What is Bank Negara Malaysia doing to address rising insurance premiums?

Premiums for medical and health insurance have been rising across Malaysia, and many households feel the strain each time a renewal notice arrives. The trend did not appear overnight. Medical cost inflation has outpaced general inflation, private hospital fees have climbed, and the level of post pandemic utilisation has remained high as people return to postponed treatments. Claims have therefore risen faster than premiums in recent years, which puts pressure on insurers and takaful operators to reprice their products to keep them viable. In this environment, Bank Negara Malaysia has stepped in with a mix of immediate safeguards and longer term structural rules. The goal is to slow the pace of increases for most customers, protect the most vulnerable, and push the market toward designs and practices that can hold premiums in check over time without hollowing out benefits.

The most visible relief is an interim set of measures that smooths the way any necessary increases are applied. Rather than allowing a sudden step up that shocks family budgets, the central bank requires insurers and takaful operators to spread adjustments over a minimum of three years. This staged approach covers the period that follows the announcement and is intended to give households time to absorb changes gradually. The policy also sets an outcome target. The majority of affected customers should face smaller year by year changes, with the expectation that most will see yearly increases held below a defined threshold. Insurers have begun to explain their repricing using this same framing because it is a regulatory requirement that puts the consumer lens at the center of the process. The idea is simple and practical. A well signposted climb is easier to manage than a cliff.

Older Malaysians receive extra protection within this transition. Policyholders aged sixty and above who remain on the minimum tier of medical cover are granted a pause on adjustments linked to medical claims inflation for a defined period. That pause does not wipe away every possible increase, because other product features and cost drivers still exist. It does, however, give seniors on basic plans breathing room at a stage of life when health care usage tends to rise and incomes often stagnate. This window allows time to review coverage needs and household budgets without the immediate pressure of another hike tied to claims trends. The principle behind this safeguard is social as much as it is financial. A safety net is only meaningful if those who are most exposed can hold on to it.

Affordability is not only about the size of an increase. It is also about whether customers have viable alternatives when a plan becomes too costly. The interim rules therefore require companies to provide suitable alternative products at the same or lower premiums, with no new underwriting and no switching fees. This provision matters more than it might seem at first glance. Underwriting can be a wall for long standing customers whose health status has changed. Without relief, a person who wants to downgrade from a rich plan to a simpler one could be blocked by medical evidence or end up paying a much higher price because of a new assessment. By removing that barrier, the regulator gives households a workable path to stay insured by trading features they no longer need for affordability they do. Companies that do not have such options are expected to make them available within the transition timeline so that customers are not left with an all or nothing choice.

Alongside these interim steps sits a detailed policy document that took effect in 2024 and now governs the life cycle of medical and health insurance and takaful products. The document reaches from product design and pricing to repricing mechanics, pooling of risks, commissions, monitoring, and conduct standards. It binds both conventional insurers and takaful operators and introduces a common language for how products should be built and managed. The aim is to prevent a race to the bottom where firms compete through opaque benefit structures, teaser pricing, or short term tactics that feel attractive today but lead to disorderly corrections later. By standardising the foundation, the framework supports a healthier form of competition that focuses on service quality, network strength, and transparent value rather than complexity that confuses buyers.

A notable feature of the new architecture is a push toward plan designs that share costs in a way that balances incentives. Companies must offer an option that includes a co payment feature. Co payment is not a blunt instrument that simply shifts costs to patients. It is a choice that allows customers to accept a higher out of pocket share at the point of claim in exchange for a lower ongoing premium. This type of design is common in many mature markets because it reduces overutilisation and aligns decisions among patients, providers, and insurers. By making it a mandatory option, Bank Negara Malaysia expands the menu of sustainable choices without forcing every policyholder into the same mould. Families can decide whether they prefer predictable monthly spending with richer coverage or a leaner premium that comes with more cost sharing if a claim arises.

