Loss Ratio: Is Your Company’s Medical Insurance Leaking?
Identical insurance packages from the same provider can leave businesses with vastly different coverage.
Many companies unknowingly overpay for insurance or suffer from coverage gaps, inaccurate claims processing, and, ultimately, a suboptimal insurance experience for their employees.
The most common reason for these issues tends to boil to three culprits:
1- Overconsumption and Overestimations:
This is when the utilization of specific benefits is higher than necessary, or where past claims data leads to inflated premiums
2- Cost Leaks and Inconsistencies:
Includes discrepancies in policy terms, coverage gaps, unnecessary administrative expenses, among several other examples of oversight from the insurance provider or medical entity
3- Loss Ratio:
A key metric that compares the amount of claims paid out with the premiums collected. An unfavorable loss ratio can indicate potential overspending or inadequate coverage
The latter is both a crucial tool for insurance companies and one that can dramatically impact the value-to-cost of your company’s medical coverage
Understanding Loss Ratio
The loss ratio has a different meaning for insurance providers and companies insured.
For insurance providers, the loss ratio is a key financial metric that measures their profitability.
It’s calculated as the percentage of premiums they collect from their clients, which are used to pay claims to medical entities and other related expenses.
A lower loss ratio indicates better profitability for the insurance company, as they are paying out less in claims relative to the premiums collected.
For insured businesses, on the other hand, their main concern is the coverage adequacy versus the premiums paid.
While the loss ratio isn’t typically considered by insured companies, it should be a key factor to them for two reasons.
First, if the insurance provider’s overall loss ratio is high this could indicate potential premium increases or coverage limitations at renewal. Second, a high loss ratio signals a need to review and adjust your medical coverage.
By calculating your loss ratio, you can negotiate better terms with your insurance provider and ensure you are not overpaying.
How Do You Calculate a Loss Ratio?
Loss Ratio = [(Claims Paid + Adjustment Expenses) / Earned Premiums] x 100
- Insurance Claims Paid: The total amount of money the insurance company pays out to policyholders for covered losses
- Adjustment Expenses: These are expenses incurred in the process of investigating, verifying, and settling claims
- Premium Earned: This is the amount of money paid by insured companies (your business) to insurance providers to cover risk
How to Optimize Your Coverage?
A comprehensive audit of your insurance and claims review, with a focus on the impact of the loss ratio on your business, can dramatically improve the benefits you receive for the same premium paid.
An independent insurance audit provides a clear, objective picture of your current insurance program, as well as builds a roadmap with your insurance provider to improve your overall experience.
VALUWIT provides comprehensive audit and negotiation support with your insurance provider:
Backed with over 30 years of experience in healthcare; we specialize in insurance and claim auditing; and more importantly, we worked with myriad providers, payers, and entities throughout the Middle East.
Our extensive expertise of providers and comprehensive suite of tools can help you improve your profitability and offer better coverage to your employees.
VALUWIT’s Comprehensive Insurance Claims Audit Includes:
- Claims Analysis: We meticulously review all past and current claims to identify patterns and anomalies.
- Cost Leak Detection: We pinpoint areas where your money might be wasted and recommend solutions.
- Coverage Assessment: We evaluate your current policies to ensure they match your specific needs.
- Data Analytics and Predictive Modeling: Using our analytical and predictive modeling tools we identify trends, risks, and cost-saving opportunities.
- Risk Management Recommendations: We provide strategies to minimize future claims and improve your loss ratio.
- Negotiation Support: We assist in renegotiating your insurance policies for better rates and terms.
Are you interested in learning more?
Request a discovery call and get all your questions answered.
