Over 90 cents of every ringgit collected in medical insurance premiums in Malaysia goes directly toward paying out claims. This figure comes from the Life Insurance Association of Malaysia (LIAM), and it tells a story that is very different from the suspicion that insurers are pocketing most of what you pay. The honest problem is not insurer profiteering — it is that the underlying cost of what they are paying out is rising faster than any pricing model was built to handle.
Where Your Premium Ringgit Actually Goes
The breakdown is roughly this:
- Claims payments: approximately 90% — every hospitalisation, surgery, specialist visit, and diagnostic scan that gets reimbursed comes from this pool
- Operating costs: approximately 7–8% — administration, distribution (your agent’s commission is part of this), and regulatory compliance
- Regulatory reserves: approximately 2–3% — BNM requires insurers to hold capital reserves as a financial buffer; this is not profit
What this leaves for the insurer as profit on the medical book is very thin — and in some years, negative. LIAM has stated publicly that existing 100% full-coverage plans are no longer sustainable against current claims inflation levels. When a pool pays out more than it collects, the only options are to reprice, restructure the product, or exit the market.
Insurers Do Make Profit — Just Not from Skimming Your Premium
This is a distinction worth understanding clearly. Insurance companies do generate profit — from investment returns on the reserves they hold, from other business lines (life insurance, general insurance, fire and motor cover), and from well-managed pools that are priced accurately.
What they cannot do is subsidise one pool with money from another. The medical insurance risk pool is ring-fenced by regulation. Profits from Allianz’s motor insurance book, for example, cannot be used to keep your medical premiums artificially low. Equally, if your medical pool generates a surplus in a good year (lower claims than expected), that surplus stays within the medical pool as reserve.
This ring-fencing is protective — it means your medical cover is never raided to subsidise another product. But it also means there is no hidden pot of money that insurers can draw on when claims costs rise. When claims go up, premiums follow.
So What Is Actually Driving Premiums Up?
Medical inflation in Malaysia is running above 16% per year. This is the actual root cause of premium increases.
Several factors contribute to this:
- Overservicing: comprehensive, zero-deductible plans remove almost all price signals for patients and sometimes for providers. If the insurer pays regardless of which test is ordered or which procedure is performed, there is reduced incentive to question whether it is necessary.
- Ageing population: older policyholders make more and larger claims. As the insured pool ages, average claims costs per person rise.
- Rising healthcare costs: hospital room rates, surgical fees, specialist consultation fees, and the cost of medications and devices have all increased significantly over the past decade.
- Adverse selection: when healthy people find premiums too high and leave the pool, the remaining pool skews toward less healthy, higher-claiming members — pushing average costs up further.
The right question when you get a repricing notice is not “Is the insurer stealing from me?” It is “Is the insurer pricing this pool accurately?” In most cases, the answer to the second question is yes — they are catching up to a claims reality that has been running ahead of premiums for years.
What “Sustainable” Actually Means for Your Coverage
A sustainable medical insurance pool is one where premiums collected are sufficient to pay claims as they arise, maintain required reserves, and cover reasonable operating costs. A pool that consistently pays out more than it collects is not a sign that your insurer is generous — it is a sign that the product is heading toward restructuring or repricing.
When a pool is unsustainable, there are three outcomes:
- Repricing — premiums are raised to match actual claims costs. This is what most Malaysians are experiencing right now.
- Product restructuring — co-payments, deductibles, and coverage limits are introduced to reduce claims per policy. This is the direction the new Base MHIT plan takes.
- Market exit — if an insurer cannot price the pool sustainably, they withdraw the product. This has happened with some niche medical products in Malaysia already.
None of these outcomes reflect a desire to extract more money from policyholders. They reflect the arithmetic of a pool that was priced below its actual cost for a sustained period.
What This Means for Your Decision-Making
Understanding where your premium goes changes the frame for how you respond to a repricing notice or a recommendation to switch plans.
If your insurer has repriced your plan upward, the right questions to ask are:
- What is my claims history? If you have made large claims, the repricing partly reflects your actual usage. If you have made almost no claims, you are experiencing the effect of being in a pool where other members have claimed heavily.
- Is a deductible or co-payment plan a better fit now? Lower premiums in exchange for absorbing a defined amount per claim is a reasonable trade for many people — see how deductibles and co-payments work.
- Is my current cover more than I need? Some comprehensive plans include benefits you are unlikely to ever use. A policy review can identify whether you are paying for coverage that does not match your actual risk.
Frequently Asked Questions
Are insurance companies making huge profits from medical premiums in Malaysia?
No. LIAM has stated publicly that over 90 cents of every premium ringgit goes toward paying claims. The medical pool is ring-fenced from other business lines, meaning insurer profits elsewhere cannot inflate the medical book, and the medical pool cannot subsidise other products.
Why does my premium keep going up if the insurer is not profiting?
Because medical claims costs in Malaysia are rising at over 16% per year. Premiums need to keep pace with what the pool actually pays out. If premiums were held flat for years when claims were rising, the pool accumulated a deficit that now has to be corrected — hence the sharp repricing some policyholders are experiencing.
Can I find out how much of my premium went to claims?
Insurers do not typically break this down at an individual policy level. What is publicly reported is pool-level or industry-level data, which is what LIAM’s figures reflect. Your individual experience depends on which pool you are in, your age band, and your plan type.
Is it worth switching insurers if I am unhappy with my repricing?
Possibly, but with important caveats. Any pre-existing conditions you have declared on your current plan will be assessed again on a new application. Depending on your health history, switching could result in exclusions that your current plan does not have. Get advice before switching — the grass is not always greener.
What is the LIAM, and why should I trust their figures?
The Life Insurance Association of Malaysia (LIAM) is the industry body representing life and medical insurance companies in Malaysia. It publishes aggregate industry data including claims ratios. While it represents insurers’ interests, the claims ratio data it publishes is based on audited financial returns submitted to BNM — it is not marketing material.
Have a question that wasn’t covered here? Our advisors at FINNO. offer free, no-obligation consultations — no hard sell, just honest answers about what’s right for your situation.