This article first appeared in The Edge Malaysia Weekly on May 4, 2026 - May 10, 2026

LAST year, medical claims inflation in the insurance sector fell to its lowest level since 2021, signalling that cost containment efforts were gaining traction. However, analysts expect a sharp rebound this year amid mounting cost pressures linked to the Middle East conflict, which could weigh on insurers.

Data from the Life Insurance Association of Malaysia’s annual report, released last month, shows that the industry’s medical claims payout — an indicator of medical claims inflation — rose 5.3% to RM9.4 billion in 2025, from RM8.9 billion the year before. This marked a sharp slowdown from growth rates of 14.4% in 2024, 26.2% in 2023 and 33.7% in 2022. In 2021, growth was 2.3% (see chart).

Medical claims make up the largest share of total industry claims, accounting for 53.9% last year. Total claims — for medical, death, disability, bonuses and others — increased by 3.4% to RM17.4 billion in 2025, from RM16.6 billion in 2024.

According to MBSB Research, although 2025 saw the lowest medical claims inflation in years, it could rise sharply in 2026 as war-related logistical disruptions are expected to drive up drug and medical equipment prices once again, like it did during the Covid-19 pandemic.

“Elevated drug and medical prices stemming from war-related logistical issues should result in steep medical cost inflation in the subsequent quarters [of the first quarter],” it says in an April 27 report on the insurance sector.

Supply chain disruptions and raw material shortages during the pandemic were a leading cause of the rapid healthcare inflation several years ago, it notes. Those issues eventually cleared up, which led to better control over global drug and medical equipment prices.

However, prices have started rising again. On April 10, Health Minister Datuk Seri Dr Dzulkefly Ahmad confirmed that the cost of medicines has risen by up to 30% to 40% in some cases — and possibly higher for specific medical devices. He said medicine stockpiles are stable until June.

“We expect this to drive up medical inflation in 2026 once again,” MBSB Research says.

Higher medical costs are being felt globally. In the UK, for example, pharmacies have raised prices of over-the-counter medicines by 20% to 30%, with paracetamol — a common painkiller — more than quadrupling in price, while in India, there are increases of up to 96% for widely used painkillers, according to recent news reports.

Be that as it may, MBSB Research maintains a “positive” investment stance on the insurance sector, and expects insurers to post solid results for the first quarter of the year, continuing the momentum of the preceding quarter. The war began on Feb 28 and its impact was not yet felt in 1Q2026.

“The insurance sector should at least maintain its tremendous momentum in 1Q2026 — but subsequent quarters could see a negative impact from the ongoing war and its effect on the local macroeconomic environment. Slowing sales and a return of steep medical inflation are our main points of concern,” it says.

General insurers in particular feel the pinch as the volume of vehicle and house purchases declines. Syarikat Takaful Malaysia Keluarga Bhd (Takaful Malaysia) (KL:TAKAFUL), highly dependent on bancatakaful, could see some moderation in sales if loan growth figures weaken enough, it notes.

BIMB Securities too believes that medical inflation and claims remain one of the key near-term challenges for the insurance and takaful sector.

“Elevated medical claims are expected to remain a near-term headwind, with Malaysia’s medical inflation projected to reach around 16% in 2026. This will continue to pressure medical claims ratios, which are likely to improve only gradually upon full implementation of the DRG (diagnosis-related groups) framework,” it says in an April 21 report. Medical inflation was estimated at around 15% last year, according to news reports.

“Rising healthcare costs have driven premium increases, prompting Bank Negara Malaysia to cap annual premium hikes at 10%. To improve affordability, a standardised basic medical plan is scheduled for pilot rollout in 2H2026, ahead of a full launch in 2027. Delays in introducing affordable products could further constrain new family takaful business growth,” BIMB Securities adds. It has a “neutral” call on the sector.

When asked if it has started to see a slowdown in sales growth, Takaful Malaysia group CEO Nor Azman Zainal tells The Edge: “At this stage, there is no clear evidence of a direct or measurable impact, and it would be premature to attribute any changes in sales growth to the Middle East conflict. Current trends are more reflective of broader macroeconomic conditions rather than event-specific factors.”

