Insurance
Background to Malaysian Land Law
In Malaysia (excluding Labuan[1], which is not dealt with in this guide), the insurance business is divided into conventional insurance and takaful (insurance based on Islamic principles). Conventional insurance is regulated under the Financial Services Act 2013 (“FSA“), which is a consolidation of the now repealed Banking and Financial Institutions Act 1989, Payment Systems Act 2003, Insurance Act 1996 and Exchange Control Act 1953. On the other hand, takaful is regulated by the Islamic Financial Services Act 2013 (“IFSA“), which consolidated the repealed Islamic Banking Act 1983 and the Takaful Act 1984. The IFSA applies to the takaful industry, which is the Islamic equivalent of conventional insurance.
[1] Labuan Financial Services and Securities Act 2010 (LFSSA 2010) and Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA 2010) govern the licensing and regulation of offshore insurance and related activities in Labuan.
Licensing requirements
BNM is the main regulatory authority for the insurance and takaful industry in Malaysia. BNM wields a wide range of powers in the insurance and takaful industry, including regulating insurance and takaful business, insurance broking business, adjusting business and financial advisory business. Insurers and takaful operators are required to hold a valid licence issued by the Ministry of Finance on the recommendation of BNM. The carrying on of an insurance broking business or financial advisory business requires the approval of BNM while an adjusting business is required to be registered with BNM. The current policy is that BNM does not intend to issue any new licences for conventional insurance or a takaful operator. Nevertheless, interested persons may explore the option of partnership with the existing licence holders.
Classification of insurance business
In general, conventional insurance business is divided into two classes under the FSA:
- life business — includes all insurance business concerned with life policies and any type of insurance business carried on as incidental only to the life insurer’s business; and
- general business — all insurance business which is not life business.
Under the IFSA, takaful is divided into family takaful business and general takaful business, which are the Islamic equivalents of life business and general business.
Carrying on insurance business includes the activity of: (i) effecting a contract of business; or (ii) carrying out a contract of insurance by way of business. A person is deemed to effect, or carry out, a contract of insurance by way of business if he: (a) engages in such activity in a manner which in itself constitutes the carrying on of a business; (b) holds himself out as willing and able to engage in such activity; or (c) regularly solicits other persons to engage with him in transactions constituting such activity. A reference to carrying on insurance business includes carrying it on through an agent, or as an agent, but “insurer” does not include an insurance agent as such or, in the case of a person who is both insurer and insurance agent, any business done by that person as an insurance agent.
Licensed insurers (excluding reinsurers) are not allowed to carry on both life business and general business under a single entity under the FSA. Similar provisions with regard to single takaful business which applies to licensed takaful operators (excluding retakaful operators) can also be found in the IFSA.
Form of establishment and prudential requirements
The FSA and IFSA provide that only a public company can be licensed to carry on an insurance business or takaful, with the exception of professional reinsurers and professional retakaful operators which do not need to be a public company. Under the IFSA, a licensed takaful operator which is a private company must be converted into a public company within 12 months from the appointed date or such longer period as may be specified by the MOF, on the recommendation of BNM. The FSA and IFSA empower BNM to specify standards on prudential matters to promote the sound financial position of an institution or to promote the integrity, professionalism and expertise in the conduct of the business, affairs and activities of an institution.
The standards that may be specified include standards relating to:
- capital adequacy;
- liquidity;
- corporate governance;
- risk management;
- related party transactions;
- maintenance of reserve funds;
- insurance/takaful funds; and
- prevention of an institution from being used, intentionally or unintentionally for criminal activities.
Every institution must have a chief executive officer (“CEO“) at all times. Further, the CEO must have a principal place of residence within Malaysia and devote the whole of his/her professional time to the service of the institution. The chairman, director, CEO or senior officer of the institution must be an individual, not disqualified under the FSA and complies with the fit and proper requirements as prescribed by BNM.
A licensed insurer must appoint an actuary in respect of a life or general business it carries. Further, a licensed insurer must establish and maintain one or more insurance funds for each class of business, as required by BNM. A licensed life insurer must also establish and maintain a separate insurance fund for its life insurance business relating to participating life policies. The same requirements also apply to licensed takaful operators.
Regulation of Shareholding
The FSA and IFSA stipulate the circumstances where the prior written approval of the MOF or BNM are required for the acquisition of interest in shares that exceeds the prescribed limit or results in a change in control of a licensed insurer or takaful operator.
