Exploring Active Pricing in Medical Insurance: Favourable Premiums for Healthy Malaysians

According to Insights10 Research, the medical insurance market in Malaysia is projected to expand from $3.2 billion in 2022 to approximately $5.9 billion by 2030. This predicted growth is primarily driven by increasing healthcare costs, a rise in medical tourism, and technological advancements.

This prediction also reflects a growing awareness among Malaysians about the importance of securing adequate health coverage to mitigate the uncertain financial risks associated with medical emergencies.

However, fair and affordable premiums that accurately reflect an individual’s risk profile still present an evident gap in the Malaysian insurance landscape. This is where active pricing in medical insurance comes in.

What is active pricing?

Active pricing is a fair and innovative approach to medical insurance. Medical insurance charges are determined based on a policyholder's claims experience.

In practice, active pricing flexibly adjusts medical insurance charges as well as total premiums payable according to the amount of claims made by the policyholder. Thus, it encourages the prudent use of medical services and rewards individuals who stay healthy and make fewer claims.

This 'incentive-driven' approach aims to make medical insurance charges more reflective of an individual’s risk profile and promote sustainable healthcare by containing the increased medical utilisation costs.

Active pricing was conceptualised to address the rising medical costs and claims, with the aim to contain escalating healthcare expenses. By linking medical insurance charges directly to a customer's claims experience in hospitals, active pricing promotes responsible healthcare consumption and ensures affordability and sustainability in the insurance market.

Read more about Prudential’s Active Pricing Policy in Malaysia.

The Need for Active Pricing

In Malaysia's evolving healthcare landscape, there is a growing interest in personalised insurance solutions that align more closely with individual health journeys. Traditional insurance pricing models have long provided broad access to medical coverage by setting premiums based on general factors such as age, gender, and overall risk categories. This approach effectively spreads risk across a wide pool of policyholders, ensuring that many people can obtain the insurance they need.

However, with rising healthcare costs and an increased focus on personal health management, innovative approaches like active pricing are gaining attention. Active pricing complements traditional models by offering additional benefits to policyholders who maintain healthy lifestyles and make prudent use of medical services.

Addressing Rising Healthcare Costs

Healthcare costs are on the rise globally, and Malaysia is no exception. Active pricing models aim to address these challenges by encouraging responsible use of medical services. By directly considering an individual's claims history, active pricing provides incentives for policyholders to use healthcare resources judiciously. This approach supports the sustainability of healthcare costs and can contribute to more stable premiums for everyone.

• Impact on Medical Insurance Charges & Premiums: By promoting prudent use of medical services, active pricing helps mitigate the overconsumption of healthcare resources. This can lead to a more balanced distribution of costs and potentially lower premiums over time.

• Supporting Policyholders: Policyholders who maintain good health and have fewer claims may benefit from premiums that reflect their personal health choices. This creates an opportunity for individuals to have more control over their insurance costs, aligning premiums more closely with their individual circumstances.

 

Enhancing Personalisation and Choice

Active pricing adds a layer of personalisation to medical insurance charges, providing an additional option for those who wish to have control over how much they pay for their insurance plan and taking charge of their health journey.

By offering both traditional and active pricing options, insurers can cater to a wider range of preferences and needs. Whether you prefer the stability and simplicity of traditional pricing or the personalised incentives of active pricing, you have the flexibility to choose a plan that best suits your lifestyle and financial goals. 

How does active pricing work?

Active pricing revolves around the adjustment of one’s premiums based on their claims history, delivering a more personalised and fair approach to pricing.

Under this nascent model, policyholders who make no claims are rewarded with lower premiums. On the other hand, policyholders with multiple or large claims may face higher premiums.

For context, premium adjustments are made annually. Policyholders may start at the discounted level and continue to enjoy discounts on their medical insurance charges for maintaining good health or making minimal claims.

These premiums are calculated based on the total claims made during a review period— with different movements in premium levels—depending on the claim amount.

Reworked to present 'Active Pricing' as an additional choice that complements 'traditional pricing'

For instance, with Prudential’s PRUMillion Med Active policyholders instantly qualify for up to 15% discount off their medical insurance charges at the start of the policy. Conversely, if claims were paid out, insurance charges may increase by up to 35% before returning to the standard level in the following years. 

By calculating premiums based on individual claims history and adjusting them accordingly, active pricing ensures that policyholders are directly incentivised to maintain good health and make responsible use of medical services.

This personalised approach to premium calculation not only promotes fairness but also contributes to the long-term sustainability of the medical risk pool.

Factors influencing premium adjustments

Premium adjustments in insurance are mainly influenced by the frequency and cost of claims, as well as preventive care and healthy lifestyle choices. Individuals who make frequent or high-cost claims are more likely to experience premium increases to reflect the higher potential for future claims.

However, with Active Pricing, policyholders with minimal or no claims may benefit from lower insurance charges post-adjustments.This incentivises responsible healthcare consumption and careful use of medical services.

Benefits of active pricing medical insurance for healthy Malaysians

By adjusting premiums based on the amount of claims made by the policyholder, active pricing manifests many benefits for Malaysians, such as:

Lower premiums for low-claim policyholders

The reduced charges on medical insurance when no claims are made reward healthy individuals who embrace a healthy lifestyle, leading to long-term cost savings.

Encouragement of healthier lifestyles

It encourages individuals to adopt preventive care measures and healthy lifestyle choices. Thus promoting overall well-being and responsible healthcare consumption.

Conclusion

The importance of fair pricing in the Malaysian insurance sector cannot be overstated. Premiums that accurately reflect individual risk profiles and healthcare needs are mission-critical to ensuring widespread access to medical insurance.

Fair pricing not only promote equitable treatment of consumers but also contribute to the sustainability and growth of the healthcare insurance market. Active pricing is a groundbreaking innovation in this regard, as it rewards policyholders for staying healthy and making fewer claims. Thus fostering the prudent use of medical services whilst promoting a culture of healthy living and containing healthcare costs.