How Your Group Plan Is Actually Priced
An insurer setting your rate is answering one question: what do we expect to pay out, and what do we need on top to run the business. There are only two ways they get at it, and on a small plan the difference decides everything.
The two ways a rate gets set
Manual rating starts from the insurer’s book. They know what a 47-year-old woman on family coverage in Ontario costs on a plan with your maximums. They add up the expected cost for every member of your group and gross it up for expenses. No knowledge of your own history is needed — which is why it is the only option for a brand-new plan.
Experience rating starts from your group. What did these specific people actually claim? Divide that by the target loss ratio and you have the premium required to break even on them.
Experience rating only works when there are enough lives for last year to predict next year. On eight people, one hip replacement or one specialty drug can double the loss ratio and tell you nothing about the year ahead. So insurers blend the two, weighting your own experience by a factor called credibility.
Required premium = (credibility × your own experience requirement) + (1 − credibility) × (manual rate × trend). At 0% credibility you are priced as an average group of your size and shape. At 100% you are priced entirely on yourself. Everything else is a blend.
The terms
Manual rating
Pricing built from the insurer’s book of business — expected cost by age, gender, coverage tier, province and industry, grossed up for expenses.
This is what a competing insurer will mostly use on a small group. It is why your census, not your claims history, decides the number that comes back.
Experience rating
Pricing built from the group’s own claims history, divided by the target loss ratio to find the premium needed to break even.
Powerful evidence that your current insurer has been over-charging. Much weaker as a tool for winning a better quote elsewhere, because a new insurer barely credits it.
Credibility
The weight an insurer gives your own claims versus their pooled manual rate. Driven by group size, and sometimes by claim volume rather than headcount.
Below roughly fifty lives, credibility is low and often zero at a new insurer. A credibility figure that never moves across years — 50%, 50%, 50% — tells you a size-band formula is being applied rather than a genuine evaluation of your group.
Trend
Expected inflation in claims cost — drug pricing, dental fee guide increases, utilisation creep, and the group ageing a year — applied to the manual side of the blend annually regardless of how the group performed.
This is the honest answer when someone asks why their rates rose in a year nobody claimed. A well-performing group rarely sees a flat renewal because trend never stops.
Law of large numbers
Individual claims are unpredictable; large numbers of them are not. An insurer cannot say whether you will claim, but across a hundred thousand people they can say what proportion will.
Every difference between how a nine-life group and a nine-hundred-life group is treated traces back to this one idea.
Anti-selection
The tendency of people who expect to claim to buy more coverage, and people who do not to buy less — which, unchecked, drives the healthy out of a pool and spirals the rate.
Nearly every restriction in group insurance exists to defeat it: mandatory participation, waiting periods, late-applicant penalties, medical evidence, actively-at-work rules. Far better than “because the contract says so” when explaining a rule to staff.
Moral hazard
Coverage changes behaviour. A plan reimbursing 100% invites more use than one reimbursing 80% — not because people are dishonest, but because price no longer restrains anything.
The economic case for co-insurance, and the honest way to explain why a 100% plan costs what it does. Utilisation is not fraud; it is a predictable response to a price of zero.
Guaranteed issue
Coverage granted without individual medical evidence up to a limit, because the group’s structure already prevents anti-selection — everyone eligible participates and nobody picks their own amount.
The core value of group insurance and worth saying out loud. An employee who could not buy individual coverage at any price is fully insured under a group plan. That is not a discount, it is access.
Your census — ages, genders and coverage tiers — determines the quote you get back, not your claims history. Your experience report is still valuable: it is the evidence your current insurer has priced you above your own claims. It simply has little influence on what a competitor offers.