Group Mediclaim Renewal: Large Claims, Loading and Employer Pushback
A group mediclaim policy covering 1,200 employees and dependants is due for renewal. Premium is ₹3.0 crore; incurred claims are ₹3.6 crore, a loss ratio of 120%, up from 95% last year. Three large claims above ₹10 lakh account for ₹79.2 lakh, or 22% of incurred claims. Eighteen members have declared diabetes or cardiac conditions; medical inflation is running at 8%. The expiring policy has a ₹5 lakh family sum insured and no co-payment. The insurer proposes a 35% renewal loading plus a 10% co-payment on all claims. The employer says it will tender the cover if the increase exceeds 15% and asks the broker to reduce the sum insured to ₹3 lakh and add a 30-day waiting period. The broker has only aggregate claims data, not member-level data.
1. Decompose the loss ratio and assess how much of the deterioration is credible versus random.
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Loss-ratio decomposition
- Incurred claims: ₹3.6 crore; premium: ₹3.0 crore; loss ratio: 120%.
- Large claims above ₹10 lakh: ₹0.792 crore, or 22% of incurred claims.
- Excluding large claims: ₹3.6 crore − ₹0.792 crore = ₹2.808 crore.
- Loss ratio excluding large claims: ₹2.808 crore ÷ ₹3.0 crore = 93.6%, which is close to last year's 95%.
This shows that the deterioration is driven mainly by three large claims, not by a broad increase in routine claims. However, a 1,200-life group has only moderate credibility, and one year is not sufficient to conclude that the increase is temporary. The 8% medical inflation means the underlying trend is upward even if large claims do not recur. The 18 declared diabetes or cardiac cases may indicate adverse selection, but without member-level data it is not possible to quantify their effect.
The insurer should request three years of member-wise claims data before applying a permanent loading.
2. Evaluate the insurer's proposed 35% loading and 10% co-pay against the employer's alternatives.
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A 35% loading raises premium to ₹3.0 crore × 1.35 = ₹4.05 crore. If claims remain ₹3.6 crore, the loss ratio falls to 88.9%. After 8% medical inflation, expected claims are about ₹3.89 crore, giving a loss ratio of about 96%. The loading is therefore broadly defensible on a forward-looking basis, although it may overcorrect if the large claims do not recur.
A 10% co-payment reduces claim cost and shares utilisation risk, but it also shifts cost to employees and may be resisted.
The employer's alternatives are weaker:
- Reducing the sum insured to ₹3 lakh lowers severity but creates underinsurance and may not reduce frequency.
- A 30-day waiting period is generally inappropriate on renewal for existing members and may conflict with continuity and regulatory expectations.
- Tendering risks disrupting cover and attracting anti-selection from members with known conditions.
A negotiated outcome could be a 15–20% loading, a co-pay of 10% above a threshold such as ₹2 lakh, retention of the ₹5 lakh sum insured, and a wellness or disease-management programme.
3. What data and renewal structure would you recommend?
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Data requests
- Member-wise claims for at least three years, including diagnosis, admission dates and amounts.
- Details and prognosis of the three large claims.
- Age, sex, sum-insured and dependant distribution.
- Network hospital discounts, room-rent caps and utilisation by provider.
- Occupation and location data to assess morbidity.
Renewal structure
- Retain the ₹5 lakh sum insured to avoid underinsurance.
- Apply a moderate experience loading, not the full 35% in one step.
- Introduce a co-pay or deductible above a defined threshold, protecting routine claimants.
- Consider a stop-loss or excess-of-loss reinsurance cover for large claims.
- Offer a wellness programme and chronic-condition management for declared diabetics and cardiac cases.
- Communicate the rationale transparently to the employer and employees.
The aim is to restore rate adequacy without destroying persistency or creating a spiral of anti-selection.