Changes to Medical History Disregarded (MHD) business
In the last quarter of 2022, we conducted a thorough review of our portfolio of group health business between 2017 and 2022.
William Russell operates a community-rated pricing model across both individual and group health insurance – with a focus on the SME segment for group business (typically 3-99 employees).
Now, 3-99 is quite a range. We wanted to analyse our underwriting data to better understand how and where we were adding value – both to members, broker partners, and ourselves.
Our analysis revealed a consistent performance issue with a specific segment of our group health portfolio.
Performance of micro-SME groups with MHD
Over the years, we’ve written group health business on an MHD basis when the group had at least 10 employees. In a handful of cases, we’ve extended MHD to groups with 7-9 employees.
Except for one group, all MHD groups with between 7-12 employees and incepted between 2017-2022 have both:
- contracted in size (i.e., employees have left the group); and
- performed poorly from a claims perspective.
The issue is compounded by our issuing MHD renewal terms to these groups as they contracted in size and performed poorly. In some cases, only 2 employees remained in a group.
Impact of the performance of micro-SME groups with MHD
We looked at the performance of these groups over a 5-year period and we quantified the impact this portfolio segment was having on our annual renewal pricing.
Given we operate a community-rated model, it’s clear that the performance of this segment (representing only a small portion of our total insured lives) has been disproportionately impacting our renewal pricing. This affects all our insured lives—one way or another.
We looked at the overall financial position of continuing with the status quo. We also modelled the impact of remedial action.
From our analysis, we arrived at the following conclusions:
- New business – We no longer wish to write groups on an MHD basis when the group has fewer than 15 employees at inception.
Action: With immediate effect, the threshold for MHD increases from 10 to 15. Groups with 14 employees or less must apply on a full medical underwriting (FMU) basis.
- Renewals – We needed to address the contraction of MHD groups much earlier than at the point when only 2 employees remain in the group.
Action: We will not issue renewal terms on an MHD basis once a group has reached 6 or less employees. The renewal options would be group terms on an FMU basis, or individual policies.
- Mid-term adjustments – When an existing MHD group has 15 employees or more, new joiners can (provided they join at the first opportunity) join the group on an MHD basis. But when a group has fewer than 15 employees, we will only accept new joiners on an FMU basis.