The effect of the new co-payment medical insurance policy is limited, and the soaring medical expenses in China are difficult to alleviate.

The national banks require insurance and Takaful insurance companies to provide lower premium 'co-payment' medical insurance options in the future. MIDF research believes that the new policy still cannot solve the issue of soaring medical expenses in China.

Analysts point out that the main focus of the relevant new policy is to address two issues in the insurance industry, namely the 'buffet syndrome' which inflates medical expenses, and the low penetration rate of medical insurance leading to an overly burdensome public healthcare system.

However, the inflation of medical expenses is not solely caused by the 'buffet syndrome', but also by other structural and global influencing factors, which the new policies in the country cannot resolve.

According to analysts, other main factors that drive up medical inflation in the country include rising drug production costs, lack of official regulation on private hospital charges, a soaring number of hospital admissions in the post-pandemic era, and structural issues caused by the aging population.

The soaring medical expenses are unfavorable for insurance companies, as they will lead to an increase in medical insurance claims from customers. The additional burden brought by this may be passed on to customers in the form of increased premiums, potentially causing some customers to choose to cancel their policies.

The analyst pointed out that since 2019, the country's medical inflation has reached an extremely high level, far exceeding not only domestic overall inflation but also far higher than the global and regional average levels.

According to the analyst, the country's medical total inflation reached 15% in 2023, with a net inflation of 12.6%. This year's annualized total medical inflation is also 15%, with a net inflation of 11.9%, far exceeding the country's overall inflation during the same period, which was 2.4% and 3.1%.

On the other hand, MIDF research believes that the 'co-payment' medical insurance option is generally favorable to insurers, but the impact is not significant.

The analyst pointed out that this brand new medical insurance policy, although beneficial to insurance companies, is too mild to bring any significant bullish impact to insurance companies in the short term.

The 'co-payment' model reduces medical insurance premiums, which may drive premium and revenue growth, and customers may also be more easily retained due to lower premiums. However, the profit margin of medical insurance is quite low. Even if premiums increase, high costs and low profit margins will prevent insurance companies from synchronously increasing profits.

In addition, the analyst added that the aforementioned new medical insurance policy also fails to address the soaring domestic medical inflation problem, which impacts insurance companies.

Furthermore, he mentioned that it might be difficult for the government to implement stricter and more resolute new medical insurance policies, as this could lead to strong opposition from multiple parties.

In any case, the analyst stated that insurance companies may take the opportunity to change their operating strategies to gain more market share, or may completely shift focus by considering medical insurance as an inefficient market.

"However, we need to wait and see in order to understand the upcoming trends."

"A significant portion of Allianz's life insurance premiums come from continuous medical insurance premiums. In addition, medical insurance premiums account for only 10% and 8% of total premiums for Malayan Islamic Insurance and Run Ping, respectively."

Currently, the analyst maintains a 'positive' rating on the insurance sector. Allianz, Takaful Malaysia, and LPI Capital also receive a 'buy' rating, with target prices of 14.52 ringgit, 25.76 ringgit, and 4.97 ringgit respectively.