On medical claims, he makes a point that medical claims inflation in Malaysia is a well-established structural trend and “should not be conflated with current geopolitical developments”.

“The key drivers — rising healthcare utilisation, advancements in medical treatments and persistent cost escalation within the healthcare system — have been in place for some time and will continue to shape claims experience going forward,” Nor Azman says in an email response to questions.

“While the Middle East conflict may introduce limited indirect cost pressures, particularly through supply chain or energy-related channels, there is potential for claims costs to rise if the conflict becomes prolonged. Any sustained increase in energy costs could have a direct impact on other input costs, including medicines and medical supplies. It is, therefore, important to maintain perspective: medical inflation remains the dominant driver, and the industry’s focus is on addressing this through sustainable pricing, product innovation and stronger collaboration across the healthcare ecosystem,” he says.

Nor Azman emphasises that Takaful Malaysia’s medical exposure is “manageable” given that retail medical products or individual medical plans are not a material component of its business.

“We do have a substantial exposure in employee benefit schemes (which may include corporate medical plans for employees of corporates) although this particular portfolio is yearly-renewable, which allows for price adjustment to reflect claims experience.

“We will remain vigilant, but not reactive as the fundamentals of the market remain strong, and our focus is on managing long-term structural trends rather than short-term noise.”

Meanwhile, Allianz Malaysia — when asked about sales growth — says its business has shown resilience amid evolving global challenges.

“We remain committed to adapting to market dynamics and continue to support our customers with reliable solutions,” it tells The Edge.

On whether it expects claims, in particular medical claims, to rise as a result of the war, the country’s largest general insurer says: “We anticipate to see some impact on our claims if this conflict continues in the Middle East.”

Last year, Allianz Malaysia’s net profit rose 24.4% to RM958.78 million, on the back of a 10.36% improvement in revenue to RM6.24 billion. Its general insurance segment recorded premium growth of 7.8% year on year — surpassing the industry’s 4.8% — while in the life insurance segment, annualised new business grew 6% against the industry’s 0.7%.

Takaful Malaysia’s net profit grew 1.7% to RM384.72 million last year, even as revenue expanded 6.3% to RM4.39 billion. Its family takaful segment achieved growth of 7.7% — outperforming the industry’s 0.1% — while its general takaful segment grew 14.4%, higher than the industry’s 6.4%.

LPI Capital Bhd (KL:LPI), the first of the three companies to release its 1Q2026 results, last week reported a 1.6% increase in quarterly profit to RM99.54 million from a year earlier, as investment income offset a decline in insurance earnings.

“Despite the softer demand for insurance arising from the broader economic slowdown, the group will continue its efforts to improve its market share by further expanding its distribution channels,” the insurance arm of Public Bank Bhd (KL:PBBANK) says.

Despite the anticipated headwinds for the industry, MBSB Research maintains its “buy” call on the shares of Allianz Malaysia, Takaful Malaysia and LPI, its top picks being the first two.

“Despite possible headwinds in subsequent quarters, the sector’s solid dividend yields and strong growth momentum make it a very attractive pick,” it says, pointing out that dividend yields are in the mid-single-digit range. It pegged a target price (TP) of RM23.74 for Allianz Malaysia, RM3.95 for Takaful Malaysia and RM16.65 for LPI.

According to Bloomberg data, all six analysts with coverage of Allianz Malaysia have a “buy” call on the stock, with the 12-month TP at RM24.80, suggesting potential upside from its closing price of RM20.68 as at April 30. At that price, the company had a market capitalisation of RM3.81 billion.

As for Takaful Malaysia, six analysts have “buy” calls and one a “hold”, with the 12-month TP pegged at RM4.19. It closed at RM3.32 on April 30 for a market cap of RM2.89 billion, while LPI closed at RM14.84 for a market cap of RM5.91 billion.

Bloomberg data shows three analysts having a “buy” call on LPI with an equal number calling a “hold”, with the 12-month TP at RM15.78.

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