Cheap Premiums, Unknown Insurer — The Hidden Dangers of Price-First Decisions
For organizations seeking to control escalating health insurance costs, some brokers may suggest an insurer/TPA (Third-Party Administrator) model as a way to achieve lower premiums. This structure pairs an insurer — which could be a larger insurer or, more typically, smaller insurers that have no experience with high-end international health insurance — with a TPA that specializes in high-end health insurance servicing, administration, claims processing, and network management.
On the surface, this approach may seem attractive — lower pricing from the insurer and access to a specialized service provider from the TPA. And to be clear – this model can absoliutely work if set-up correctly. But there’s a fundamental risk that many companies often overlook: you are not buying insurance from the TPA, you are buying it from the insurer. And if that insurer lacks the financial strength, experience, or risk appetite for high-end medical insurance, you may be exposing your employees — and your company — to serious risks down the line.
Why You Need to Look Beyond Just Pricing
It’s easy to get caught up in premium savings, but insurance is about risk transfer — and the company holding that risk must be able to pay out claims (which could be signifcant) reliably, year after year. Before committing to an insurer/TPA set-up, companies should conduct thorough due diligence on the insurer behind the plan, because you’re not buying insurance from the TPA.
Key Questions to Ask Before Choosing an Insurer
✅ How solvent is the insurer?
The financial stability of the insurer is critical. If the insurer is undercapitalized or lacks strong financial reserves, they may struggle to pay out large or unexpected claims. Solvency ratios and financial statements should be reviewed to ensure the insurer can withstand high-cost claims and market fluctuations.
✅ What is their credit rating?
Credit ratings from agencies like AM Best, S&P, or Moody’s indicate an insurer’s ability to meet financial commitments. A strong credit rating (A or higher) suggests a low likelihood of default, while a poor rating — or no rating at all — should be a red flag.
✅ What is their risk appetite for high-end health insurance?
Some insurers specialize in corporate medical plans, while others have little experience with high-cost, expatriate-heavy groups. If the insurer doesn’t understand or properly price for the risks, they may exit the market, impose heavy premium increases, or introduce restrictive underwriting measures after just one or two years.
✅ What is the insurer’s gross written premium (GWP) for health insurance?
If they don’t have a large health insurance portfolio, they may lack expertise in managing long-term risks. How much of their book of business is group health insurance vs. other lines of business (life, property, etc.)? If the insurer primarily sells local health, life, or property insurance, they may not have the expertise or infrastructure to handle complex international claims.
✅ Can they efficiently process and reimburse overseas claims?
For international businesses with globally mobile staff, timely claim reimbursement — especially for treatment overseas — is a non-negotiable. Some smaller insurers lack experience handling international claims, leading to long delays and disputes over payment.
✅ What margins are they targeting?
Insurance companies operate for profit, but the level of profitability they expect impacts pricing stability. Low-cost insurers often price aggressively to win business, but may increase rates sharply at renewal once claims emerge, wiping out any initial savings.
✅ What is their renewal strategy?
This is where many companies get caught out. If an insurer offers rock-bottom pricing in year one, you need to ask: How will they respond if claims are higher than expected? Some insurers use pricing as a tool to “buy the business” and then apply large increases in year two or three. Understanding their track record with renewals is essential.
✅ Do they have reinsurance contracts in place?
A reputable insurer should have strong reinsurance partners, ensuring they have financial backup for catastrophic claims (such as cancer, transplants, neonatal complications). If an insurer doesn’t have reinsurance support, a few high-cost claims could destabilize the plan, forcing premium hikes or benefit reductions.
✅ If faced with multiple catastrophic claims, how would they ensure continued payouts?
Does the insurer have stop-loss insurance in place to protect against high-cost claims? If a school or corporate client has multiple million-dollar claims, can they guarantee uninterrupted payments?
✅ Who has the final say in claims adjudication — the insurer or the TPA?
If the TPA is handling claims decisions but the insurer ultimately holds the risk, does the insurer have an independent oversight process? Can the insurer override the TPA’s decisions on high-cost claims?
A Recent Case Study: Doing It the Right Way
Recently, one of our clients moved from a large, well-established insurer (which handled both servicing and risk) to an insurer/TPA model. We worked closely with them to evaluate the insurer’s financial strength, track record, and risk management practices. In this case, the insurer was a Tier A global brand with 100+ years of history, which provided reassurance that claims would be paid, service levels maintained, and renewals handled fairly. This gave our client — and their staff — tremendous peace of mind.
So while the insurer/TPA model can work, it is only as strong as the insurer underwriting the policy. Without rigorous due diligence, organizations risk signing with an insurer that cannot deliver when it matters most.
Final Thoughts: A Case of Buyer Beware
Choosing the right health insurance provider is about more than just securing the lowest price — it’s about ensuring long-term financial sustainability, reliable claims reimbursement, and fair renewal practices. While smaller insurers may appear to offer attractive solutions, it’s essential to fully understand who is carrying the risk before making a decision.
At the end of the day, cutting costs on health insurance by choosing an unknown insurer might seem like a win—until it isn’t. When a medical crisis hits, your employees don’t care about premium discounts — they care about getting the best possible care without financial stress.
If you’re considering a switch, make sure it’s for the right reasons: sustainable pricing, proven claims service, and an insurer that stands behind its commitments. The true cost of health insurance isn’t just the premium—it’s the financial security, reliability, and service quality that comes with it.
At One World Cover, we guide our clients through the complexities of insurer due diligence, helping them avoid short-term cost traps and secure sustainable, high-quality health insurance for their employees. If you need help with this, get in touch below.
Michael Pennington, Customer Experience Director, One World Cover – [email protected]
