Article published in the Sin Chew Daily newspaper in February 2025.
What We Need Is Not Just an Insurance-Focused Solution, but a Comprehensive Reform of the Healthcare Ecosystem
Senior insurance actuary Logen Kanisan emphasized that with Malaysia’s medical inflation rate ranging between 10% and 15%, it has become the norm for insurance premiums to increase by 30% to 45%. He stressed that the only way to prevent skyrocketing premiums from worsening is to control medical inflation at its source.
He explained that insurance premiums are typically adjusted every three years. When setting premiums, insurance companies factor in the projected medical inflation rate for the next three years. In 2024, Malaysia’s medical inflation rate surged to 15%, which is a key reason why insurers have now calculated significantly higher premiums.
Medical Inflation Far Exceeds Global Average
According to studies conducted by the Life Insurance Association of Malaysia (LIAM) and the Malaysian Takaful Association (MTA), Malaysia’s medical inflation rate was around 9% to 10% annually between 2013 and 2018. However, Bank Negara Malaysia’s data shows that medical inflation hit 12.6% in 2023 and surged to 15% in 2024, far exceeding the global average increase of 10%.
Sustainability Issues in Investment-Linked Policies
Logen Kanisan, the Founder and Principal Consultant of Bayes Actuarial Solutions, pointed out that the rising cost of medical insurance is not only due to medical inflation but also linked to the sustainability of Investment-Linked Policies (ILPs).
“For some policyholders, their initial premiums may not be sufficient to sustain coverage until policy maturity. As a result, insurers need to adjust premiums and charge additional fees to ensure the long-term viability of these insurance products.”
“Another factor is that certain age groups, genders, and insurance plans may have been underpriced at the time of initial pricing. Insurers are now making adjustments to correct their pricing structures.”
Tailored Solutions for Different Age Groups
Kanisan also highlighted that the average medical inflation rate of 10% to 15% does not apply uniformly across all age groups. For instance, elderly individuals generally incur higher medical expenses. Additionally, issues related to fraud, waste, and abuse (FWA) are more prevalent in this demographic, driving faster growth in healthcare costs.
“Each age group has different claim ratios, payout amounts, inflation impacts, and cost control needs. Therefore, solutions must be tailored accordingly.”
He explained that insurance premiums are typically adjusted every three years. When setting premiums, insurance companies factor in the projected medical inflation rate for the next three years. In 2024, Malaysia’s medical inflation rate surged to 15%, which is a key reason why insurers have now calculated significantly higher premiums.
Medical Inflation Far Exceeds Global Average
According to studies conducted by the Life Insurance Association of Malaysia (LIAM) and the Malaysian Takaful Association (MTA), Malaysia’s medical inflation rate was around 9% to 10% annually between 2013 and 2018. However, Bank Negara Malaysia’s data shows that medical inflation hit 12.6% in 2023 and surged to 15% in 2024, far exceeding the global average increase of 10%.
Sustainability Issues in Investment-Linked Policies
Logen Kanisan, the Founder and Principal Consultant of Bayes Actuarial Solutions, pointed out that the rising cost of medical insurance is not only due to medical inflation but also linked to the sustainability of Investment-Linked Policies (ILPs).
“For some policyholders, their initial premiums may not be sufficient to sustain coverage until policy maturity. As a result, insurers need to adjust premiums and charge additional fees to ensure the long-term viability of these insurance products.”
“Another factor is that certain age groups, genders, and insurance plans may have been underpriced at the time of initial pricing. Insurers are now making adjustments to correct their pricing structures.”
Tailored Solutions for Different Age Groups
Kanisan also highlighted that the average medical inflation rate of 10% to 15% does not apply uniformly across all age groups. For instance, elderly individuals generally incur higher medical expenses. Additionally, issues related to fraud, waste, and abuse (FWA) are more prevalent in this demographic, driving faster growth in healthcare costs.
“Each age group has different claim ratios, payout amounts, inflation impacts, and cost control needs. Therefore, solutions must be tailored accordingly.”
Medical Insurance Pricing Analysis: Premium Adjustments Based on Claim Ratio and Payout Amounts
Senior insurance actuary Logen Kanisan explained that there are two key factors that determine how insurance companies set premiums: claim ratio and payout amounts. If either or both of these factors increase, insurance companies will raise premiums.
The claim ratio refers to the utilization rate of insurance, meaning the proportion of policyholders who file claims. The payout amount refers to the average claim amount per case.
“When setting initial pricing, insurance companies rely on historical data. If the actual claim ratio and payout amounts exceed the historical data used during pricing, the entire insurance group may suffer losses.”
Premiums Increase to Prevent Losses
If an insurance company detects a loss or an upcoming trend toward losses, it will increase premiums accordingly.
