Insurance price assessment
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How does this tool benefit HR?
The primary objectives is to help HR on the following:
- Avoid overpaying the insurers & providers
- Set aside budget for renewal
- Estimate price increase
- Avoid surPRICEs in renewal premiums
- Receive a second opinion of their price from an experience broker & an actuary
Detailed Explanation of the Workings
This tool is for entering the data for the past 3 years of losses on the quoted renewal premiums. If there are pending claims for Hospital and Surgical or Disability Income it will be paid out in the future as an annuity, it can be declared on relevant fields.
This price assessment tool gives a result based on the claims experience you have entered. It estimates for you whether the renewal is overpriced, underpriced or moderately priced and whether you should expect an increase in premiums. This tool is only an estimate not an accurate representation of how your respective insurer calculates your premiums. Each insurer has its own formula and methodology. What we have done here is aggregate the top most commonly used formula & framework for this calculation.
The sheet collects data of your declared losses, sum insured and premium per sum insured, number of employees for various insurance types are entered here. There are 5 types of hospital plans for which the model gives the premium rates calculated based on past loss history. For Hospital and surgical, the policy limits for both the renewal and the past loss history should remain the same as the model does not consider changing policy limit for the same plan.
The parameter customization sheet is the sheet where all the calculations are done. For each product we determine the kind of loss ratio that the insurer is ready to absorb. In this model we have pegged it at 70%, the industry average norm.
The allowable loss is calculated as:
Maximum Loss: 100% Less (Expenses, Contingencies, Losses, Commissions, Profits)
The medical inflation parameters consider all kinds of inflation that should be allowed for. This can be declared for each product as different types of inflation affect different product categories. Next, we take the average of 3 years of premiums and the average of 3 years of losses to determine a single point from which to compare current quoted renewals. Based on the losses we determine the maximum increase or the minimum decrease that the premiums can have. To limit unusual fluctuation, we have defined the max increase and min decrease parameters in the cells. This limits premium movement within this range.
The factor for perpetual claims defers the loss recovery by the insurance company over a period of years. For eg. Entering a factor of 0.5 means recovering the losses over a period of 2 years. This is applicable when you have perpetual claims. The technical rate is determined based on the average premium of 3 years adjusted for excess or lesser losses incurred than expected but allowing for movements to be within the max increase and min decrease range.
The technical rate for products based on Sum Insured (SI) is calculated as follows
The technical rate for products based on number of employees is calculated as
The adjusted technical rate is:
Technical rate * (1+ subjective rate adjustment)
For Hospital and Surgical, the calculations are done in steps:
First, the technical rates are determined as
Premiums per employee * new number of employees + (past premium*Loss recovery *rate adjustment)
The factor for market adjustment is given if any further subjective adjustment needs to be applied to reduce or increase the technical rates which are used for comparison with the quoted renewal. Currently a scale from -5% to +5% is used for the comparison results.
This price assessment tool is created by
Are you expecting any more potential claims or subsequent payments need to be made? eg. Health deterioration or new claims?
Do you have the renewal rates for comparison?