Tenzing pacific services

Community vs.
Experience Rated Insurance

Tenzing's advisor By Ian Comandao – Jan 5, 2022 

Whether you want to buy an airline ticket, get a second-hand bike, or shop around for a new apartment, there will always be lots of things to consider. You’ll have a list of key pros and cons that will drive your decision. Get a late flight for cheap, or get the expensive early flight and enjoy more time at the beach? Get a nice Honda Vision with low mileage, or a cute Cub that looks nice but was made in the 60s? Live close to your work, or closer to your favorite restaurants?

This decision process is similar when choosing expat health insurance. Some people like the peace of mind that comes with comprehensive coverage and extra features while others may just want to pay as little as possible and hope nothing bad happens. But living overseas you’ll have to be doubly good at weighing the costs and benefits of your policy. In particular, one thing stands out, something that very few people have even heard about:   how insurance companies evaluate risk when they set and raise premiums.

Community Rated vs Experience Rated premiums

Or, more specifically, as it’s called in the insurance industry:  Community Rated vs Experience Rated premiums.

Hopefully, by the time you’ve finished reading this, you’ll have a better understanding of how to include this in your personal list of pros and cons.

Community Rated

Insurance providers are private companies that need to make a profit, and the primary way to do that is using price as a risk management tool. At its most basic, Community Rated premiums are calculated based on everyone’s medical claims within a community (or risk pool), while Experience Rated premiums are calculated based on each individual’s claims history.

Each year, upon renewal, rates will increase based on one of these two risk management strategies. 

Community Rated premiums generally start off more expensive, but on the flip side the yearly premium increase of the community will usually be based on  just the medical inflation rate. In other words, it’s predictable and you can plan a budget around it. Your liability with a Community Rated provider is capped, fixed at the same premium increase set out by your provider for everyone in their portfolio. 

Medical inflation in Southeast Asia has been running at around 9% for the past few years. It’s common to see Community Rated providers increase their rates between 5-9% per year. An individual who claims $50 would see the same increase as someone who claimed $5,000 or $50,000

Each provider will increase its rates based on the performance of their portfolio in the past year, plus medical inflation and other variables. We routinely see Community Rated providers who offer the same premium at the renewal date or have a small increase of 3-5%.

Experience Rated

Meanwhile, an Experience Rated policy will tend to be cheaper initially, but more of its premiums will be converted into profits for the insurer. As mentioned before, this is a risk management strategy. If the insurer paid out a lot for your claims in the current year, they will find a way to recoup that money in later years by increasing your premiums.  Other customers with the same policy who didn’t have significant claims may see little or no increases. 

Particularly if you get diagnosed with a chronic illness, or some injury that requires long-term care, Experience Rated providers will often impose a “loading fee” at renewal. This is something most people aren’t aware of when taking out a policy. 

The result can be a renewal premium that is much higher, as much as two to five times the current premium, or you may not be offered a renewal at all if your liability to the provider is too high. This simply doesn’t happen with Community Rated policies.

Ask a question. Get a quote. Talk, chat, email – your choice.

Health insurance can be a good personal risk management tool, but only if you plan ahead and understand all the pros and cons of your policy.  You have two choices:

  1.  Get an Experience Rated policy and expect (hope) to remain in good health and not make any major claims.  In short, don’t use the policy benefits unless you absolutely must.
  2. Get a Community Rated policy,  pay more at the start, but save more money in the long term by being able to take advantage of the policy’s benefits without fear of seeing your premiums skyrocket.

The moral here: know what your risk profile and future personal requirements are, and where they fall on a scale between these two types of premiums.

The good news is that if you’re considering a move to Southeast Asia, you’ll have a good range of Community Rated options. That doesn’t mean you won’t have any problems, but that’s a conversation for another blog post.

While we can’t give any recommendations on specific providers right now (as we haven’t had a conversation yet!), there is one thing you should definitely pay attention to when making this decision:  Read the fine print! Ask whether the policy you’re considering is Community or Experience Rated before signing up for anything, because what’s written in that contract could end up costing you dearly. Not all health insurance providers are created equal.

These articles are intended to give you enough information to make informed decisions, but health insurance is complicated. Whether you still have questions on this topic or feel ready to take the first steps toward getting a policy, our advisors can help. Just fill in this form.

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