Risk surcharges in private health insurance lead to disproportionate premium increases

– Why tariff change optimizers contribute to old-age poverty –


Risk surcharges in private health insurance are intended to compensate for people with pre-existing conditions that the normal tariff premium is calculated only for people with normal risk.
Since treatments for pre-existing conditions and their consequences also become more expensive over the years already due to normal medical price increases, they must also track the medical cost trend. This is done by means of a provision in the insurance conditions according to which risk surcharges can be adjusted accordingly in the event of premium adjustments. This sounds harmless, but only because the normal customer can not foresee the consequences.


Premium adjustments in private health insurance are calculated according to the age reached

If you start at age 35, for example, and pay a normal premium of EUR 100, plus a 50 % risk surcharge, you may think you have cheap insurance at EUR 150 a month. Over the course of maybe 15 years.
his premium increases to e.g. EUR 180 plus EUR 90 (50 %) risk premium. With a new premium of EUR 400 at the age of 50, he has a discount from the ageing provision of EUR 220.


If the tariff is now generally increased by 12.5% due to increased medical costs, the new entry contribution at age 50 will increase from EUR 400 to EUR 450, and by just these EUR 50
the customer’s tariff premium also increased, i.e. from EUR 180 to EUR 230, i.e. by a good 28 %.. The discount on the new premium at the age reached has remained the same at EUR 220, corresponding to the full crediting of the ageing provision. However, the risk surcharge will then also rise by the same 28% to now EUR 115 – just like the tariff premium, it will thus rise disproportionately more than the pure development of health costs.


Medical costs rise by 12.5% %, risk surcharge by 67

In addition, should life expectancy have lengthened or the probability of termination have decreased, or additional costs have been incurred, for example, to finance the
basic tariff, the new premium at age 50, for example, increases not only by 12.5 %, but by 25 % to EUR 500. At the same time, the premium-reducing effect of the ageing provision may also decrease as a result, from a discount of EUR 220 to a discount of EUR 200. So now the customer will be on 500 EUR new premium minus 200 EUR discount,
thus EUR 300 tariff contribution plus EUR 150 (still 50%) risk surcharge increased, i.e. by %, , even though the medical cost trend itself was only 12.5%.


Tariff change as a solution?

With a tariff change – at first – considerable premiums can be saved. If the customer switches to a tariff with a new premium of only EUR 275 at the age of 50, the premium is reduced to EUR 275,
the 200 EUR discount achieved from the ageing reserve is credited to him, and he thus pays 75 EUR tariff premium compared to 300 EUR previously. Far from it, however, would be
the risk premium also falls to one third. Often it is even kept unchanged – and this is often not at all objectionable when changing tariffs. After all, due to the pre-existing conditions, similarly high additional benefits can be expected in the new tariff as in the previous one. Under certain circumstances, the risk surcharge may even be increased if the new tariff is calculated with a more favourable risk structure. So, in addition to the 75 EUR tariff premium, there may be another 150 EUR risk surcharge as before, which means that the change will result in a saving of
of EUR 225 per month is still “worth it” for the time being.


The trap snaps shut

However, due to the very favourable tariff premium resulting from the change of tariff, the risk surcharge now amounts to 200% instead of the previous 50% %. This cannot be avoided even by waiving additional benefits within the scope of § 204 of the Insurance Contract Act, since this does not concern risk surcharges for additional benefits of the new tariff – but such surcharges could even be added. If the new tariff is now itself increased from EUR 275 new premium at the age reached by 20 % or EUR 55 to EUR 330, this means for the customer an increase in the tariff premium of EUR 75 by the same EUR 55 to EUR 130 – by 73 % – and proportionally also in the risk surcharge from EUR 150 to EUR 260. The disproportionate development of premiums
compared with the cost of illness has thus become even more acute and continues to do so with every further premium adjustment.


Tariff premium and risk surcharge rise more and more with increasing age

If the first adjustment in the new tariff is only made a few years later, the tariff premium at age 55, for example, is EUR 375, so the discount from the ageing reserve is now EUR 300.

If the new tariff is now increased by 20 % or EUR 75 from EUR 375 new premium at the attained age of 55 to EUR 450, this means an increase in the tariff premium for the customer
from EUR 75 to EUR 150 – by 100 %, , and proportionally also of the risk premium from EUR 150 to EUR 300, making a total of EUR 450.

This means that he pays as much as he did before the change of tariff, except that at that time the premium was divided into a tariff premium of EUR 300 and “only” a risk surcharge of EUR 150. However, due to the now relatively
The very low tariff premium after the change of tariff compared to the new premium at the age reached in each case leads to a disproportionate development of the premiums and thus also of the now relatively much higher risk surcharges.


Warning against risk surcharges when changing tariffs

Almost all private health insurers and intermediaries are unaware of these connections. However, the disadvantageous calculation procedure is almost inevitable due to the insurance conditions and the actuarial theory. It is also practised schematically in this way, and confirmed as correct by the insurance supervisory authority and the ombudsman. Who as a customer in particular
who has got into such a situation after changing tariffs has hardly any chance to escape the strong increases also of the risk surcharge. In the past, some insurers have only withdrawn a disproportionately high risk surcharge as a gesture of goodwill in extreme cases that have been the subject of detailed actuarial objections. Alternatively, claims for damages against intermediaries or so-called tariff change optimisers can be promising.


Insurance brokers and rate change optimizers in shifting the burden of proof

In almost all financial services brokerage, advisors must ultimately prove that the client had the necessary knowledge to make fully informed, qualified decisions. If the customer’s level of knowledge is not clarified, the advisor cannot properly clarify either, which results in liability for damages (OLG Frankfurt/Main, decision of 09.01.2013, ref. 3 U 187/12).


In such cases, the customer of the financial services provider usually benefits from so-called prima facie evidence. The courts assume that “according to life experience, the facts of the case are amenable to a typifying approach on the basis of circumstances that objectively speak clearly in favour of a certain reaction. This is to be assumed if, from the point of view of a reasonable observer, a decision alone would have been obvious in the case of correct legal advice” (BGH, judgement of 15.05.2014, ref. IX ZR 267/12).

As soon as the customer covered by private health insurance notices the disproportionate increase in premiums, which may not be until years later, he will be able to have his previous and future losses assessed.


The Federal Ministry of Justice (BMJ) announced that, contrary to legal obligations, advisors predominantly do not document, which, in the opinion of numerous higher regional courts, leads to a reversal of the burden of proof in proceedings for damages. A recent study commissioned by the Federal Ministry of Justice found that 39.1% of intermediaries in the investment sector prepare documentation, and only 15.1% in the insurance sector. Insofar as documentation is prepared, it often contains gaps which the customer can discover later after professional consultation in order to prove any consulting errors.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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