The FSA and IFSA require a person to obtain BNM’s prior approval before entering into an agreement to acquire an interest in shares which would result in him holding an aggregate interest of 5% or more shares in a licensed insurer or takaful operator.
A person shall also obtain BNM’s approval before entering into an agreement to acquire an interest in shares which would result in him holding an aggregate interest in shares of more than 50% of the interest in shares of a licensed insurer or takaful operator.
Further, a person shall also obtain BNM’s approval before entering into an agreement to acquire an interest in shares which would result in him holding an aggregate interest in shares of a licensed insurer or takaful operator, exceeding any multiple of 5% or the percentage of holding that triggers a mandatory offer under the Malaysian Code on Take-overs and Mergers, i.e. 33%.
The FSA and IFSA also introduce the concept of a “financial holding company” where any company which holds an aggregate of interest in shares of more than 50% in a licensed insurance or takaful operator is required to submit an application to BNM to be approved as a financial holding company. Unless otherwise approved, a financial holding company of a licensed insurer or takaful operator shall not carry on any business, other than the business of holding investments in corporations which are primarily engaged in financial services.
Under the FSA and IFSA, the maximum permissible interest in shares that may be held by an individual in a licensed insurer or takaful operator is 10%. Such requirement in the IFSA may be waived by BNM if BNM is satisfied that this would not result in the individual having the power to exercise control over the takaful operator and such individual has given a written undertaking not to exercise control over the takaful operator. Such waiver is not provided for in the FSA.
“Interest in shares” is defined in the FSA and IFSA to include both direct and effective interests. For purposes of determining the interests held, the FSA and IFSA require a person’s interest in shares to be aggregated. In other words, the interest held by the person’s spouse, children, family corporation and persons acting in concert with him shall be taken into account when computing the interests held.
Foreign Equity Limits
Generally, BNM has maintained a policy of maximum 70% foreign equity participation in insurance companies and takaful operators, a threshold introduced in 2009 as a liberalisation from the previous 49% cap. However, in practice, a higher foreign equity limit may be considered by the BNM on a case by case basis, particularly for players who can facilitate consolidation and rationalisation of the insurance and takaful industry. Notwithstanding the 70% threshold, full foreign ownership has subsisted in practice, with several major foreign insurers continuing to maintain wholly-owned subsidiaries in Malaysia.
Business conduct and consumer protection
BNM may specify standards on business conduct to a licensed insurer for the purposes of ensuring that the licensed insurer is fair, responsible and professional when dealing with financial consumers. A financial consumer means any person who uses the insurance product for personal, domestic or household purposes or in connection with a small business, as specified by BNM. These standards may include standards relating to:
- transparency and disclosure requirements, including the provision of information to financial consumers that is accurate, clear, timely and not misleading;
- fairness of terms in a financial consumer contract for financial services or products;
- promotion of financial services or products;
- provision of recommendations or advice including assessments of suitability and affordability of financial services or products offered to financial consumers; and
- complaints and dispute resolution mechanisms.
The FSA and IFSA provide a list of prohibited business conduct. This list includes among other things:
- engaging in conduct that is misleading or deceptive in relation to the nature, features, terms or prices of any financial service or product;
- inducing a financial consumer to do an act or omit to do an act in relation to the any financial service or product by:
- making or recklessly making a statement, illustration, promise, forecast or comparison that is false, misleading or deceptive; or
- dishonestly concealing, omitting or providing material facts in a manner which is ambiguous;
- exerting due pressure, influence in relation to the provision of any financial service or product to a financial consumer;
- demanding payments from a financial consumer in any manner for unsolicited financial services or products; and
- colluding with any other person to fix or control the features or terms of any financial service or product to the detriment of any financial consumer.
Both the FSA and IFSA contain several provisions on consumer protection, these provisions laid down the requirements in relation to pre-contractual duty of disclosure, representations, and remedies for misrepresentations for insurance and takaful contracts. The FSA and IFSA also set out the provisions relating to insurance policies and takaful certificates. BNM also prohibits a person from entering into a general insurance contract with an insurer other than a licensed general insurer licensed by the BNM, unless with the prior approval from the BNM.
Further, an insurer is required to have an express provision in its policies informing its customer of a cooling-off period. A cooling-off period allows the customer to terminate a life policy within a specified period and obtain a full refund of money paid.
The Guidelines on Product Transparency and Disclosure issued by the BNM provides that general insurance products can be cancelled by the customer at any time by giving a written notice to the insurer. Upon cancellation, the customer is entitled to a refund of the premium, based on short period rates. Any expense incurred by the insurance company could be deducted from the premium paid.
