Group indemnity renewal: large claims, shrinking membership and a broker ultimatum
A mid-sized Indian health insurer writes a group indemnity policy covering 12,400 employees and dependants of a manufacturing group for the policy year ending 31 March 2025. Earned premium was ₹52.0 crore and incurred claims ₹61.4 crore, a 118% incurred claim ratio. Nine claims above ₹10 lakh accounted for ₹18.2 crore; the remaining claims produced an 83% ratio. Three-year ratios were 88%, 95% and 118%. The appointed actuary estimates medical trend at 10-11%. A plant closure will remove about 600 lives at renewal. Mid-year the policy added bariatric surgery cover with no rate change; the actuary estimates its cost at about 2% of premium. The insurer's expense loading is 18% of premium and the board target margin is 5%. The broker has offered 8% and says anything above 15% will go to tender. The group is strategically valuable for data and cross-sell but is shrinking.
1. Derive an indicated rate change for the renewal and explain how you would treat the large claims and the credibility of the group's own experience.
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Step 1 - credibility. The group generates roughly 2,900 claims a year, so frequency is fully credible on a standard limited-fluctuation test. Large-claim severity is not: nine claims cannot support a severity estimate, so the large-claim cost must be pooled across the group book, not loaded from this group's own year.
Step 2 - rebuild the loss ratio.
- Attritional: 43.2 / 52.0 = 83.1%
- One year of trend at 10.5%: 83.1% x 1.105 = 91.8%
- Pooled large-claim load: 12% three-year average x 1.105 = 13.3%
- Bariatric cover given free: ~2% x 1.105 = 2.2%
- Indicated loss ratio: ~107%
- Target loss ratio at 18% expenses and 5% margin: 77%
- Indicated change: 107/77 - 1 = +39%
Step 3 - weight the answer. The 39% is mechanical: it applies the full trend to a book whose mix is changing and whose large-claim experience is one bad year. Blend with the book-level indication for comparable groups (say +14%) at a credibility weight of 0.6-0.7, giving +22% to +26%. The 600-life reduction cuts premium about 5% and modestly improves the demographic mix.
Step 4 - conclude. Open at +24%. Show the build-up to the broker: a transparent arithmetic trail is more persuasive than a single number, and it lets the group see that it is being asked to pay for trend plus a free benefit it received, not for one bad year.
2. The broker's 8% offer would produce a third consecutive underwriting loss. Recommend a negotiating position and any design or structural changes you would attach, explaining the trade-offs.
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Position. Open at +24%, floor at +15%, and be prepared to walk away below that. At +8% the indicated loss ratio would be roughly 99% before expenses, so the group would consume capital for at least three more years with no prospect of recovery as it shrinks.
Structural conditions attached to any quote.
- An aggregate deductible of ₹75 lakh with 90% coinsurance above it: removes the tail that made 2024 look catastrophic, and is easier for the group to accept than a headline rate rise.
- Withdraw bariatric cover or price it separately: free benefits added mid-term are the single clearest cause of the 2024 deterioration and cannot be recovered through trend.
- Reinstate room-rent limits on the upper tiers rather than a blanket co-pay: it targets the provider-induced cost without touching small claims.
- Three-year rate agreement with an experience refund above an 85% loss ratio: gives the group downside protection and gives the insurer a reason to stay.
Trade-offs. Walking away loses data and cross-sell optionality, and a tender loss is visible in the market. Retaining at a loss rewards the broker's threat and sets a precedent for every renewal in the book. The disciplined answer is a firm number with real structural protection: if the group will not take it, the strategic value was not worth the capital.