How does renewal pricing work for group health insurance?
A group health insurance policy covers multiple members of a group under its scope. A single policy is issued covering all the members and the policy is called a Master Policy. While issuing the group health insurance policy, the insurance company fixes the premium of the policy based on the following factors –
- The type of group seeking cover. If the group is an employer-employee group, the health risks are lower compared to, for example, a trade union or a group of bank account holders whose ages are widely dispersed. Similarly, lower health risks assessed for a group would result in lower premiums and vice-versa
- The number of members in the group. The higher the number, the higher would be the premium
- The average age of the members of the group. The higher the age, the higher would be the premium
- The average sum insured offered. The higher the sum insured, the higher would be the premium
- Add-on coverage benefits opted for. If additional coverage benefits are sought, the premiums are higher.
Once the group health insurance policy is issued, it runs for a period of one year after which it is required to be renewed. At that time, the renewal premium would be calculated based on factors including the following –
- The number of members being covered – during the coverage year, the number of members of the group might change. There might be new members who join the group and some members might also exit from the group. So, the renewal premium would be calculated based on the updated number of members of the group who are being covered
- Average age of the members – since the policy has already run for a year, the age of the members would have increased by one year. As age plays an important role in the determination of the premium, the renewal premium would be increased because of the increased age of the members of the group.
- The sum insured offered – if the group seeks to increase or decrease the sum insured on renewal of the policy, the premium would also change. Increase in the sum insured would increase the premium and decrease of the sum insured would lower the premium.
- Add-ons opted– if the group decides to opt for additional options for better coverage, the renewal premium would increase. On the contrary, if the policy had add-ons and the group decides to opt out of them, the renewal premium would decrease.
- Claim experience of the group – on every renewal, the insurance company assesses the claim experience or claim incidence of the group in the preceding coverage year. If there have been too many claims, the premium is usually increased. However, if the group’s claim experience was favorable, i.e. there were lower claims, a discount is allowed in the renewal premium and the premium reduces.
Based on these listed factors, the premium of the group health insurance policy is calculated. Claims play an important role when the policy is renewed and an actuarial valuation is done by the insurance company for fixing the renewal premium. This actuarial valuation helps the company to reduce or increase the renewal premium based on the above-mentioned factors.