlito also believes Socso largely complements private insurance.

“Socso provides a basic social safety net, while private policies can offer higher compensation, broader medical coverage and protection tailored to individual circumstances,” he says.

However, he cautions that some lower-income households may eventually forgo personal accident policies if they perceive Socso as sufficient, although the impact is likely to be limited to products that closely overlap with Socso’s benefits.

“Some crowding out is possible, especially among households with limited disposable income. Once workers perceive themselves as adequately protected by Socso, they may consider private accident insurance less necessary.”

That distinction is important because Lindung 24 Jam primarily protects against accidental injuries outside work through wage replacement, disability benefits, rehabilitation services and financial support for dependents.

It does not provide comprehensive hospitalisation, critical illness cover, life insurance or access to private hospitals – areas where private insurers continue to play a dominant role.

Rather than viewing Socso and private insurance as competing products, Choy says both should serve distinct roles within Malaysia’s social protection framework.

“Socso could manage common health risks for basic coverage, while private insurers could provide supplementary coverage which addresses lower probability issues and differentiated products such as hospital ward upgrades,” he says.

Choy says stronger social protection must also be matched by greater investment in healthcare capacity to prevent rising demand from fuelling medical inflation.

He also warns against the “buffet syndrome”, where patients or healthcare providers overuse medical services because treatment costs are largely borne by the system.

“To strike the right balance, a small co-payment that scales with the bill should be paid for by the contributor, proportionate to income level. Without the mitigation of moral hazard, an accumulation of the ‘buffet syndrome’ can eventually add to indirect costs to the state,” he says.

The expanded scheme could also reshape the private insurance market. As Socso assumes a larger role in providing basic accident and disability protection, insurers may increasingly focus on higher-value offerings such as comprehensive medical, critical illness and disability income plans.

Ferlito, however, stresses that competition remains central.

“More choices are always better than fewer choices,” he says, adding that Socso’s expanded protection is welcome, as long as it remains one option among many rather than crowding out private providers.

Beyond individual protection, economists believe the scheme could generate broader economic and fiscal benefits.

Woon says broader Socso coverage strengthens household financial resilience, reduces vulnerability to income shocks and helps smooth consumption during economic downturns.

Over time, a properly funded contribution-based social insurance system can also complement government welfare programmes, allowing public resources to be directed towards other structural priorities.

Choy says a credible social safety net reduces workers’ financial anxiety, improves labour mobility and encourages entrepreneurship because employees feel better protected against unexpected accidents.

Ferlito is more measured, saying improved rehabilitation and return-to-work support should help injured workers rejoin the workforce more quickly, but the long-term impact on productivity depends on whether the scheme remains financially sustainable.

For workers deciding whether to remain in the scheme, economists say the issue is less about choosing Socso over private insurance than understanding the role each plays.

Lindung 24 Jam offers affordable protection against accidents and disability, particularly for workers who struggle with rising insurance premiums. However, it does not replace comprehensive medical, critical illness or life insurance.

Rather than signalling the end of private insurance, the scheme is more likely to redefine the relationship between public and private protection – strengthening Malaysia’s social safety net while pushing insurers to develop products that offer value beyond basic statutory coverage.