The number of lives to be covered on renewal and claims in the current policy are by far the two most important factors that influence GMC renewal premiums. In this post, we’ll get to know about the impact of increase or decrease in lives on GMC renewal premium calculations.
Key Takeaways
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Proportionate Risk: The number of lives covered is directly linked to the projected claims. More people naturally lead to more potential hospital visits, which insurers calculate as a “Projected Out-go.”
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The “Average Lives” Benchmark: Insurers don’t just look at the starting or ending number. They calculate the Average Lives throughout the year to understand the true claim density of the group.
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Annualization of Claims: Since renewal negotiations happen before the policy actually ends (usually at day 330), insurers “annualize” the data. They take your current 11-month spending and stretch it to predict the full 12-month cost.
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The Growth Multiplier: If your company is hiring, the increase in lives at renewal acts as a multiplier. For example, an 18% increase in lives leads to an 18% increase in the projected claim budget.
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Demographics Matter: Beyond just the head-count, insurers look at the Age and Gender distribution. Adding 50 young employees has a different premium impact than adding 50 employees who are also bringing dependent senior citizen parents.
The reason why a number of lives are such an important factor is that it has a proportionate implication on projected claims-outgo which is the claims that renewed policy will witness during the policy period. An increase in lives will increase the projected out-go and vice-versa.
Let us illustrate the above with a couple of cases –
Case 1 – No. of lives at renewal is higher than expiring/average lives
No of lives at policy inception = 500
No of lives at policy expiry = 600
No of lives at policy renewal = 650
Average no of lives in the policy = 550
Increase in no of lives at renewal from average lives = 650 – 550 = 100
% increase in no of lives at renewal from average lives = 100/550 = 18.18%
Claims paid + O/S as of 330 covered days = Rs 10,00,000
Annualized claims 365 days = Rs 10,00,000 X (365/330) = Rs 11,06,061
Projected claims out-go considering impact of increase in lives = (1 + 18.18%) X Rs 11,06,061 = Rs 13,07,143
As we can see from the above example, an increase in no of lives at renewal increases the expected claims that the renewed policy will encounter.
Now let us consider another example.
Case 2 – No. of lives at renewal is lesser than expiring/average lives
No of lives at policy inception = 500
No of lives at policy expiry = 600
No of lives at policy renewal = 450
Average no of lives in the policy = 550
Decrease in no of lives at renewal from average lives = 550 – 450 = 100
% decrease in no of lives at renewal from average lives = 100/550 = 18.18%
Claims paid + O/S as of 330 covered days = Rs 10,00,000
Annualized claims 365 days = Rs 10,00,000 X (365/330) = Rs 11,06,061
Summary: Impact of Lives on GMC Renewal
Projected claims out-go considering impact of decrease in lives = (1 – 18.18%) X Rs 11,06,061 = Rs 9,04,979
As illustrated in the above example, a decrease in no of lives at renewal decreases the expected claims that the renewed policy will encounter.
PS – Beyond the impact of increase or decrease in lives under GMC, insurers consider the demographic distribution of lives enrolled in the policy while quoting for renewal premiums of the Group Health Insurance.
Frequently Asked Questions (FAQs)
Q1: Why does the insurer look at “Average Lives” instead of just the number of employees on the day of renewal?
A) A company’s headcount fluctuates throughout the year. Looking at “Average Lives” provides a more accurate picture of the risk the insurer carried. If you had 1,000 employees for 11 months and dropped to 500 in the last month, the “Average” better explains the high claims you might have incurred.
Q2: If my team size decreases, will my per-employee premium also decrease?
A) Not necessarily. While the total premium for the company will go down (because there are fewer people), the Rate Per Life might stay the same or even increase if the remaining employees are in a higher-risk age bracket or have a high claim history.
Q3: What are “O/S” claims in the renewal calculation?
A) “O/S” stands for Outstanding Claims. These are claims that have been reported to the insurer but haven’t been paid yet. For renewal purposes, the insurer treats “Paid + Outstanding” as the total loss for the year.
Q4: Can I negotiate a lower premium if I promise to keep the headcount stable?
A) Headcount stability is a positive sign for insurers as it makes risk more predictable. However, premiums are primarily driven by the Claim Ratio (Claims vs. Premium Paid). If your claims are high, a stable headcount won’t prevent a premium hike.
Q5: How does adding “Dependents” affect this math?
A) In a GMC policy, every family member is a “Life.” If 100 employees add their spouses and children, the “Number of Lives” could jump from 100 to 300+. This significantly increases the projected claims out-go and, consequently, the renewal premium.
About The Author
Mayank Sharma
MBA Finance
He is a professional who brings extensive knowledge and expertise to the field of group health insurance. He has dedicated 7years to helping individuals and businesses navigate the complexities of insurance. Having worked closely with numerous clients and insurance providers, he deeply understands the nuances of group health insurance policies. With a reputation for providing insightful and informative content, he leverages his industry experience to educate readers about the importance of group health insurance and its benefits. Through their articles, Mayank Sharma aims to empower individuals and businesses to make informed decisions about their healthcare coverage, ultimately promoting healthier and more secure communities.
