Bank Negara Malaysia (“BNM”) issued a Policy Document on Medical and Health Insurance/ Takaful Business (“Policy Document”) on 29 February 2024.
 
The Policy Document applies to licensed insurers under the Financial Services Act 2013 and licensed takaful operators under the Islamic Financial Services Act 2013 (individually a “licensed ITO” and collectively “licensed ITOs”) which underwrite or offer medical and health insurance/ takaful (“MHIT”) products.
 
The Policy Document will come into effect on 1 June 2024 save for the following:

When the Policy Document comes into effect, it will supersede the instruments listed in paragraph 7.1.
 
The Policy Document sets out the regulatory requirements covering the following areas:

This article highlights some of the salient requirements in the Policy Document.
 
POLICY REQUIREMENTS
 
Underwriting and terms governing the issue of MHIT policies/ takaful certificates
 
A licensed ITO must establish clear underwriting policies and procedures for its MHIT business and consistently apply such policies and procedures.
 
If a licensed ITO or its intermediaries has received a premium/ takaful contribution payment but has not confirmed the acceptance of risk, the licensed ITO shall not deny liability for events insured/ person covered under the MHIT product, that occur before the licensed ITO confirms its acceptance of risk, if, under the licensed ITO’s established underwriting policies, the risk would have been accepted as a standard risk.
 
Processing of applications for MHIT policy/ takaful certificate
 
A licensed ITO must inform the consumer of its decision, in writing, on whether or not to accept his/ her application for a new MHIT policy/ takaful certificate, within a reasonable time (which in any event, shall not exceed 14 calendar days from the date of its receipt of complete information or documentation from the consumer).
 
Standardised definitions
 
Licensed ITOs, in collaboration with the industry associations⁴ and in consultation with BNM, shall jointly develop, formulate or determine the standardised wordings for common definitions used in contractual terms of MHIT policies/ takaful certificates under the Glossary of Terms⁵] (“GOT”) to facilitate ease of understanding and comparison of MHIT products by consumers. The licensed ITOs must issue and periodically review the GOT.
 
A licensed ITO must adopt the GOT in its MHIT policy/ takaful certificate and relevant documents and may only deviate from the standardised wordings where the deviation delivers unambigiously better terms and conditions for the policy owner/ takaful participant.
 
Free look period
 
A licensed ITO shall provide a policy owner/ takaful participant with a 15 calendar days’ free-look period (which commences from the delivery date of the MHIT policy/ takaful certificate to the policy owner/ takaful participant) to examine the terms and conditions of the MHIT policy/ takaful certificate, and/or decide whether or not to terminate the MHIT policy/ takaful certificate.
 
If the policy owner/ takaful participant decides to terminate the MHIT policy/ takaful certificate within the free-look period, the licensed ITO is required to immediately refund any premium/ takaful contribution which has been paid after deducting expenses incurred for the medical examination of the policy owner/ takaful participant, if applicable.

Revisions and modifications to MHIT policy/ takaful certificate
 
The requirements relating to revisions and modifications to a MHIT policy/ takaful certificate include the following:

Continuity of coverage
 
To ensure continuity of coverage, a licensed ITO is required to comply with the provisions in paragraphs 8.18 to 8.23 of the Policy Document in order to terminate a MHIT policy/ takaful certificate. Similarly, any loading of the premium/ takaful contribution on an individual policy owner/ a takaful participant is required to comply with the requirements in paragraph 8.20.
 
Product design
 
A licensed ITO is required to undertake periodic reviews on its MHIT products to ensure that they continue to meet the evolving healthcare needs of consumers and cater to advances in medical developments. It must also ensure that the pricing of MHIT products is based on generally accepted actuarial principles and adheres to the requirements in BNM’s Policy Document on Fair Treatment of Financial Consumers, when designing and innovating MHIT products.
 
To promote more responsible healthcare usage, a licensed ITO must have at least one individual medical reimbursement insurance/ takaful product with the minimum co-payment⁶ amount which shall be not less than (a) co-insurance/ co-takaful⁷ of 5% of total claimable expenses (after deductible⁸, if any) per policy/ takaful certificate year; and/or (b) RM500 deductible per policy/ takaful certificate year. A licensed ITO is required to offer such product to consumers as an option, alongside existing products, at the point of sale.
 
Licensed ITOs are not precluded from offering a range of other co-payment amounts as options. However they are required to design all new individual medical reimbursement insurance/ takaful products with a co-payment feature (either in the form of co-insurance/ co-takaful and/or deductible), where the co-payment amount shall not be lower than the minimum amount mentioned in the preceding paragraph. For avoidance of doubt, licensed ITOs are no longer permitted to design new medical reimbursement insurance/ takaful products without the minimum co-payment feature, or to offer any add-ons to reduce or fully waive the co-payment portion⁹.
 
The Policy Document provides that any waiting period¹⁰ and survival period¹¹ must not exceed 30 calendar days. Other restrictions applicable to waiting period are set out in paragraphs 9.6(a) and 9.6(b) of the Policy Document.
 
