Insurance Under Pressure As Living Costs Climb

As the economy grows increasingly challenging, many Malaysians are being forced to reassess every ringgit they spend, ensuring that every expense is both necessary and worthwhile.

Insurance ownership has become one of the “casualties” of the rising cost of living following the increase in premium rates beginning this year, with media reports quoting insurance and takaful agents who said many of their clients have cancelled their policies to ease financial burdens.

According to them, clients have revealed that they can no longer afford to pay the monthly premiums and view insurance protection as less essential compared to other basic needs.

Last November, the Life Insurance Association of Malaysia (LIAM), Malaysian Takaful Association (MTA) and General Insurance Association of Malaysia (PIAM) announced that premiums for medical insurance would rise between 40 and 70 per cent starting in 2025.

The increase was attributed to the rising cost of healthcare and medical inflation. This raises the question — is insurance ownership truly less important than other necessities given the current situation?

RISING HEALTHCARE COSTS

Commenting on the issue, Prof Dr Muhammad Ridhwan Ab Aziz, a lecturer in Islamic Banking and Finance at the Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, said that insurance and takaful play an important role in helping individuals manage and minimise risks — not only related to health but also other hazards encountered in daily activities, including commuting to work.

In Malaysia, the insurance and takaful industries are regulated under several acts, including the Insurance Act 1996, Takaful Act 1984, and the Central Bank of Malaysia Act 2009, all of which function to protect consumer interests.

“The insurance and takaful industries in Malaysia have grown rapidly in line with increasing consumer needs. Both provide risk protection to consumers, but the key difference is that takaful products are Shariah-compliant, making them a better alternative for Muslims who wish to avoid elements of usury.

“Otherwise, there isn’t much difference as both ensure that policyholders receive compensation in the event of an incident, illness, or even death, depending on policy terms — making insurance and takaful essential in a modern society,” he told Bernama.

However, he said, many are beginning to reconsider the need for insurance and takaful ownership due to the premium hikes, especially among long-time contributors who have never made a claim.

“The premium increase is largely due to higher costs in the healthcare sector, including treatment and medication — something inevitable with the advancement of medical technology. Therefore, it is not fair to place all the blame on insurance providers.

“It must be remembered that they are also bound by laws and regulations, with Bank Negara Malaysia (BNM) serving as the regulator,” he said.

Recently, Second Finance Minister Datuk Seri Amir Hamzah Azizan said that persistent medical cost inflation has caused the claim ratio for medical and health insurance and takaful (MHIT) to increase significantly.

To ease the burden on consumers, Amir Hamzah said the government, through the Ministry of Health, will prioritise comprehensive healthcare reforms to address medical cost inflation and the fees charged by private hospitals.

BALANCING PROTECTION AND AFFORDABILITY

Given the current situation, Muhammad Ridhwan said that the protection provided by insurers and takaful operators today is reasonable and corresponds with the contributions paid by policyholders.

He noted that some providers have had to raise premiums to strengthen medical-related insurance funds due to the rising cost and long treatment periods of certain illnesses.

“For example, cancer treatment usually requires intensive care and may take two to three years. In such cases, insurance or takaful contributions are worthwhile given the cost of treatment.

“In essence, insurance and takaful are designed to provide financial protection not only for oneself but also for one’s family. Many people assume that insurance only matters when one is sick or involved in an accident, but in truth, it eases the family’s financial burden when misfortune strikes — without depleting existing savings,” he said.

He added that to cope with higher premiums, policyholders must be smart in assessing and choosing insurance plans that suit their needs and financial capacity.

He also noted that some companies offer renegotiation options to help ensure that policyholders are not overly burdened.

“In this regard, insurers, takaful operators, and their agents can play a role in helping policyholders make wise choices that benefit both sides.

“In my opinion, cancelling a long-standing plan may not be a wise decision given the many risks and uncertainties we face daily.

“Perhaps policyholders should reassess which protections are most essential and maintain those within their means rather than cancelling their entire policy,” he said.

NEED FOR AFFORDABLE OPTIONS

Meanwhile, Dr Azreen Roslan, senior lecturer at the Faculty of Business and Management, Universiti Teknologi MARA, said that given today’s economic uncertainty and climate-related disasters, medical insurance and takaful are a necessity.

“Insurance and takaful are no longer just policy documents — they are ‘tickets’ that allow individuals to fight for recovery (from illness or injury) without worrying about financial constraints.

“In an unstable economy, the loss of income or savings due to an accident, death, or critical illness can be devastating. For instance, a struggling family may not be able to bear a RM100,000 medical bill or the loss of their main breadwinner.

“This is where insurance or takaful acts as a shield that prevents a crisis — such as job loss — from turning into a financial catastrophe when savings are depleted, or loans are needed to pay huge hospital bills,” she said.

However, she acknowledged that consumers must also interpret these needs realistically according to their financial capabilities.

In this context, she said the industry must ensure that the protection systems they offer remain inclusive and affordable despite the rise in premiums.

According to Azreen, BNM — as the institution responsible for regulating and supervising insurers and takaful operators — should play an active role in ensuring that premium rates are set transparently so that consumers are not unduly burdened.

EXISTING REGULATORY CONTROLS

Azreen added that current laws do not allow insurance companies and takaful operators to arbitrarily raise their policy premiums.

All companies must comply with guidelines and regulatory frameworks set by BNM, including the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA), which safeguard customer interests.

Under these acts, companies are required to practise fair business conduct and have efficient internal mechanisms to handle customer complaints.

“Insurance and takaful companies must have transparent risk assessment policies. Any premium increase must be supported by solid data and risk justification, not arbitrary decisions.

“This is evident from BNM, the Treasury, and the Ministry of Health’s ongoing efforts to review and draft stricter guidelines to ensure insurers and takaful operators consider multiple factors before raising premiums,” she said.

In August, Bank Negara Malaysia Governor Datuk Seri Abdul Rasheed Ghaffour was quoted as saying that the government is implementing five key pillars and 11 recommendations aimed at improving medical services, strengthening implementation, and addressing rising health insurance premium costs.

The measures include restructuring medical and health insurance and takaful products, as well as enhancing basic products expected to be completed by the end of this year.

Abdul Rasheed said these efforts are expected to reduce payment costs and ensure a more sustainable healthcare system.

— BERNAMA