nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Big health savings for small businesses

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According to the article, many businesses have been complaining about the sharp annual increase in the premium. However, the insurers claim that it is unavoidable because they now face higher risk. To tackle this issue,  the US government is contemplating about introducing the reinsurance program where insurers are being covered against the large claims. The article states that there are couple of reasons why reinsurance can bring down the premiums. First is that insurers now can spend significantly less sum of money in doing the risk assessment. Second it attract more low risk employees by reduction of premiums. However, introduction of reinsurance program is still doubted as the cost of state reinsurance program is too high.

In the insurance market, to satisfy the customer and stay competitive, it is crucial that the premium is at the appropriate level and is affordable. Introduction of reinsurance in the insurance market is a good start in reducing the premium. Reinsurance provide several benefits to the insurer which are the limitation of large losses and reduction of claim volatility thus enabling them to have smoother profit. They all contribute to reduction of claims as insurer face smaller risks and less randomness. Not only this but insurer can take advantage of the expertise that the reinsurer have.  Despite of those benefits, reinsurance programs are often turned down because of the cost.  There are then some alternative to the reinsurance which are integrated risk cover,  insurance derivatives, swaps and etc. However those would be usually applied in smaller scale and would not fit to the state reinsurance program. Therefore best solution is that there should be an appropriate balance between the cost of reinsurance and increase in the amounts of premium paid by policyholders. One method could be increasing the excess point and introducing upper limit in reinsurance program.

 

 

SOURCE

http://money.cnn.com/magazines/fsb/fsb_archive/2006/10/01/8387289/index.htm#ContentArea

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One thought on “Big health savings for small businesses

  1. To me it looks like the biggest issue here is the volatility that the small to medium sized schemes bring to the book.

    If the state were to reject the reinsurance arrangement could the insurers achieve smoother results by grouping the members under a umbrella arrangement? In this way they would also no longer have to pass some of their profits to the state

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