Shadow Pricing Risk

“We guarantee we will match or beat your renewal rates for better benefits!” says the health insurance broker. “All we need is a copy of your renewal and Summary of Benefits and we’ll have you a quote by end of day tomorrow!”

The incumbent underwriter knows the risk better than anyone else. He has complete, real time data no one else has. His renewal calculation is certainly not designed to lose money but to pay expenses and claims including a profit margin.

What better way for a competing health plan to underwrite risk than to “employ” the existing underwriter who has all the data no one else has? Take the data and apply the appropriate debits and credits based on your benefit offering and risk management strategies, and you come up with a rating basis that has a high probability of accuracy and profitability.

“He who has data wins. He who has a good data wins a lot. He who has real time data wins all the time” – Bill Rusteberg