Health Insurance Premium Calculation Techniques

Everyone has a health insurance and the benefits of having one. However, one thing most people don’t know about health insurance is the way premiums are calculated. Yes, surprisingly, most people wonder about how a health insurance company in India calculates the premium their clients require paying? Did you ever try to know this? Well, the wait is over. Here is how insurance companies estimate premiums for health policies:

health insurance

First things first, all of the insurance companies in India follow a set of broad guidelines to calculate premiums. Second, health insurance premiums are calculated based on the insurance plan bought by an individual. Also the insurance products are categorised in a number of ways to offer a general cover or meet requirements of a specific age group. In order to determine the amount that one should pay to the insurance company, the following factors are taken into consideration by the management:

Medical Underwriting

Underwriting of different health insurance products are conducted in order for striking a balance between an individual and an organization. Here, the company takes into account the number of individuals covered under the health insurance plan. It also conducts a review to know about claims history for the specific individual or organisation.

Personal History

This is something that is seriously taken into consideration by the company in order to determine premium. The personal history would include family history, individual’s health, past medical history, present health status, age of the individual, personal habits such as consumption of alcohol, smoking, drugs etc. The company may or may not conduct an initial medical examination of the applicant prior to issuing the policy. This is based on a company’s terms and conditions.

Mortality Rate

These are precisely the charges incurred by a health insurance corporation to determine cover for risks in the event of an emergency. Health insurance premiums tend to increase as one grows older. The premiums will also increase in relation to hereditary diseases or other lifestyle ailments such as obesity, diabetes, hypertension, etc.

Administration and Marketing Expenses

These expenses are mostly incurred by the insurance organizations as an integral part of their operational costs. These expenses are successfully recovered as premium paid by a policyholder after purchase of the product. This category includes expenses related to the following listed below:

  • Monthly salary payments towards employees

  • Commission to insurance brokers

  • Insurance agents

  • Marketing of health products

  • Health insurance products sales

  • Overhead costs

The above listed are precisely the crucial constituent of premium paid by the policyholder. It also includes the expenses needed to meet the day to day operational expenses.

Adjusted or Modified Community Rating

This crucial factor is taken into account by insurance company to determine premium for insurance. This comprises of financial stability, geographical location, industrial development, among others. Studies have revealed that developed regions pay higher premiums on health insurance as compared to areas with negligible development.

Experienced Rating

The use of historical data decides the rates based claims number and amount made for a given period of time. The data is generated to calculate and predict claims probability in the future. The data creates foundation for assessment of future health insurance premiums.

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