Making gains from a group insurance cover? It is possible

Last month I highlighted how the best way to tackle the impact of inflation on health insurance policies is to see group medical as an investment in people, rather than a cost. Let’s go a step further and describe what should be even sweeter music to the ears of directors in HR and finance – how to structure your health insurance provision to add to your bottom-line.

This may seem curious. It’s one thing to save money – but to gain as revenue?

Cost vs cover

It all relates to annual improvements in your company’s loss ratio. When paying for insurance, a certain amount is allocated as ‘claims fund’ and the loss ratio is the difference between this fund and what the insurer has paid out in claims, expressed as a percentage.

Anything over 100 per cent, the insurer has made a loss covering your staff. When that happens, it’s not hard to guess what happens to the cost of premium, come renewal time. Details on the loss ratio (or claims ratio, from the point of view of the insured company) is provided by the insurer. If the loss ratio is above, or even near 100 per cent, the goal is to bring it down.

Achieving this is difficult for companies who simply renew on the same terms with the same provider (broker or not). For companies actively considering their options and really prioritising employee benefits, it’s very much possible.

It entails working closely with an adviser to implement a raft of employee-focused measures. This can begin with simple information sharing – do staff know what illnesses and injuries are covered, and what medical facilities are in their network (both can prevent avoidable extra cost)?

Tapping health expertise is another winner. The hospitals and clinics that may have been on the network for years are full of specialists – from dieticians to mental health therapists - who can get your workforce thinking about their health and kickstart a culture that’s not shy about getting check-ups and taking preventative action.

I’ve seen some great examples of companies going even further: team events, step challenges, accountability charts – even Fitbits on the wrist of every staff member.

Starting to gain

So, what’s this got to do with making money from a policy? When companies boost staff engagement, and get better information on the plan’s utilisation, the loss ratio starts declining. I have one client that reversed its ratio from 139 per cent to 85 per cent in a year. Health and wellbeing improved, and claims reduced by tailoring plans that were fit for purpose and suited the needs of the company. They didn’t cut out this-or-that hospital to trim the budget.

With the loss ratio reducing, the insurer’s profitability increases, and gives the adviser justifiable negotiating room to have their client share in that profitability. A rebate of sorts, from the initial premium paid.

It doesn’t happen overnight. In the biggest success cases, results could be seen after a year, but part of a three-year time horizon. Coincidentally, they were three of the most profitable years of those companies.

It does mean listening to your adviser. And I use that word deliberately. This is more than what you may think of from the term insurance ‘broker’. It’s not helping clients simply ‘shop around’ but achieve bigger changes to reduce sick days and claims (while optimising the use of facilities) and boosting engagement.

Then you’re really starting to make a net gain on inflation.