In addition, Paragraph 2 of Schedule 8 of the FSA gives a policy owner the right to return a life policy to the insurer within 15 days from the date of delivery of the life policy. Upon return of the life policy, the insurer must immediately refund the premium, subject only to the deduction of expenses incurred for the medical expenses of the policy owner.
BNM has laid down clear guidelines and requirements to enhance protection of vulnerable customers, in line with the principles of fair treatment of consumers. These safeguards are detailed in the Policy Document on Fair Treatment of Financial Consumers, which was updated on 27 March 2024, building on the 2019 version. In addition, the policy document on Product Transparency and Disclosure was issued and came into force on 2 December 2024. This policy document outlines the minimum requirements to enhance consistency and transparency in the disclosure of information on financial products offered by insurers. It also specifies the timing and content of disclosures.
Risk-Based Capital Framework
The BNM has issued Risk-Based Capital Framework for Insurers and Risk-Based Capital Framework for Takaful Operators (the “RBC Framework“) to ensure that each insurer and takaful operator maintains a capital adequacy level that is commensurate with its risk profile. The RBC Framework applies to all insurers, takaful operators, including reinsurers and retakaful operators, licensed by the BNM, for businesses generated from within and outside Malaysia.
The RBC Framework sets out the requirements applicable to each insurer and takaful operator to determine the adequacy of the capital available in its insurance and shareholders’ funds to support the Total Capital Required (“TCR“). The RBC Framework also sets out the formula for computation of Capital Adequacy Ratio (“CAR“) which serves as key indicator of the insurer’s financial resilience and its ability to support the insurance business and will be used as an input to determine the appropriate level of supervisory intervention by the BNM.
The Exposure Draft on Risk-Based Capital Framework for Insurers and Takaful Operators was released on 28 June 2024, introducing enhancements to the risk-based requirements. The existing Risk-Based Capital Framework for Insurers and Risk-Based Capital Framework for Takaful Operators will continue to apply until the new requirements in the new RBC framework come into effect. The new requirements are expected to take effect for the reporting period beginning on 1 January 2027. This implementation will be preceded by transitional arrangements, which may include parallel reporting starting as early as the reporting period beginning on 1 January 2026.
This Exposure Draft seeks to:
- ensure that the RBC Framework accurately reflects the underlying risk exposures of licensed insurers and takaful operators through measurement approaches that are sufficiently risk-sensitive and adaptable to market conditions;
- require licensed insurers and takaful operators to maintain a capital adequacy level that aligns with their risk profile at all times;
- promote consistency in capital adequacy measurement across the insurance and takaful sectors by recognising similarities in underlying risks while accounting for differences in their business models; and
- enhance alignment with key global capital standards, such as the Insurance Capital Standard (ICS) issued by the International Association of Insurance Supervisors (IAIS) and relevant standards from the Islamic Financial Services Board (IFSB), with appropriate modifications for the Malaysian market.
Outsourcing
Licensed insurers are allowed to outsource various business activities, functions and processes, however such arrangements can also potentially increase the risk profile of an insurer as a result of the increased dependence on third parties, particularly where the outsourced activities are critical to the insurer’s ongoing viability and ability to meet its obligations to policy holders.
The BNM had on 23 October 2019 issued a Policy Document on Outsourcing (“Outsourcing Guidelines“) which came into force on the same day. The Outsourcing Guidelines govern all outsourcing arrangements of a licensed insurer to a third party. The Outsourcing Guidelines set out the minimum expectations of BNM for insurers that outsources, or plan to outsource, any of its business activities, functions or processes, particularly in light of changing business models and greater adoption of technology within the insurance sector.
For example, the Outsourcing Guidelines set out requirements on minimum information to be provided in outsourcing arrangements, prescribe requirements regarding the role of board and senior management and increase the prescribed minimum requirements for due diligence carried out on service providers.
It is interesting to note that where an outsourcing arrangement involves a cloud service provider, insurers are required to take effective measures to address potential risks associated with data accessibility, confidentiality, integrity, sovereignty, and recoverability.
Insurers are now required to submit an outsourcing plan (approved by its board) to BNM within 3 months following the insurers’ financial year end. An outsourcing plan should include, amongst others, details on all planned outsourcing arrangements (both new and renewal of existing arrangements) for the following financial year and information regarding each planned outsourcing arrangement (such as description of the outsourced activity and location of where the outsourced service is undertaken).
