Group Health Insurance

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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.

 

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

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.

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