Rising healthcare utilisation rather than treatment prices alone is emerging as the biggest driver of Malaysia’s medical insurance and takaful costs, underscoring the need for reforms beyond simply managing premium and contribution increases.
The Malaysia Medical Claims Inflation Report 2025 recorded medical claims inflation of 12.28%, with most of the increase attributed to a higher number of claims rather than the average cost of treatment.
The trend is significant for households already facing higher medical insurance premiums and takaful contributions, as sustained claims growth places increasing pressure on the insurance and takaful risk pools that fund medical bills.
Average claims severity — the average cost of treatment — has meanwhile increased from RM8,972 in 2019 to RM12,446 in 2025, representing a rise of almost 39%.
Private hospitals recorded an approximately 5.9% increase in the cost of care, while private day-care facilities saw a 2.3% increase. Government and teaching hospitals, which accounted for around 9% of claims, recorded a 14% decline in care costs, helping moderate the industry-wide average.
A separate World Bank analysis of Malaysia’s centralised claims database similarly found that healthcare utilisation accounted for about three-quarters of the growth in claims costs between 2022 and 2024, followed by higher service prices.
The analysis also found that admissions for conditions normally manageable at primary-care level accounted for 23.6% of inpatient admissions in 2024, pointing to potential opportunities to improve how and where patients receive treatment.
Medical claims inflation is expected to remain in double digits in 2026.
Despite rising costs, the insurance and takaful industry paid RM13.5 billion in claims in 2025, up approximately 10.7% from RM12.2 billion in 2024.
Data jointly reported by the Life Insurance Association of Malaysia, Malaysian Takaful Association and Persatuan Insurans Am Malaysia indicated that more than 90% of medical claims are approved, representing more than one million claims annually.
Claims that are not approved are generally linked to policy or certificate conditions, including exclusions, eligibility requirements, pre-existing conditions, non-disclosure or treatments not covered.
The industry has cautioned, however, that continued increases in medical costs and utilisation could ultimately affect the affordability and sustainability of healthcare protection.
If premiums and contributions become increasingly difficult to maintain, some households could reduce coverage or leave the insurance pool altogether, increasing their financial vulnerability and potentially placing greater pressure on the public healthcare system.
Consumers facing affordability difficulties are therefore encouraged to speak with their insurer, takaful operator or financial adviser before allowing coverage to lapse.
Depending on the product, options could include changing the level of coverage, selecting plans with co-payment features, reviewing optional riders or moving to a plan better suited to the household budget.
Premium increases can also arise from age-band adjustments, which are separate from medical inflation. As policyholders move into older age groups, premiums typically rise to reflect the higher likelihood of requiring medical treatment.
Malaysia’s response is increasingly shifting from simply managing insurance repricing towards tackling the structural causes of healthcare expenditure through the government’s RESET strategy.
The initiative brings together the Ministry of Finance, Ministry of Health, Bank Negara Malaysia, insurers, takaful operators and healthcare providers across five strategic thrusts and 11 initiatives.
These include revamping medical and health insurance and takaful, improving price transparency, strengthening digital health systems, expanding cost-effective care and reforming the way healthcare providers are paid.
Among the measures is a move towards diagnosis-related group payments, which would gradually shift away from itemised fee-for-service billing towards payments linked to a patient’s condition and expected treatment requirements.
The objective is to reduce incentives for unnecessary utilisation while encouraging more efficient and appropriate care.
A central claims database is also expected to improve monitoring of utilisation, pricing and service trends while strengthening efforts against fraud, waste and abuse.
Meanwhile, indicative price ranges for common private healthcare services have been introduced to give consumers greater visibility of what treatments typically cost.
Another important component is MediAsas, the standardised base medical insurance and takaful plan currently being piloted ahead of a targeted nationwide rollout in 2027.
The plan is intended to widen access to more affordable medical protection and make healthcare expenses more manageable and predictable.
However, the release cautioned that a cheaper insurance product alone cannot solve the affordability challenge if healthcare expenditure continues to rise faster than the funds supporting it.
MediAsas will therefore need to operate alongside the broader RESET reforms covering healthcare prices, utilisation, provider payments and cost-effective treatment.
Ultimately, the sustainability of medical insurance and takaful will depend on how effectively the entire healthcare ecosystem — insurers, providers, regulators, government and consumers — manages both the cost and utilisation of care.
The challenge is no longer simply how to limit the next premium increase, but how Malaysia can maintain meaningful medical protection while ensuring the cost of healthcare is shared in a way that remains affordable and sustainable over the longer term.
