Read This Before Renewing Your Group Health Insurance — It Could Save You 15–30% on Your Premium
Health insurance is, at its core, a numbers game. It’s a calculated risk — one where you pay premiums in exchange for financial protection against your employees’ unexpected medical costs. Your insurer takes a different bet: that the claims they’ll need to pay won’t exceed the total premiums they’ve collected.
In theory, this should be a fair balance. But if you’re not careful, you might be playing with a blindfold on — and the house is stacking the odds.
The Importance of Your Loss Ratio
When your group health insurance policy comes up for renewal, the single most important number you’ll be shown — or should be shown — is your Loss Ratio. This tells you what percentage of the premiums you paid were actually used to cover medical claims.
If you paid US$1 million in premiums and your employees only claimed US$700,000, that’s a 70% loss ratio — meaning there’s U$300,000 of margin before the insurer even starts to lose money.
In most markets, a loss ratio below 70–75% is considered profitable for the insurer. In these cases, you should be negotiating for no premium increase — or even a reduction, especially if medical inflation in your region is moderate.
But Not All Loss Ratios Are What They Seem
Unfortunately, many insurers and brokers present loss ratios in ways that mislead. These accounting sleights-of-hand protect their margins — while making it harder for you to know whether you’re overpaying. Let’s look at two of the most common tactics:
Scenario 1: The “Net Premium” Loss Ratio
In this version, the insurer calculates your loss ratio after subtracting their expenses, broker commission and other costs — leaving only a portion of your premium (also called the ‘Net Premium’, often 70–80%) as the ‘Claims Fund’. The loss ratio is then calculated using only this net amount.
Example: If you paid US$1 million in premiums, but only US$800,000 is allocated to claims, and your team spent US$600,000 in claims, the ‘Net Premium Loss Ratio’ is 75% — even though your ‘Actual Loss Ratio’ is just 60%.
Insurers using this method effectively guarantee themselves a profit first — before even considering your claims history. It’s a method that protects the insurer, not the client.
At One World Cover we believe this skews the picture. We help our clients unpack these numbers and advocate for renewals based on actual plan performance, not padded metrics.
From the policyholder’s perspective, a fair target loss ratio when using Net Premium Loss Ratio is 100%. Anything less than 100% and the insurer is making good money on your policy. The Net Premium Loss Ratio will always be higher than the Actual Loss Ratio. Some insurers and brokers use the higher calculated percentage to misrepresent your plan’s performance. This can be used as justification for increasing your premiums. And using the Net Premium Loss Ratio gives the false impression that you are getting a great deal on your renewal, when in fact the opposite is true.
Scenario 2: The “Claims Cost” Loss Ratio
Here, insurers add extra costs to your claims total — their expenses, broker commission and other costs such as future claims that haven’t happened yet (= IBNR: Incurred But Not Reported). This inflates the “claims” figure used in the loss ratio calculation.
This is another method to protect the insurer’s fees and expenses and skew the loss ratio to look higher than it actually is. Claims Cost is an artificial number that you won’t find on any of the insurer’s claims reports, and it will never match the actual claims dollar amount paid out. It only guarantees profits and sets the stage for further premium increases by exaggerating the loss ratio. Using the Claims Cost Loss Ratio similarly gives the false impression that you are getting a great deal on your renewal, when you most likely are not.
One World Cover advocates for real transparency — and pushs back hard when this tactic is used to protect insurer profits rather than reflect actual plan performance.
Keep It Simple: Actual Loss Ratio
The only truly honest way to assess your group plan’s performance is the Actual Loss Ratio — that is, total claims paid divided by total premiums paid.
Anything else muddies the waters.
Health insurers are absolutely entitled to a margin — but as a client, you deserve clear, accurate, and timely reporting. If your insurer or broker can’t or won’t give that to you, it’s time to ask why.
Why It Matters for Your Business
For many large employers health insurance is a significant expense. And yet it’s often misunderstood, under-analyzed, or quietly rubber-stamped each year without scrutiny. The difference between a “padded” loss ratio and the actual one can easily mean 15–30% higher premiums than necessary — even when your claims haven’t changed.
One World Cover clients routinely save on their renewals simply by understanding the numbers and refusing to accept vague, inflated reports.
