When are acquisition costs typically highest for a group health insurer?

Acquisition costs for a group health insurer are typically highest in the first plan year. This is due to the initial expenses associated with setting up the group policy, which can include underwriting costs, marketing expenses, and administrative overhead not present in subsequent years. In the first year, insurers invest significant resources to secure the group, conduct health assessments, establish premium rates, and ensure compliance with regulatory requirements. This upfront investment is necessary to effectively onboard a new group and establish the insurance policy, making it a more costly undertaking compared to subsequent years.

In later years, many of these acquisition costs are either reduced or absorbed into the ongoing administrative expenses associated with managing the account. As the insurer gains a better understanding of the group's health profile and risk, renewal costs stabilize, and the need for extensive acquisition activities diminishes. This pattern leads to lower acquisition costs after the initial plan year, particularly during renewals, as the primary focus shifts to maintaining the policy rather than acquiring a new group.