Active Pricing vs. Traditional Pricing In Medical Insurance: Which Is Right For You?

For insurance companies, accurate pricing is essential to ensure long-term sustainability.

For individuals, selecting the right insurance pricing model ensures adequate coverage at an affordable price.

Undoubtedly, the different pricing models within the insurance ecosystem can significantly impact the premiums individuals pay for their insurance policies.

So, understanding existing pricing models and how they align with one’s risk profile, circumstances, and budget can help individuals manage their financial risks effectively. Additionally, it can help policyholders avoid unexpected costs in the event of a claim.

What is traditional pricing in medical insurance?

Traditional pricing models in medical insurance set medical insurance charges based on general criteria such as age, gender, and health status. This approach uses a risk pooling method to spread the cost of medical care across a large group of people, helping to keep premiums affordable and predictable.

Advantages of traditional pricing

The main advantages of traditional pricing models in insurance are:

Simplicity and predictability: Traditional pricing models are relatively straightforward and predictable. This simplicity makes the pricing structure easy for consumers to understand and plan accordingly.

Broad risk pooling: By spreading risk across a large population, traditional pricing helps keep premiums stable and can make insurance more accessible to a wider range of people.

Considerations with Traditional Pricing

While traditional pricing offers several benefits, it's important to note that it may not account for individual health habits or lifestyle choices. Premiums are primarily based on demographic factors, which means personal efforts to maintain good health might not directly influence the cost of your insurance.

What is active pricing in medical insurance?

Active pricing in medical insurance is a relatively nascent pricing approach that flexibly allows for premium adjustments at each policy renewal based on the policyholder's claims history. Consequently, one’s premiums may potentially increase or decrease— depending on the claims made and approved in the previous policy year.

Mechanics of active pricing

Under active pricing, policyholders generally receive a discount off their premium if no claims were made in the previous policy year. By the same token, if claims were paid out, the premiums may increase for a spell before returning to base level.

For instance, with Prudential’s PRUMillion Med Active policyholders may have up to 15% off their medical insurance charges at the start of the policy. By the same token, if claims were paid out, insurance charges may increase by up to 35% before returning to the standard level in the following years.

Overall, active pricing is designed to align insurance charges more closely with the actual claims experience of policyholders. Thus, offering a fairer and more dynamic pricing structure in medical insurance.

Advantages of active pricing

Active pricing offers several advantages to policyholders, including:

Personalised premiums: Active pricing adjusts medical insurance charges based on individual claims history—providing a more personalised dynamic pricing structure than traditional pricing models.
Incentives for maintaining a healthy lifestyle: By linking premiums to claims history, active pricing incentivises policyholders to sustain a healthy lifestyle and engage in preventive care measures to appreciably reduce their risk of illness and claims.
Potential cost savings: Active pricing can lead to cost savings for policyholders who maintain a low claims history. Policyholders may enjoy discounts of up to 15% off medical insurance charges with no claims in the previous policy year.
Uncompromising coverage: Despite the discounted premiums, policyholders' medical coverage remains unchanged. They can continue to receive the same level of protection.

Active pricing vs. traditional pricing: What are the differences?

The main differences between active pricing and traditional pricing in medical insurance are:

Traditional pricing leverages a one-size-fits-all approach. In contrast, active pricing adjusts medical insurance charges at each renewal based on the policyholder's claims history in the previous year.

This approach lets you have control over how much you pay for our insurance plan and taking charge of your health journey. Consequently, there is a more equitable distribution of costs within the insurance pool.

Factors to consider when choosing a pricing model

When choosing a pricing model for insurance, it’s imperative to consider the following factors:

Personal health and lifestyle

Individuals with chronic health conditions may gain from a pricing model that rewards healthy, preventative, care-driven behaviour. On the other hand, people with higher health risks may opt for a model that offers more comprehensive coverage at a higher premium.

Financial considerations

Individuals need to assess their financial capacity to pay premiums and evaluate the potential savings offered by different pricing models.

Understanding the cost implications of each pricing model, such as deductibles, copayments, and out-of-pocket expenses, helps one make informed decisions that align with their budget and financial goals.

Risk tolerance

Individuals with a considerably high-risk tolerance may be more comfortable with premium variability and willing to engage in preventive health measures to lower their overall healthcare costs.

On the other hand, individuals with a low-risk appetite may prefer a pricing model that offers more stability in premiums—even if it means higher upfront costs.

Conclusion

In conclusion, active pricing adjusts premiums based on individual claims history, offering a more personalised and dynamic pricing structure.

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