There are several factors which health insurance providers take into account when calculating the cost of your cover. These are also known as ratable factors.
The first ratable factor is your age. Private Medical Insurance is an age-rated product. This means that the older we are, the more expensive our policy is.
But why is that?
Insurance companies take their data about all claims they’ve paid to date, at what age these clients were, and what has caused the claim. Based on this information, they then calculate the cost per every age bracket. Back in the day, the age brackets were in 5's. This subsequently meant that the price increase every year was marginal, however, on your anniversary, the price increase was substantial. This has lead many people to shop around. Therefore the insurers moved from the 5-year bracket to the 1-year bracket. This has helped them to spread the premium increase and perhaps lose fewer clients than before.
The second rating factor is your location. Same as with your car insurance, the address where you live is also a rateable factor. There is a simple explanation for this. Private hospitals and doctors are also renting the premises where they operate their business from. This affects the price of the treatment they provide and, subsequently, the cost of your policy.
The next factor is your excess, levels of cover, hospitals and all of the other extra perks you get from your insurer. The more comprehensive your cover is, the higher the price of your policy.
And last but not least is your policy performance or, in other words, loss ratio figure. Loss ratio is the losses an insurer incurs due to paying for your claims as a percentage of the premium you have paid. Sounds complicated? It's not that difficult. Here is an example:
if your annual premium is £1,000 and you have made a claim for £600, this means that your loss ratio figure is 60% or, in other words, 60p from every pound you pay went towards covering your claims. 60% loss ratio does not usually classify as high, and it should not massively affect your renewal. However, if you have claimed £10,000, your loss ratio, in that case, will not be as good as it can be, and hence you should expect a higher increase at the next renewal. Typically, a five-year loss ratio is taken into account when the insurer calculates an uplift on your premium due to claims. Being loyal and staying with the same provider can be a good idea as the premium increases due to claims can be much smaller than if you are switching over every year.
We hope next time when somebody is saying that they are paying twice less or more for their health insurance policy, you will know the reasons behind it and how the insurance companies are calculating the cost of their policies.
We always recommend speaking with an expert broker, like us, who knows these little aspects and will find you an option that works for you long term.