Great Eastern Life Insurance has agreed to contribute the initial seed funding to a national health insurance scheme for the bottom 40% of the population (B40) in Malaysia, said Finance Minister Lim Guan Eng in his Budget 2019 speech last week.
The government will pilot the national health insurance programme, called the B40 Health Protection Fund scheme, which will be managed by Bank Negara Malaysia (BNM).
Under the scheme, the government together with private insurers will provide free protection against the top four critical illnesses in the country and up to 14 days of hospitalisation benefits, starting in January.
The free protection per person against the top four critical illnesses will be up to a sum of MYR8,000 ($1,920), while the hospitalisation income cover will be MYR50 per day or MYR700 per annum.
Mr Lim said that the scheme “is a big step for Malaysia because for the very first time, together with the Employees Provident Fund (EPF) and the Social Security Organisation, we are starting a more comprehensive social welfare protection coverage, particularly for the middle- and lower-income groups”.
He added, “We are expecting the fund size to grow with more partnerships and contributions with other insurance companies.”
The Great Eastern Life contribution is reportedly in exchange for an exemption for the insurer from having to sell a 30% stake in its wholly owned Malaysian unit to local investors as required by BNM.
“If all the foreign-owned insurance companies participate in this scheme, the amount of money available will be around MYR10bn and that will be very substantial,” a source told The Edge Markets. “This scheme will provide medical coverage for the poor without burdening the government’s financial and hospital resources.”
The contribution is worked out based on 30% of the projected profits of the insurance companies over 10 years.
Malaysia liberalised the foreign ownership rules in 2009 under the Financial Sector Master Plan and increased the limit of foreign equity participation in insurance companies and takaful operators to 70% from 49%. BNM allowed higher foreign equity participation for foreign insurers that are able to facilitate the consolidation and rationalisation of the insurance industry. At present, 11 insurers—including Great Eastern, AIA and Tokio Marine—are wholly owned by foreign firms.
Mr Lim also said, “It is also our wish and intent that as the B40 households learn the benefit of insurance and takaful, they will over time acquire their own protection policies.”
BNM launched the low-premium ‘Perlindungan Tenang’ in 2017 to make available affordable, accessible and simple insurance and takaful products for Malaysians costing as little as less than a packet of cigarettes a month.
To promote Tenang, the government proposes to waive stamp duty for all Tenang Insurance products for two years beginning 1 January 2019.
Overall, to encourage a higher insurance take up rate, the combined tax relief for the EPF contribution and life insurance or takaful deduction will be separated into MYR4,000 for EPF contribution and MYR3,000 for takaful or life insurance premiums. For civil servants under the pension scheme, the tax deduction will be up to MYR7,000.
The Life Insurance Association of Malaysia (LIAM) says that it welcomes the separation of the tax relief, stating that it “will give life insurance the right focus and encourage individuals to purchase this critical form of protection”.
LIAM president Ms Anusha Thavarajah said, “The savings in EPF will meet the individual’s retirement needs, while life insurance will ensure that the family is financially protected if the breadwinner meets with an unfortunate event.”