How medication trends affect claims projections

Understanding drug cost trajectories and their impact on underwriting decisions

Published: 2026-04-03

Introduction

For insurance underwriters, accurate claims projections are fundamental to pricing, reserving, and risk management. Yet medication costs remain one of the most volatile and difficult-to-predict components of claims forecasting. Recent pharmaceutical trends, from the rise of specialty medications to shifts in prescribing patterns, directly impact the tail risk of individual claims and portfolio-level claims exposure. Understanding these trends is essential for making informed underwriting decisions.

The shifting landscape of pharmaceutical costs

Global pharmaceutical expenditure continues to outpace general inflation. In Australia and New Zealand, specialty drugs (particularly biologics and targeted therapeutics for autoimmune, oncologic, and neurological conditions) now represent a disproportionate share of total medication spend. These high-cost therapies often have limited alternatives and stronger price escalation trajectories than traditional medications.

Biosimilar adoption and cost deflation

While specialty drugs drive cost increases, biosimilar adoption in Australia and New Zealand is creating pockets of cost deflation. Pharmaceutical Benefits Scheme (PBS) listing and private formularies increasingly favour biosimilars, yet uptake varies by therapeutic class and clinician adoption. For underwriters, this creates projection uncertainty: some drug categories may see modest cost reductions, while others maintain high price escalation.

Chronic disease prevalence and medication utilisation

In claims populations, the prevalence of chronic conditions drives medication utilisation. Obesity-related therapies, GLP-1 receptor agonists, are experiencing unprecedented demand, with supply-chain constraints historically supporting price premiums. These emerging medication patterns are not yet well-embedded in historical cost models, creating projection blind spots for underwriters.

Impact on claims projections

Medication trends influence claims projections through multiple pathways:

Direct medication costs

The most obvious impact is on direct pharmacy spend. For workers compensation, CTP, and life insurance claims involving chronic medication use, failing to account for emerging therapies or biosimilar market penetration will systematically bias projections. Claimants on older medication regimens may be transitioned to newer, costlier alternatives, or conversely, may benefit from biosimilar switches that reduce spend.

Secondary cost implications

Medication trends also affect indirect costs. Effective medication management can reduce hospitalisations, reduce emergency department presentations, and lower allied health utilisation. Conversely, medication errors or inadequate therapy can increase these secondary costs. For underwriters projecting long-tail claims, understanding whether medication trends improve or worsen net health outcomes is critical.

Prescriber behaviour and formulary changes

Prescriber adoption of new medications is not instantaneous. Clinical guidelines, PBS listing, insurance fund decisions, and individual clinician practice patterns all influence uptake. Underwriters must anticipate these shifts and build flexibility into projections to account for changes in prescriber behaviour over the claim lifecycle.

Integrating medication trends into underwriting

To improve the accuracy of medication-related claims projections, underwriters should consider the following approaches:

Risk mitigation strategies

Underwriters can reduce medication-related claims volatility through proactive strategies:

• Structured medication reviews: Regular review of medication regimens by a pharmacist can identify cost optimisation opportunities without compromising efficacy or claimant outcomes.
• Prior approval frameworks: For high-cost medications, require prior approval or pharmacist consultation before initiation to ensure appropriateness and identify lower-cost alternatives.
• Therapeutic substitution protocols: Establish clinical guidelines for switching between medications within a therapeutic class, prioritising cost-effective options where clinical equivalence is established.
• Biosimilar transition programs: Actively support transition of claimants on originator biologics to biosimilar equivalents where clinically appropriate, capturing cost savings while maintaining efficacy.

Conclusion

Medication trends are reshaping the cost structure of insurance claims. For underwriters, this creates both risk and opportunity. By integrating pharmacist-led medication review into underwriting workflows, implementing scenario-based projections, and actively monitoring therapeutic class trends, underwriters can build more robust and defensible claims forecasts. Proactive medication management not only improves projection accuracy but also creates opportunities for genuine cost savings and improved claimant health outcomes.