Furthermore, insurers will need to perform a gap analysis of all existing outsourcing arrangements against the requirements prescribed in the Outsourcing Guidelines, as well as maintaining a register of all outsourcing arrangements.
Generally, an outsourcing arrangement is considered material if, in the event of a service failure or security breach, has the potential to significantly impact the insurer’s provision of services to its customers, business operations, financial position, reputation, or compliance with applicable laws and regulatory requirements; or if it involves customer information and in the event of unauthorised access, disclosure or modification, or loss or theft of the information, has a material impact on its customer or the insurer itself.
An insurer is also required to obtain BNM’s approval before entering into any material outsourcing arrangements, or making a significant modification to an existing material outsourcing arrangement. In assessing an outsourcing application, BNM will have regard, among others, to some factors. Firstly, the state of controls, risk management and governance of the financial institution, the materiality of the outsourcing arrangement and other relevant matters, including any cooperation arrangements between BNM and relevant financial regulatory authorities.
Winding up
A licensed insurer or takaful operator may not be wound up voluntarily without obtaining the prior approval of BNM. In the event of a winding up of a licensed insurer, the assets of an insurance fund must be applied to meet its liabilities to policy owners and claimants under policies of that fund and these liabilities shall have priority over unsecured liabilities of that fund, to the extent that they are apportioned to the insurance fund. However, the preferential debts such as remuneration of liquidators, wages and salary of employees, worker’s compensation and taxes (as provided in Section 527(1) of the CA 2016), and debts due and owing to the Malaysian Government still maintain priority over the assets of the insurance fund in such instance. Similar provisions can also be found in the IFSA for winding up of a licensed takaful operator.
Regulatory changes
Surveillance of non-bank financial institutions
As of 26 January 2016, BNM undertakes surveillance on significant non-bank financial institutions that have important interlinkages with the financial system. This is supported by the establishment of the Financial Stability Executive Committee (“FSEC”) under the Central Bank of Malaysia Act 2009 which is chaired by the Governor and whose members include the Secretary General of the Treasury, the Chairman of the Malaysia Securities Commission, the Chief Executive Officer of the Malaysia Deposit Insurance Corporation and an independent external member.
Based on BNM’s surveillance, BNM and the FSEC may, from time-to time, issue advice to significant non-bank institutions as a pre-emptive measure to promote the sound financial standing of such institutions and avoid any systemic risks to on the financial system.
Liberalisation of Motor Insurance
On 1 July 2016, the first phase of the Liberalisation of the Motor Tariff (“Liberalisation”) was introduced. The Motor Tariff was the regulated price of motor and fire insurance products. Under the Liberalisation, such prices will no longer be fixed but determined by individual insurers and takaful operators. During the first phase, insurers and takaful operators were given the flexibility to offer new motor products and add-on covers at market-based pricing.
Phase two of the programme commenced on 1 July 2017, which liberalised the premium rates for Motor Comprehensive and Motor Third Party Fire and Theft products. However, the premium rates for Motor Third Party products will continue to be determined by tariffs. With the liberalisation, premium rates will become more competitive, as the same individual may be assessed differently by different insurers depending on how the insurer slices the risk profiles of its insureds and how efficiently the insurers manage their claim costs, among other factors. This will enable Malaysians to shop around for the coverage and rates best suited to them.
Development of Microinsurance and Microtakaful
On 18 April 2016, BNM announced plans to develop a regulatory framework to facilitate the growth of the microinsurance and microtakaful market. To that end, a Discussion Paper on Microinsurance and Microtakaful was issued to provide guidance on the proportionate regulation of microinsurance and microtakaful products and the operating environment that is envisioned for microinsurance and microtakaful in Malaysia. In the interim, prior to the issuance of the regulatory framework, an interested licensed insurer or licensed takaful operator may apply for proportionate regulatory treatment for a microinsurance or microtakaful product by submitting a product proposal for the BNM’s approval.
Operating Cost Controls for Life Insurance and Family Takaful Business
On 24 December 2019, BNM issued new revised guidelines on operating cost controls for life insurance and family takaful business which aims to deregulate operating costs for life insurance and family takaful business.
The guidelines (building on the previous policy document of the same name in 2017) set out BNM’s gradual deregulation of operating cost control limits to give insurers and takaful operators more flexibility to manage operating expenses commensurate with their business strategies.
