Claims include paid insurance claims and outstanding claims. The formula used is
Claim ratio ( LR) = Total insurance claims (Paid + Outstanding) / Total premium received.
For example, if a company pays INR 100 in claims and has collected INR 200 as premiums, the claim ratio would be 50%.
Claims ratio becomes adverse if the claims paid by the insurer exceeds the premium collected. It is more profound in Group health insurance policies considering the nature and construct of these policies. Since there are waivers on waiting periods and preexisting diseases conditions in a group policy, the probability of claim is higher in group policies. There are various steps available to control this adverse claim ratio in group health insurance policies:
- Make health insurance participation mandatory for all employees and their dependents in a group policy. Adverse selection is one of the most important factor impacting the claims in the health insurance policy.
- A simple way to control adverse loss ratio for an insurer is to increase the premiums. Although this is very challenging in group insurance setting with the backdrop of competition, but a few insurers take this up as a potential way to control their losses.
- Cost-containment measures can be adopted in group health policies. Few of the important measures for cost containment include:
- Room rent capping – The total treatment cost will depend on the type of room category the insured member choses during admission. Capping on the room rent ensure that there is a prudent usage of the health insurance plan from employees and they do not unnecessarily get admitted in a suite or a luxury room when other cheaper options are available.
- Co-payment on claims – This is another important measure for controlling claims ratio. A co-payment means there is a fixed proportion of claim that the employee will have to contribute out of pocket on each and every claim. Since it is an expense from the employee, they become more sensible in the choice of the hospital, category of room tariffs, and the treatment package (if any).
- Have capping for certain diseases. for example cataract, piles, hernia, etc which are more common and having a capping here will reduce the overall claims cost for the insurer and also the organisation.
You can reach out to PlanCover.com to get an optimal coverage structure and control adverse loss ratio.
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