None of these decisions emerged in isolation. The regulator’s monitoring has shown that total claims for medical and health coverage have grown much faster than premium income in the years after the pandemic. When the amount paid out per ringgit collected rises persistently, companies face a basic arithmetic problem. They can raise prices, reduce benefits, ration access through network strategies, or cut service quality. The interim measures and the policy document are designed to change that equation. The first softens the adjustment so that households can plan. The second tries to limit the need for such sharp corrections by encouraging products and behaviours that keep the system sustainable. Together, they form a bridge from the present to a more stable future.

Transparency completes the picture. The central bank expects companies to explain repricing clearly and to give customers tools that show how choices such as room and board limits, specialist fees, and hospital selection affect both claims and future premiums. Plain language consumer guides have become more common and are an important part of the toolkit. When people understand how non guaranteed features work and how upgrades today can change what they pay tomorrow, they can make decisions that fit their long term budget rather than reacting to surprises after the fact. Information will not stop inflation, but it narrows the gap between what buyers think they purchased and what the contract actually delivers.

Malaysia is not new to price liberalisation in insurance. Motor and fire tariffs were loosened in stages starting in 2017 after years of fixed rates. That earlier reform allowed prices to match risk more closely and nudged the market to innovate. It also taught regulators and companies that sequencing and safeguards matter. Changes are more orderly when rules are clear, timelines are known, and consumer protections cushion the transition. The medical and health measures draw on that experience. They do not attempt to command prices in a market where underlying hospital costs are rising. Instead, they set boundaries and expectations so that adjustments happen in manageable increments and with avenues for customers to adapt.

For individual policyholders, the implications are concrete. If you have received a repricing notice, the default assumption under the interim regime is that any increase will be spread over several anniversaries rather than landing in a single year. If you are over sixty and on the minimum tier, a pause linked to medical claims inflation gives you time to reassess your coverage needs without another immediate claims driven increase. If the revised premium still feels heavy, engage your insurer about the alternative plan option at the same or lower premium that does not require new underwriting. This is particularly valuable if your health has changed since you first bought the policy. If you are comfortable with a higher out of pocket share in the event of a claim and prefer to keep your monthly payment lower, ask about the co payment option that must be offered under the new rules. These steps are not investment advice. They are practical ways to use the consumer protections that now exist.

There is still active debate on the edges of the framework. Some lawmakers and stakeholders have urged the authorities to extend the concept of a soft cap more explicitly to certain group schemes, which sometimes see steeper jumps because of how their risk pools and contracts are structured. The Ministry of Health has also been reviewing how private hospital prices are set and disclosed, because insurance outcomes ultimately depend on provider charges and clinical practice patterns. Aligning incentives among hospitals, insurers, and patients will take time. The first wave of rules does not attempt to solve every problem in one stroke. It tries instead to create conditions where coordination is more likely, data is clearer, and the path to sustainable coverage is visible.

In the end, Bank Negara Malaysia’s approach recognises that affordability and sustainability cannot be separated. A system that keeps premiums low today by ignoring claims pressures will fail tomorrow when benefits have to be cut or service quality slips. A system that forces through large increases without regard for household budgets will push families out of coverage and concentrate risk among those who can least bear it. The current mix of phased adjustments, protections for seniors, guaranteed downgrade paths without new underwriting, mandatory co payment options, and a comprehensive rulebook for product governance seeks a middle course. It does not promise that premiums will stop rising. It promises that increases will be managed, that customers will have choices, and that the industry will be steered toward practices that reduce the need for sudden corrections later on.

For now, the most useful action is straightforward. Check your policy anniversary date, read the notice from your insurer carefully, and ask how the interim measures apply to your specific plan. Request a side by side comparison of alternatives at the same or lower premium and ask the company to confirm in writing that no new underwriting will be required if you switch within the permitted window. Consider whether a co payment option aligns with your tolerance for risk at the point of claim and your monthly budget. Keep records of every conversation and preserve copies of product summaries and benefit illustrations. These habits make it easier to review decisions over time and to hold providers to clear standards. The policy environment has been rewritten with households in mind. The more you engage with it, the better your chances of staying protected at a price you can sustain.