A summary of the gradual implementation is set out below:
a. Effective from 1 January 2018 onwards
- Removal of commisison limits for pure protection term products offered through all intermediaries, subject to meeting the specific requirements.
- Implementaion of the balanced scorecard framework for agents, financial advisers and brokers.
b. Effective from 1 July 2018 onwards
- Removal of commisison limits for pure protection critical illness and pure protection medical and health products offered through all intermediaries, subject to meeting the specific requirements.
c. Effective from 1 January 2019 onwards
- Adjustment of commission limits for bancassurance partners.
- Implementation of balanced scorecard framework for bancassurance partners.
- Removal of limits on commission and agency-related expenses for investment-linked products.
d. Effective from 1 July 2020 onwards
- Removal of limits on commission and agency-related expenses for investment-linked takaful products.
e. Effective from 1 January 2021 onwards
- Implementation of balance scorecard framework (“BSC Framework”) for bancassurance partners.
- Adjustment of commission limits for bancassurance partners.
Offering of Trade Credit Insurance and Trade Credit Takaful
BNM recently announced plans to regulate trade credit insurance and trade credit takaful (“Products”). The Products protect sellers against the risk of non-payment of goods and services by buyers. Through the issuance of an Exposure Draft specifically targeted at these Products on 1 June 2018, BNM sets out the approval process and requirements for the offering of Products by licensed insurers and takaful operators in Malaysia. The Products generally protect businesses against the risk of non-payment of goods and services by buyers and assist businesses to manage country risks. Additionally, the Products are recognised as Credit Risk Mitigation (“CRM”) under the Capital Adequacy Framework for financial institutions in Malaysia.
Re-introduction of the SST Regime
On 1 September 2018, the Malaysian Government re-introduced the SST regime. As a result, general insurance products are now taxable under the SST regime. Customers who purchase or renew their general insurance policies on or after 1 September 2018 will be charged the SST at 6% on their premium.
Introduction of Licensing and Regulatory Framework for Digital Insurers and Takaful Operators
The much-awaited policy document on Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (“DITO Framework”) was released on 9 July 2024.
By way of background, BNM issued the proposed digital insurers and takaful operators framework discussion paper (“DITO Discussion Paper”) in January 2022, as part of its initiative to encourage digitalisation and Insurtech within the financial sector. Following this, the exposure draft on the Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (“DITO Exposure Draft”) was published in November 2022.
Following BNM’s engagement and consultation with industry stakeholders, BNM released an update on the outcome in October 2023 announcing that the DITO framework will be enhanced and refined following feedback received. The much-awaited DITO Framework was released on 9 July 2024, providing detailed licensing and regulatory requirements for digital insurers and takaful operators. The DITO Framework came into effect on 2 January 2025 and provides detailed licensing and regulatory requirements for digital insurers and takaful operators (“DITOs”).
In the DITO Exposure Draft, BNM had indicated that the number of licences would be limited to five. However, when BNM issued the finalised DITO Framework on 9 July 2024, this cap was notably absent. BNM confirmed in a footnote to its accompanying press statement that it would no longer limit the number of licences to five, thereby opening the field to a broader pool of applicants. Formal applications for a DITO licence are to be submitted to BNM during the licensing application period, which runs from 2 January 2025 to 31 December 2026.
BNM acknowledges that digital technology and innovative business models bring about a different set of opportunities and risks to the Malaysian financial sector. As such, a balanced approach that facilitates the continuous development of a sound, progressive and inclusive financial system, while safeguarding financial soundness and the interests of policy owners and takaful participants is adopted in calibrating the appropriate licensing and regulatory requirements.
The DITO Framework aims to facilitate the entry of digital insurers and takaful operators in Malaysia that can offer strong value propositions to achieve policy outcome of inclusion, competition and efficiency. A lower minimum paid-up capital of RM30 million reduces entry barriers and creating opportunities for new entrants.
Based on the recent announcement, applications open from 2 January 2025 to 31 December 2026, and licenses will be issued to successful applicants who fulfil the criteria. Interested applicants may start engaging and consulting with the regulator as early as 1 October 2024 to better understand the regulatory expectations and align their proposals accordingly.
In general, applicants will be assessed based on several key criteria, including prudential aspects (such as the character and integrity of the applicants, the nature and adequacy of financial resources, soundness and feasibility of business and technology plans), business conduct and consumer protection, Shariah compliance, robust anti-money laundering and terrorism financing measures and meaningful value propositions that serve Malaysia’s best interest.
