Private hospitals and insurers in Malaysia are caught in a cost-shifting cycle that existing regulation has not been designed to break, and policyholders are bearing the financial consequences. That is the central finding of a Public Accounts Committee (PAC) inquiry that culminated in a 17-recommendation report tabled in the Dewan Rakyat on June 24. The inquiry ran across 19 formal proceedings between Feb. 24 and Aug. 14, 2025, with 21 witnesses drawn from the insurance and takaful sectors, private hospitals, and key regulators including Bank Negara Malaysia (BNM).
The figures presented by the insurance sector point to a market under sustained actuarial pressure. According to Free Malaysia Today, Life Insurance Association of Malaysia (LIAM) CEO Mark O’Dell told the committee that medical inflation averaged 16.1% per year between 2021 and 2023 – a rate at which premiums recalibrated on a standard review cycle risk falling behind claims costs before the next adjustment is triggered. He said the industry’s medical insurance portfolios had been loss-making for three consecutive years as a result.
O’Dell addressed profitability questions directly, noting that 92.96 cents of every premium ringgit collected was going toward claims. These figures were presented by the industry body and were not independently verified against BNM’s published data during the proceedings. “When they say claims are at 92.96%, it simply means that for every dollar and ringgit, 92.96% is used to pay claims,” he said. Industry profit margins, he added, were running at roughly 10%. He also identified two product features as contributors to the inflation problem: the cashless card and the “100% as charged” benefit, which covers hospital admission or day surgery costs in full. Both were introduced to widen access to care but had, over time, reduced policyholders’ sensitivity to treatment costs, feeding into aggregate healthcare spending.
The more contested territory in the hearings involved hospital pricing, where witnesses identified two distinct but related mechanisms pushing costs higher. According to Free Malaysia Today, Allianz Malaysia Bhd chairman Zakri Khir – a former Social Security Organisation chairman who brought a regulatory perspective to the proceedings – told the committee on June 19, 2025, that hospitals faced a structural incentive to maximize utilization of expensive equipment to recover capital outlay. A lithotripter, used to break up kidney stones, costs around US$1 million, or RM4.12 million. Hospitals targeting a return of at least six times that figure, he argued, had a financial logic for pushing utilization regardless of clinical need. “The only way to recoup that cost is to charge higher prices. So, it’s not fair pricing,” he said. He characterized the behaviour as commercially rational but said a clearer standard of fair pricing was needed across the sector.
AIA Berhad CEO Heng Zee Wang raised a separate concern: that negotiated discounts between insurers and hospitals were largely cosmetic, with reductions in one billing line offset by increases elsewhere. Where Zakri pointed to capital recovery incentives, Heng identified procedure overutilization – the ordering of treatments patients did not clinically require, with MRI scans and endoscopies cited as examples – as the more material cost driver. He also pointed to the absence of any consistent pricing rationale across the hospital market. “Why does one hospital charge RM5,000 for an MRI, another RM3,000, and another RM1,500?” he said, as reported by Free Malaysia Today. The consequences, he noted, extended beyond the individual case. “If one person is overcharged, the nine others in the insurance pool will have to pay for it,” he said.
Prudential Assurance Malaysia Berhad chief health officer Manisha Keyal identified what she described as a structural imbalance connecting both sides of the debate. BNM oversees the insurance sector through the RESET – Regulatory Enhancement for Sustainable and Efficient Takaful/Insurance – framework, which governs how insurers price and adjust their products. No comparable mechanism exists governing how private hospitals revise their charges over time. “A similar governance framework is needed for private hospitalisation costs – how these costs can increase, what the parameters for increases are, and how we can rationalise them,” she said, as reported by Free Malaysia Today. This asymmetry sits at the centre of the PAC report’s recommendations, which deliberately target both sides of the cost equation.
The committee’s recommendations carry concrete operational consequences for insurers and takaful operators. According to The Sun, PAC directed BNM to push the sector toward incremental annual repricing – a shift that would require actuarial and product teams to support more frequent, smaller premium adjustments rather than periodic large increases. The committee also called on BNM to issue clearer operational guidelines under RESET and to impose penalties on any insurer found manipulating the interpretation of interim measures already in place.
On the hospital side, PAC called on MOH and the Ministry of Domestic Trade and Cost of Living to establish a pricing control mechanism for medicines and medical equipment, expedite the rollout of the Diagnosis Related Group (DRG) billing system in the private sector, and amend the Private Healthcare Facilities and Services Act 1998 to extend MOH’s regulatory reach to hospital charges beyond doctors’ fees – a legislative change that would alter the cost base against which medical insurance products are priced. The Malaysia Competition Commission was called on to provide guidance on discount negotiation practices between hospitals and insurers to ensure those arrangements did not restrict patient access to care.
What the report leaves unresolved is the question of accountability. The 17 recommendations are distributed across five separate bodies – BNM, MOH, MOF, the Ministry of Domestic Trade and Cost of Living, and the Malaysia Competition Commission – with no single authority designated to drive or monitor implementation. PAC called for a clear timetable for the full suite of RESET measures, but whether coordination materializes across those agencies will determine whether the report produces structural change or remains a statement of intent.
