The key factors used to calculate Health Insurance premiums are morbidity, investment income, operating expenses, medical inflation, scope of benefits, insurer's profit, mode of premium payment and extent of underwriting. The primary consideration is the morbidity rate (contrast Life Insurance, driven by mortality). On top of morbidity, insurers factor in:
- •Investment income — premiums not immediately needed for claims are invested, and the returns reduce the premium the insurer must charge.
- •Operating expenses — staff salaries, commissions, taxes, rent, advertising and systems all increase the price of insurance.
- •Medical inflation — a consistent upward trend in claim costs (higher charges, medical advancement, greater utilisation, an ageing population) that premiums must stay adequate to cover.
- •Impact of epidemics/pandemics (e.g. Covid-19) on the general population's health.
- •Scope of benefits — richer benefits, smaller deductibles and smaller co-insurance push premiums up; private-hospital coverage (e.g. under Integrated Shield Plans) costs more than public-hospital coverage.
- •Insurer's profit — a profit margin is loaded into the premium (an insurer chasing market share may accept a thinner margin).
- •Mode of premium payment — annual, bi-annual, quarterly or monthly; premium rises slightly as frequency increases.
- •Extent of underwriting — insurers that reduce the number of health declarations and do minimal risk assessment charge a higher premium to offset the added uncertainty.