Targeted regulatory flexibilities will be accorded during a foundational phase lasting between 3 years and up to a maximum of 7 years. In addition to presenting a robust business plan, applicants are required to submit a comprehensive exit plan to enable an orderly exit from the business and to mitigate any unintended consequences.
Existing licensed insurers that wish to conduct digital insurance or digital takaful business separately from their current insurance/takaful business, may do so through a separate corporate body, such as a subsidiary. However, these insurers are not required to obtain a separate licence under the DITO Framework to digitalise their current business operations.
A key differentiation of DITO Framework is that it would operate primarily through digital or electronic means. It is a requirement that licensed digital insurers and takaful operators must ensure that their end-to-end operations, including critical functions such as underwriting, onboarding, distribution, policy servicing, claims processing and payments are carried out digitally or electronically. Notwithstanding the above, limited physical access points are permitted to reach the unserved and underserved segments, especially where digital infrastructure is lacking.
Policy Document on Operating Cost Controls for General Insurance and Takaful Business
On 30 June 2023, BNM issued a new policy document on operating cost controls for general insurance and takaful business which came into effect on 1 January 2024. This is applicable to licensed insurers carrying on general insurance business and licensed takaful operators carrying on general takaful business.
Changes in customer preferences, and the emergence of new intermediaries and/or disruptors that leverage on technological innovation, are reshaping the way licensed persons are carrying on their general insurance and general takaful businesses. The requirements in this policy document are intended to:
- strengthen licensed persons’ financial discipline and accountability on the management of their intermediaries to encourage continuous improvements in the quality of service of intermediaries and preserve good value of products and services offered to customers;
- accord licensed persons with greater flexibility to manage operating costs that are commensurate with their business strategies. This would pave the way for greater innovation and improved access to insurance and takaful products and services, including for the unserved and underserved customer segments; and
- ensure consistent application of cost control requirements, to preserve appropriate incentives for delivering high standards of service quality to customers.
Policy Document on Medical and Health Insurance/Takaful Business
BNM had on 29 February 2024 issued a policy document on Medical and Health Insurance or Takaful Business (“MHIT”). This policy document came into effect on 1 June 2024 and is applicable to licensed insurers under the FSA and licensed takaful operators under the IFSA which underwrite or offer a MHIT product.
One of the highlights of the policy document on MHIT is that, effective from 1 September 2024, insurers must offer consumers the option to purchase MHIT products with a co-payment feature.
Essentially, all new individual medical reimbursement insurance/takaful products must now include a co-payment feature, with the co-payment amount no less than the minimum amount prescribed in the policy document on MHIT. Currently, the minimum co-payment is set at 5% of the total claimable expenses (after deductible) per policy/takaful certificate year, subject to a maximum co-payment limit to be set by the insurer, and/or RM500 deductible per policy/takaful certificate year.
For clarity, consumers who have already purchased MHIT products without a co-payment feature can continue with their existing MHIT products upon renewal. Insurers can continue to offer existing MHIT products without a co-payment feature to new consumers, however, insurers cannot design new products without a co-payment feature.
The policy document on MHIT marks a significant turning point, as the industry has long grappled with issues such as affordability, medical inflation and overutilisation of health services. By offering a co-payment option, consumers can access more affordable MHIT products at a lower cost, tailored to their financial circumstances and needs. Premiums for MHIT products with co-payment features are reported to be substantially lower compared to similar products without co-payment features. The mandatory co-payment aims to strike a balance between responsible use of medical benefits and avoiding undue burden on consumers, taking into account the prevailing economic conditions and the diverse financial situations of consumers.
Group medical reimbursement insurance/takaful products, however, are exempted from the minimum co-payment requirement, nevertheless, insurers are encouraged to offer the co-payment feature as an option to their customers.
BNM also issued a directive in late 2024, requiring insurers spread out the changes in premiums over a minimum of three years for all policyholders affected by the repricing. Insurers are required to cap annual premium hikes at 10%, ensuring that the total increase does not exceed 30% by the end of 2026.
In a move to facilitate greater industry-wide analysis of medical claims data, insurers are required, beginning 1 January 2025, to submit MHIT claims data to a central medical claims data platform. This platform will be established collaboratively by insurers and the relevant industry associations.
In another significant change, the policy document on MHIT prohibits insurers from concluding sales through telemarketing channels for MHIT products. Potential customers must be redirected to a qualified sales representative, who will then conduct needs-based analysis as prescribed under the policy document on MHIT before concluding the sale. Notwithstanding the above, insurers are not prohibited from marketing MHIT products through marketing channels, but cannot conclude the sale through this medium.
