When Expanding Overseas Can You Trust Governments?

International private medical insurance and global healthcare analyst and report author, Ian Youngman, takes a look at the extra-ordinary happenings in Malaysia.

Overview

The global press is full of politicians claiming to want investment by overseas companies in their country.

For insurance there are good arguments as it helps improve the local insurance industry.

Particularly important in health insurance is where the population is under insured or the country is bringing in some form of compulsory or voluntary insurance.

Several insurers have been caught out by trying to buy insurers and then being blocked despite national or global rules.

Trying to set up from scratch can be subject to delays and local problems.

When finally established in a country you may be hit by rules on how many locals you must hire.

Malaysia

Malaysia has brought the process to a brand new level.

Malaysia liberalised foreign ownership rules in 2009 to allow foreign equity participation in insurance companies and takaful operators to increase from a limit of 49% to 70%. Regulator Bank Negara have since allowed a higher foreign equity limit beyond 70% for insurance companies on a case-by-case basis for players that can facilitate the consolidation and rationalisation of the industry.

In 2018 it brought in rules that made it compulsory for overseas insurers to effectively give away up to 30% of the shares in any local insurer where overseas ownership was above 70%.

There have been vague threats to insurers about what will happen if they keep more than 70%.

In turn insurers threatened to leave the country in the knowledge that few local businesses could afford to buy all or part of the local company.

The pandemic held up negotiations and changes.

B40

The B40 Health Protection Fund is an initiative piloted by the federal government in partnership with the private insurance industry. Under the scheme, which was launched in January 2019, the government together with private insurers provides free protection against critical illnesses. The free protection benefits include a one-time MYR8,000 cash pay-out upon diagnosis of one of the critical illnesses while hospitalisation income cover is MYR50 per day or MYR700 per year.

The deal

Many foreign insurers are opting to contribute to the MySalam health scheme for the Bottom 40% (B40) of households

If approved, these insurers will be exempted from having to pare down their holding to 70% by divesting the remainder to local institutions or via an initial public offering.

Insurers were offered the amazing option of reducing their stake to 70% of give a voluntary contribution to B40.

There was no specific broad deadline for them to reduce their stakes as it was based on a case-by-case basis, and discussed on a bilateral basis.

The MySalam scheme kicked off 2019 with a $479m fund contributed by Singapore-owned Great Eastern Life Malaysia, which allowed it to be exempted from the minimum 30% local shareholding threshold set by the government.

Latest developments

Malaysia's central bank Bank Negara is giving foreign insurers until the end of 2023 to either reduce stakes in their local ventures to 70% or contribute to the charitable fund.

Foreign insurers that do not comply with the ownership limit by the deadline will have to pay into the national health insurance programme known as B40 Health Protection Fund.

Insurance companies that contribute to the B40 fund will be deemed to have complied with the ownership limit, even though they have not!

Foreign shareholders accepted the divestment condition when they entered the Malaysian market, Bank Negara Malaysia has claimed.

The central bank continues to engage closely with foreign shareholders on their divestment plans and does not comment on specific cases.

AIA Group, Prudential, Tokio Marine Holdings and Zurich Insurance Group are among the international insurers with ventures in the country.

Is it legal?

It would be interesting to see a legal opinion as to whether USA and EU insurers could be breaching their own bribery and related laws by effectively paying a healthcare fine to break the law.