Re-pricing and risk pooling practice
 
A licensed ITO is required to develop internal policies and procedures, which are to be properly documented and approved by its board, for the re-pricing of medical reimbursement insurance/ takaful products and ensure that all re-pricing exercises are carried out in compliance with its internal policies and procedures.
 
The requirements that are to be complied with in relation to the internal policies and procedures and for a re-pricing exercise are set out in paragraphs 10.2 to 10.6 and Appendices 2 to 4 of the Policy Document.
 
Commission limits
 
The maximum commission limits that a licensed ITO may pay in respect of the sale of its MHIT products shall not exceed the rates specified in paragraph 11 of the Policy Document.
 
Monitoring and reporting
 
To facilitate greater industry-wide analysis of medical claims data, licensed ITOs are required as from 1 January 2025 to submit MHIT claims data (including those for years 2023 and 2024) to a central medical claims data platform to be established by the licensed ITOs in collaboration with the relevant industry associations in accordance with the requirements set out in Appendix 6 of the Policy Document.
 
To monitor the effectiveness and progress of medical reimbursement insurance/ takaful product(s) with co-payment feature, licensed ITOs are required to monitor and maintain records of the take-up and experience of the aforesaid products on an annual basis for each calendar year in accordance with the reporting template set out in Appendix 7 of the Policy Document. Such records are to be submitted to BNM by 31 January of the subsequent year beginning 31 January 2025 or any other date as agreed upon by BNM.
 
BUSINESS CONDUCT AND DISCLOSURE REQUIREMENTS
 
Disclosure requirements
 
A licensed ITO shall at all times comply with the following general disclosure requirements:

The Policy Document also sets out specific obligations that apply to a particular stage of a product lifecycle. These are summarised below.
 
At point of sale
 
The information to be disclosed to consumers at the point of sale includes a product disclosure sheet (“PDS”) which conforms to the requirements set out in paragraphs 13.3 to 13.7 of the Policy Document. Four samples of PDS are provided in Appendix 8 of the Policy Document.
 
At point of entering into contract
 
A licensed ITO must provide complete information of a MHIT product in the policy/ takaful certificate, including but is not limited to, the following:

During the term of the policy/ takaful certificate
 
In relation to the re-pricing of individual medical reimbursement insurance/ takaful products, a licensed ITO shall communicate, at minimum, the information relating to the areas outlined in Appendix 5 of the Policy Document to the policy owners/ takaful participants. It must also give due regard to the policy owners’/ takaful participants’ financial circumstances, in particular, the impact of the re-pricing on the affordability of their existing policies/ takaful certificates.
 
A licensed ITO shall ensure that policy owners/ takaful participants have access to key information with respect to the management of their individual medical reimbursement insurance/ takaful products.
 
It should also clearly disclose to policy owners/ takaful participants the consequences of switching to a different MHIT product in the surrender or product switching forms, e.g. additional fees and charges, imposition of new waiting periods, exclusion of additional pre-existing conditions and/or changes in benefit coverage.
 
Needs-based assessment requirements
 
A licensed ITO shall ensure that its staff and intermediaries obtain sufficient information about a consumer before providing any advice and product recommendation(s). The licensed ITO shall make
available appropriate tools and relevant trainings for its staff and intermediaries to conduct a needs-based assessment in their dealings with consumers. The minimum information which the staff and intermediary of a licensed ITO must obtain from a consumer are the following:

A licensed ITO must ensure that its staff and intermediaries provide advice and recommendation on individual MHIT products that is supported with a reasonable basis and is in the best interests of consumers.
 
For MHIT policies/ takaful certificates distributed via direct distribution channels, a licensed ITO must make available appropriate tools for consumers to conduct self-assessment on product suitability. Example of such tools are a needs analysis calculator to estimate the amount of coverage needed and a financial budget calculator to gauge the affordability of premiums/ takaful contributions.
 
Prohibition on concluding sales of MHIT products through telemarketing channels
 
Notwithstanding that a licensed ITO is permitted to market its MHIT products and provide information on its key features and terms and conditions through telemarketers, a licensed ITO shall not permit telemarketers to conclude the sale of its MHIT products, either on a standalone basis or as a rider, over the telephone. Instead, the licensed ITO shall refer consumers who are interested to make a purchase to an intermediary who is qualified to conduct the needs-based assessment in line with the requirements set out in the Policy Document.
 
Comments
 
The formulation and adoption in the near future of a standardised GOT to be used for MHIT products coupled with the adoption of PDS in the formats provided in the Policy Document will significantly standardise the terms and conditions of insurance policies/ takaful certificates in the MHIT segment and facilitate easier comparison of products by consumers. In time, the interpretation of the standardised terms by the Malaysian courts will result in a more uniform development of case law that interprets these terms.
 
 
Alert by Kok Chee Kheong (Partner) and Tan Wei Liang (Senior Associate) of the Corporate Practice of Skrine.
 

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