In early 2026, BNM announced that it will strengthen regulatory requirements for all MHIT products alongside the introduction of a standardised base MHIT plan. Finance Minister II Datuk Seri Amir Hamzah Azizan stated that the enhanced framework aims to improve consumer protection and ensure long-term premium sustainability by aligning market offerings with the principles of the base plan, reinforcing affordability and transparency across the private healthcare financing ecosystem. The base MHIT plan, offered on a voluntary basis, is scheduled for pilot implementation in the second half of 2026, with a full rollout targeted for early 2027, coinciding with the expiry of BNM’s interim measures on medical insurance repricing. Crucially, policyholders facing repricing will have the option to switch seamlessly to the base plan with their current insurer without new medical underwriting.
In addition, BNM has also proposed a “no look-back” mechanism under the same framework, whereby insurers and takaful operators will not be permitted to reject claims or deny coverage based on pre-existing conditions or unintentional non-disclosure of past medical information, once a policyholder has maintained continuous coverage for a prescribed period under the base MHIT arrangement. This initiative is intended to further strengthen long-term coverage certainty and improve consumer protection within the reformed MHIT ecosystem.
Policy Document on Claims Settlement Practices
The new policy document on Claims Settlement Practices (building on the previous policy document of the same name) came into effect on 2 January 2025. This policy document aims to ensure timely outcomes in claims settlement practices with shortened turnaround time and enhanced transparency while promoting the wider adoption of digital solutions by insurers to enhance efficiencies and improve overall customer experience.
Policy Document on Complaints Handling
BNM released the Policy document on Complaints Handling on 28 March 2025 which aims to enhance the effectiveness and responsiveness of financial service provides, including insurers in managing consumer complaints.
Effective from 1 April 2026, insurers must acknowledge receipt of customers complaint within the next working day. For simple case, the turnaround time shall take no more than 5 working days while complex cases should be resolved no later than 20 working days. Where insurers require additional information or documents from a third party for a robust assessment of the complaint received (such as medical, forensic or police investigation reports), insurers are allowed an additional 10 working days to resolve such complex cases.
In exceptional circumstances where insurers fail to obtain the required information or documents from the third party within 30 working days, the senior management must make a final decision or decide on other measures to resolve the complaint in the absence of the relevant information or document no later than 60 working days from the date of receipt of the complaint.
In addition, insurers shall follow up with the relevant third party on the information or document required at least once in every 5 working days. While a complaint involving a complex case is still being investigated and is pending resolution, insurers shall provide updates on the progress of the case to the relevant consumer at least once in every 10 working days from the date of receipt of the complaint.
Further, insurers shall ensure its complaints handling channels are easily accessible and available to all financial consumers. Key information shall be published on its complaints handling access points and procedures at its premises and website. At a minimum, this must include- (a) information on specific contact points and channels for lodgement of complaints; (b) description of the complaints handling process and turnaround time for complaints resolution; and (c) summary of next steps that a financial consumer may take if the consumer is dissatisfied with the final decision.
Policy Document on Climate Risk Management and Scenario Analysis
On 17 March 2025, Bank Negara Malaysia (“BNM“) issued an updated Policy Document on Climate Risk Management and Scenario Analysis (the “Policy Document on Climate Risk Management”), which came into effect on its date of issuance, with the exception of Paragraphs 14.8 and 14.9, which concern annual climate-related disclosures aligned with the National Sustainability Reporting Framework.
The Policy Document on Climate Risk Management applies to a broad range of financial institutions, but is of particular relevance to licensed insurers and licensed takaful operators regulated under FSA and IFSA. Insurers and takaful operators must comply at both entity and consolidated level. Locally incorporated foreign insurers and branches of foreign insurers in Malaysia may leverage their group or parent company’s climate-related policies and procedures to satisfy the requirements.
The Policy Document on Climate Risk Management retains 14 principles governing climate-related risk management. For insurers and takaful operators, this means the board bears overall responsibility for safeguarding the institution’s resilience against climate-related risks, including evaluating how physical and transition risks may affect underwriting portfolios, investment strategies and claims exposure. Senior management must ensure that key underwriting, actuarial and risk functions are properly structured to support climate resilience.
