Asking customers to pay more for their insurance cover at renewal can be a difficult conversation – especially if no claims have been made during the previous year. In this blog we explain some of the many reasons that give rise to medical insurance premium increases. We also give you tips for managing your health insurance premiums more effectively when purchasing or renewing.
The main factors that cause your premiums to rise fall into three brackets: medical inflation, claims and insurer expenses.
FACTOR 1: Medical Inflation
Medical inflation – the costs associated with providing healthcare – rises exponentially year after year and is caused by a whole range of factors. We'll examine a few of them below:
Supply and Demand
Health care is in demand. The world is seeing a rising incidence in chronic diseases like diabetes – especially in the likes of China and the Middle East. The global population is rising - we're all getting older and living longer. Many parts of the world are also experiencing new found wealth – and they want better health care. This all adds up to higher demand for medical services, which pushes up the cost of providing it.
Medical advances and new technology
Huge technological advances are made in medecine every year. New drugs, procedures and equipment are leading to better outcomes for patients. But new treatments often bring higher costs – and these are passed onto insurers.
FACTOR 2: Claims (incidents and costs)
Like any business, insurers need to make money to survive. This means, generally speaking, that they have to bring in more money in the form of premiums than they pay out in the form of claims. If insurers experience a higher than expected incidence of claims they may take the decision to adjust premiums to make up the shortfall.
Claims are affected by any number of factors. People living healthy lifestyles are likely to make fewer claims than those who don't. Claims ratios amongst ageing populations will tend to be higher than in younger groups. The 'culture of claiming' is higher in some parts of the world than others. And fraudulent claims can occur – either amongst policyholders or by medical providers in the form of excessive charging or charging for non-administered procedures.
Insurers work hard to reduce the number and size of claims but often need to raise premiums to counteract the upward pressure they experience year on year.
FACTOR 3: Insurer Expenses
Insurers also have to take into account the expenses they incur from running their business. Each year insurers will experience inflationary pressures from the wages they pay their staff, the cost of investing in improving their businesses and cost pressure from suppliers – such as their evacuation partners.
Although insurers will continually try to make their operations more efficient, inflation usually wins, and some of these additional costs will inevitably need to be passed on in the form of higher premiums.
MANAGING YOUR PREMIUMS
Despite the continuing upward pressure on premiums, there are ways you can reduce the money you pay for cover:
• Only buy the cover you need – when you take out a policy, don't pay for what you don't need.*
• Choose a higher deductible or excess – by doing this you'll be reducing the amount of money the insurer will have to pay out when you make a claim, so your premium will correspondingly reduce
• Pay annually - insurers will often provide a discount (or won't charge you interest) if you pay your premium in one lump sum rather than in monthly or quarterly instalments.
• Shop around – choose from a range of insurers to get the cover you need at the right price
*My Matchmaker allows you to choose only the cover you need. Click here to find out more.
To summarise, annual premium increases are never welcome, but it helps to understand some of the reasons they need to rise. And by following a few simple tips and tricks, you will be able to get the cover you need at a price you are happy to pay.