CONGRATULATIONS to Daniel Khoo for his informed article entitled “Private hospitals, insurers stirred as claims rise” (The Star, Sept 30; online at tinyurl.com/2s3d4v8j).
As noted by Khoo “Liam [Life Insurance Association of Malay-sia] data shows total annual health insurance premiums collected last year was RM44.15bil, comfortably outpacing the payout amount for 2022 by over seven times”.
The premium collected is meant to meet claims, acquisition costs, management expenses, and shareholder returns. It will be informative if Liam will release data on how the premium collected is shared among these varied interests.
There is no mention of the return on investment of the premium that is collected upfront. In most countries this is used to help mitigate the future premium payable by the insured due to inflation.
Insurance works by pooling premium funds for risk sharing – the risk is spread across the entire pool. This means that the financial burden of a loss is shared among all policyholders, rather than falling solely on the individual who experiences the loss.
In effect, individual policyholders can access a much larger pool of funds than they would be able to create on their own, providing them with greater protection against financial losses.
Personal health insurance provided by Malaysian insurance providers became available in the 1990s. These plans typically provided coverage for basic medical expenses such as hospitalisation and surgery, and were often sold as add-ons to existing life insurance policies.
Over the last 20 years medical insurance providers have gradually improved their plans to meet changing requirements in the market.
However, there is an unheal-thy practice that penalises policyholders that remain with their older plans and do not or are unable to migrate to newer plans. This is in effect a form of manipulating the shared pool to justify increasing the premiums of policyholders.
It will be more equitable if each company maintains one common pool/fund for medical plans. Newer plans can have different pricing with better benefits, but claims are paid out of the common pool. Older plans which have lower benefits can be paid as per the older schedule of benefits.
In this manner the older pools will not be cannibalised by healthy policyholders migrating to the latest plan. Cannibalisation of older pools results in higher premiums for the more vulnerable policyholders who remain due to poor health or financial constraints.
Bank Negara Malaysia needs to remedy the situation if the insurers do not.
SHIVANI SOTHI RACHAGAN
Kuala Lumpur
