Understanding Target Loss Ratio and Your Group Benefits Plan
Group benefits can be complicated both to set up and to administer. There are a lot of details and issues you need to be aware of when it comes to purchasing a group benefits plan – one of which is the target loss ratio (TLR)
We'll answer these questions:
What is a target loss ratio?
Does my TLR impact my premiums when I renew my policy?
What should I do if I have concerns about my TLR?
What is a Target Loss Ratio (TLR)?
These are the main things you need to know about a target loss ratio (TLR):
It is an insurance company's expected profit point of your employee benefit plan's complete health and dental benefits.
It is the maximum dollar amount of claims paid by the insurance company expressed as a percentage of your premium. For example, if a company pays $40 in claims for every $80 collected in premiums, the loss ratio would be 50%.
Two factors chiefly determine it. These factors are the number of members participating in the employee benefit plan and the annual premium paid.
Loss ratios fluctuate depending on the type of insurance associated with it. For example, the loss ratio for property insurance is lower than that for health insurance.
Does my TLR impact my premiums when I renew my policy?
In general, your TLR will not significantly impact your premiums at renewal. However, there may be some impact if you have had a significant increase or decrease in the number of staff members participating in your group benefits plan.
Other factors that will impact your premiums at renewal are:
You have made a large amount of health and dental claims.
The general demographics of your employees have changed – that is, your employees as aging.
The cost of the services your group benefits plan covers has increased.
General inflation.
What should I do if I have concerns about my TLR?
Your goal as an administrator of a group benefits plan is to ensure you get the best value for your premium dollars.
If you've been working with the same insurance company for years, it's worth seeing what options are available to you. Shopping around will help determine if the rate and TLR you renew are reasonable compared to the current market.
Keep in mind when shopping around how different TLRs can impact the sustainability of your group benefits plan. Want to learn more? Call us today to learn how we can help you!