The Policy Document on Climate Risk Management introduces three main changes. First, it now imposes mandatory Task Force on Climate-related Disclosure, requiring insurers to report on the “Basic” and “Stretch” Recommendations in the Financial Stability Board’s Task Force on Climate-related Disclosure Application Guide for Malaysian Financial Institutions, and to ensure that such disclosures are accurate, verifiable and complete. Secondly, annual climate-related disclosure dates have been aligned with the National Sustainability Reporting Framework. Listed insurers with a market capitalisation of RM2.0 billion and above will commence reporting as early as 1 January 2025, followed by all other listed insurers on 1 January 2026. The reporting mandate will then extend to all remaining insurers and takaful operators starting from 1 January 2027. Thirdly, insurers and takaful operators must obtain external reasonable assurance on their Scope 1 and Scope 2 greenhouse gas emissions, with assurance effective dates staggered from 1 January 2027 through to 1 January 2029 depending on the institution’s group classification.
The Policy Document on Climate Risk Management underscores BNM’s expectation that insurers take immediate action to enhance resilience, given the material financial risks posed by climate change to better safeguard the industry’s long-term resilience and operational soundness.
Policy Document on Prudent and Professional Conduct of Insurance and Takaful Brokers
On 29 August 2025, BNM issued the Policy Document on Prudent and Professional Conduct of Insurance and Takaful Brokers (“Brokers Policy Document”), which took effect on 1 January 2026 (with the exception of the requirement to appoint at least one independent director, which will take effect on 1 January 2027). The Brokers Policy Document applies to approved insurance brokers under the FSA and IFSA.
The Brokers Policy Document consolidates and streamlines a range of ongoing requirements applicable to approved brokers. An approved broker must be a company incorporated under the Companies Act 2016 and is required to maintain minimum capital funds of RM1.0 million at all times. In addition, approved brokers must hold professional indemnity insurance or takaful cover with a minimum limit of indemnity of at least RM1.0 million, net of deductibles, for any one claim. The board of the approved broker bears responsibility for ensuring that the level of professional indemnity cover maintained is adequate having regard to the volume, nature and risk profile of the broker’s business.
In relation to governance, the board of an approved broker must comprise a minimum of three directors. From 1 January 2027, the board must include at least one independent director. Where the approved broker carries on takaful broking business, at least one director must possess an understanding of the relevant Shariah concepts and principles applicable to that business. The approved broker must also appoint a full-time chief executive officer whose principal or only place of residence is within Malaysia. Senior management is responsible for establishing effective risk management policies and internal controls and for ensuring that adequate consideration is given to customers’ interests in the conduct of the broker’s business.
On matters of business conduct, the Brokers Policy Document requires an approved broker to source suitable product options from at least three different licensed insurers or licensed takaful operators for first-time customers and to recommend the most suitable option. Customers’ monies must be segregated from the broker’s own funds at all times, and premiums or contributions collected must be remitted to the relevant insurers, takaful operators, reinsurers or retakaful operators no later than seven working days from receipt or expiry of the 60-day Premium Warranty period, whichever is earlier. The Brokers Policy Document also prescribes detailed requirements in respect of brokerage and fee sharing arrangements, including minimum retention rates for approved brokers in respect of both domestic and cross-border arrangements. These minimum retention requirements are to be progressively liberalised and will cease to apply after 31 December 2028.
Approved brokers are permitted to carry on certain ancillary activities, including risk consulting, claims advisory services, employee benefits consulting, and the distribution of private retirement schemes. Such activities are subject to prior written notification to BNM and a revenue cap of 20% of total revenue in the preceding financial year. The Brokers Policy Document further imposes obligations aimed at maintaining the professionalism of broking staff, including minimum qualification requirements, a minimum of 20 hours of continuous professional development per calendar year, and the adoption of a balanced scorecard framework for the remuneration of broking staff. Approved brokers are also required to make their latest audited financial statements publicly accessible and to notify BNM within seven days of certain prescribed changes, including the establishment or relocation of offices, and the appointment or cessation of directors, chief executive officers and auditors.
The Brokers Policy Document serves as the regulatory compass, equipping approved insurance and takaful brokers with a comprehensive and unified reference point for the regulatory expectations governing their operations.
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Please note also that whilst the information in this Guide is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business or operational requirements. It is to your advantage to seek legal advice for your specific situation.
Disclaimer
Rajah & Tann Asia is a network of member firms with local legal practices in Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Our Asian network also includes our regional office in China as well as regional desks focused on Brunei, Japan and South Asia. Member firms are independently constituted and regulated in accordance with relevant local requirements.