Kanisan emphasized that insurance pricing is based on the average values of different insurance groups. If the average claim ratio rises, it indicates that more people than expected are filing claims. Similarly, if the average payout amount increases, it suggests that medical costs are higher than projected.
“For example, an insurer may estimate that 7% of policyholders will file claims, but if the actual claim ratio reaches 10%, it creates financial pressure.”
“An increase in medical costs can also drive up insurance claims. If an insurer initially priced policies based on an estimated average hospitalization cost of RM8,000, but the actual cost rises to RM10,000, the average payout per claim will increase as well.”
Kanisan noted that some insurers offer premium discounts or wellness rewards to incentivize policyholders who maintain good health and avoid claims. However, not all insurance companies implement such initiatives.
Imbalanced Healthcare System
Kanisan highlighted that insurance is just one part of the healthcare financing ecosystem, but the entire system is currently facing challenges. Issues include rising medical costs, a lack of primary and secondary healthcare services (such as government/private clinics and specialist consultations), and low public awareness of health management, leading to an increase in chronic diseases and healthcare demand.
“Insurance mainly covers tertiary healthcare services, such as specialist surgeries and advanced medical treatments, but other aspects of the healthcare system still require significant improvements.”
Collaboration Needed for Reform
“There is no absolute right or wrong when it comes to the issue of medical insurance premiums, but we must take action and contribute within our capacities to drive reform.”
Kanisan pointed out that one of the biggest challenges is that many stakeholders—including insurance companies, healthcare providers, and regulators—often shift responsibility onto each other. Instead of focusing on blame, he believes that proactive measures should be taken.
“Government and regulatory agencies play a crucial role in reform, but these changes take time and may be influenced by political factors. Different stakeholders also tend to push for solutions that serve their own interests.”
“As private enterprises, NGOs, industry associations, and even individuals, we should all play our part in improving the system.”
He suggested that every involved party should initiate changes within their own scope to gradually transform the healthcare ecosystem.
“This is both a social issue and a business issue. Even small improvements can create positive impacts for both society and businesses.”
Senior insurance actuary Logen Kanisan explained that there are two key factors that determine how insurance companies set premiums: claim ratio and payout amounts. If either or both of these factors increase, insurance companies will raise premiums.
The claim ratio refers to the utilization rate of insurance, meaning the proportion of policyholders who file claims. The payout amount refers to the average claim amount per case.
“When setting initial pricing, insurance companies rely on historical data. If the actual claim ratio and payout amounts exceed the historical data used during pricing, the entire insurance group may suffer losses.”
Premiums Increase to Prevent Losses
If an insurance company detects a loss or an upcoming trend toward losses, it will increase premiums accordingly.
Kanisan emphasized that insurance pricing is based on the average values of different insurance groups. If the average claim ratio rises, it indicates that more people than expected are filing claims. Similarly, if the average payout amount increases, it suggests that medical costs are higher than projected.
“For example, an insurer may estimate that 7% of policyholders will file claims, but if the actual claim ratio reaches 10%, it creates financial pressure.”
“An increase in medical costs can also drive up insurance claims. If an insurer initially priced policies based on an estimated average hospitalization cost of RM8,000, but the actual cost rises to RM10,000, the average payout per claim will increase as well.”
Kanisan noted that some insurers offer premium discounts or wellness rewards to incentivize policyholders who maintain good health and avoid claims. However, not all insurance companies implement such initiatives.
Imbalanced Healthcare System
Kanisan highlighted that insurance is just one part of the healthcare financing ecosystem, but the entire system is currently facing challenges. Issues include rising medical costs, a lack of primary and secondary healthcare services (such as government/private clinics and specialist consultations), and low public awareness of health management, leading to an increase in chronic diseases and healthcare demand.
“Insurance mainly covers tertiary healthcare services, such as specialist surgeries and advanced medical treatments, but other aspects of the healthcare system still require significant improvements.”
Collaboration Needed for Reform
“There is no absolute right or wrong when it comes to the issue of medical insurance premiums, but we must take action and contribute within our capacities to drive reform.”
Kanisan pointed out that one of the biggest challenges is that many stakeholders—including insurance companies, healthcare providers, and regulators—often shift responsibility onto each other. Instead of focusing on blame, he believes that proactive measures should be taken.
“Government and regulatory agencies play a crucial role in reform, but these changes take time and may be influenced by political factors. Different stakeholders also tend to push for solutions that serve their own interests.”
“As private enterprises, NGOs, industry associations, and even individuals, we should all play our part in improving the system.”
He suggested that every involved party should initiate changes within their own scope to gradually transform the healthcare ecosystem.
“This is both a social issue and a business issue. Even small improvements can create positive impacts for both society and businesses.”
