Loss ratios in Singapore: Help your company get the most from its group insurance
Around the world, including in Singapore, companies that provide group health insurance benefits to their employees often include ‘value adds’ like wellness benefits to them. This is not only the right thing to do for your employees’ health and happiness, it also keeps the company attractive to the best job candidates out there. Of course, all Human Resources managers out there would be ecstatic to be able to provide their staff with a ‘Cadillac’ medical insurance plan, with comprehensive health insurance, wellness scheme, gym membership and more, but not every company can put the money into their benefits package enough to give employees everything under the sun. Furthermore, with health insurance premiums almost guaranteed to rise every year, it’s harder than ever to find equilibrium between the benefits package that a company can offer its employees and those employees’ expectations.
There are myriad ways in which HR managers and group insurance plan administrators control the costs of company benefits. One of the most common among these is to work with an insurance brokerage like Pacific Prime. This is because, by working with a broker, you have a partner than can provide them with a valuable figure: The loss ratio. Here, we will delve into what a loss ratio is, and how you can use it to get the most out of their group health insurance benefits.
The loss ratio
So what is a loss ratio? Put simply, this is the ratio of premiums paid to an insurer versus the amount claimed against that insurance policy over the same period. For a group or corporate health insurance plan, this figure is generated for the whole policy, as opposed to individuals, and is an important indicator for a number of reasons.
As an example of a loss ratio, say a group insurance policy has annual premiums totaling USD$10 million. If only $8 million in claims are made against, than there is a loss ratio of 80%. With this information, insurers will gather a much better idea of whether or not they should raise premiums at renewal time, and by how much. Of course, insurance companies need the premiums to outweigh the claims in order to function properly.
Using loss ratios to your advantage
Loss ratios aren’t only a tool for insurance companies, though. HR managers and group insurance plan administrators can also make good use of them. The name of the loss ratio that is more relevant is the fair claims loss ratio. This term is used because it is not simply a loss ratio, but a loss ratio combined with other data, including claims info, insurer profit, premiums, and other business data. When put together, these items set a benchmark that allows the insured to determine what is fair to both them and the insurance company.
In order to determine the fair claims loss ratio, administrators must examine past premiums paid on an insurance policy, as well as claims submitted to the insurance company. Once this figure is obtained there are many things that can be done with it:
Predictions of future premiums will be more accurate
Plan performance can be benchmarked
Anomalies and outliers in performance can be identified
More accurately identify future benefits needed
More accurately predict future years’ claims loss ratios
So if and when you do come up with your fair claims loss ratio, what’s the next step? Well, you may avail yourself of your insurer’s fair loss ratio information for comparison. The ratio will be different for every company and/or health insurance plan, but you can make sure that your numbers are close to correct this way.
What’s a good ratio look like? In our experience most fair claims loss ratios will be in the range of 60 to 80 percent. Just to clarify, this number means that the total claims made on an insurance policy for a year totaled 60 to 80 percent of the total premiums paid in the same year. If your results show a figure that is significantly lower or higher than 60 to 80 percent, concern may be warranted. Here at Pacific Prime, we have even seen fair claims loss ratios as high as 120% or more!
Let’s look at an example to see how to interpret fair claims loss ratio results. A company with 100 employees has a group medical insurance plan. They analyzed the relevant data last year and determined a fair claims loss ratio of 70%. This year they look again and see that they paid USD$15 million in premiums for the year, while the claims they submitted totaled $11,250,000, for a fair claims loss ratio of 75%. While this figure is a good spot to be in with regards to the ratio, the increase year-over-year should warrant an expectation of higher premiums at renewal time.
This is especially true if the fair claims loss ratio is lower than the loss ratio. If this situation arises, a company should be aware that something is off with their group insurance plan or the usage of it. At this point it would be prudent to investigate the previous year’s claims and premiums paid to find areas that can be improved. If you then find, for example, an especially high loss ratio in the most recent year and the follow up uncovers that a few members of your team had unusual, yet serious accidents, a discussion can be had with your insurer to point out that the reason for higher claims in the past year was due to a rare occurrence that is unlikely to be repeated. On the other hand, if your investigation finds that the whole of the company saw an significant increase in occurrences of doctors visits due to colds and flus, it will be hard to convince the insurer that claims will go down in the coming year.
What if the reverse is true and the loss ratio reveals that you are paying way too much for your group health insurance, though? There could be several reasons for this:
Employees are simply not using their health insurance. If this is case, your plan may be offering more than employees need, or employees could be unhappy with the plan to the point that they will not use it.
Coverage can be increased. Since you seem to be spending more than is needed on the current level of benefit coverage, you can increase the level and employees can enjoy better medical coverage in the coming year.
Your company is being charged too much. If the benefit levels are where they need to be and the loss ratio is still too far in the insurer’s favor, something may be wrong on their end and this should be discussed with the insurance company at renewal time.
How Pacific Prime can help
Finding out what the relevant fair claims loss ratio and loss ratio are can be a daunting task. There can be a large amount of information to sift through, and some insurance companies may not be forthcoming with loss ratio information. On top of helping you select your plan initially and assisting with renewals, Pacific Prime can also guide you through the process of determining your fair claims loss ratio. Let our expert insurance advisors work with your company to ensure that you’re getting the most from your group health insurance plan. Contact Pacific Prime today.