Premium capping: how private insurers slow down premium increases

A premium adjustment becomes due when actual expenses permanently differ from the calculated ones. Without a countermeasure, the new premium would reflect the full increase. This is where capping comes in. The insurer uses existing funds to reduce the increase that would be needed on paper. For the policyholder, the jump is smaller as a result, and in some years there may be no increase at all.

It is important to distinguish this from statutory health insurance. There, rising costs pass directly into the contribution rate, without individual reserves to cushion them. In private health insurance, by contrast, every plan builds up capital over the years that is available for exactly this kind of cushioning.

Capping is funded mainly from the reserve for no-claims refunds. Surpluses of the insurer flow into this reserve, for example when fewer benefits were claimed than calculated or when investments earn more than the actuarial interest rate assumes. The use of these surpluses is governed by the Insurance Supervision Act. Under § 150 VAG, most of the surplus interest must benefit policyholders, and part of it must be used specifically to limit premium increases.

The statutory surcharge under § 149 VAG makes a fixed contribution to stability in old age. From age 22 to 60, policyholders pay a surcharge of ten percent on their health insurance premium. This surcharge goes into the ageing reserves and is used from age 65 to avoid or soften premium increases. From age 80, it is used to actively lower the premium. Together with the capping from the reserve for no-claims refunds, it forms the basis for stable premiums in retirement.

Capping is not the same as a premium relief plan. It works automatically from the insurer's surpluses, while the premium relief plan is a component you book yourself with its own premium, which lowers your premium from a set age.

Suppose the calculated expenses of a plan rise so sharply that the premium would have to be raised significantly on paper. If the insurer has enough funds in the reserve for no-claims refunds, it can absorb part of the increase from there. The policyholder then sees only a reduced increase, or in some years no change at all.

How much an insurer can cushion in this way depends on its financial strength. Insurers with high reserves and solid investments have more room for capping. When you compare plans, look not only at the starting premium but also at the financial strength of the insurer. Past premium development and financial ratios say more than the starting premium alone.