Ch 4: Group products

Question 1

Define free cover limit and what the aims are

Answer 1

• Free cover limit refers to the sum assured below which any individual within the employer’s group can be covered under the group policy at standard rate of premium without undergoing any individual underwriting.
• Only those seeking benefits above the free cover limit will be subject to further individual underwriting or tests
• Usually as function of number of members or aggregate level of benefits offered.
• The more individuals in the group the greater the credibility to average assumptions on which pricing is based and the more relaxed the insurer can affored to be

Aims:
* Redcue costs faced by the insurer
* Avoid inconveniencing the client by asking many questions or to be medically examined

Question 2

In what areas do group cover and individual policies of health and care insurance differ?

Answer 2

• Purposes of the product
• Underwriting and acceptance procedure
• Methodology of pricing
• Manner of distribution

Question 3

Why would a group insurance agreement come into practise (i.e. why do it?) (4)

Answer 3

• May be a legal requirement in some territories
• May send a positive message during the recruitment progress (i.e. incentive for new-hires and loyalty advantages to retain staff)
• My be used to promote health and speedy recovery to be able to return to work following a operation for example (group PMI)
• Group cover may have tax advantages in certain territories.

Question 4

Anti-selection in group cover setting

Answer 4

• Anti-selection can still occur in groupo business and will depend on the particular rules for acceptance that apply.
• The more defined the eligibility for membership and the closer the compulsion the participation, the more relaxed the insurer can be with regards to underwriting and pricing.
• For example restricting members to join within the first three months of starting work

Question 5

What factors affect the levelk of free cover provided?

Answer 5

• Whether the scheme is volunrtary or compulsory
• If voluntary, the proportion who do join the scheme
• The size of the scheme (i.e. number of members)
• Total and average sum assured

Question 6

Methods to reduce anti-selection in group schemes (5)

Answer 6

• Apply exclusions (e.g for pre-existing conditions)
• Setting free cover limits
• Ensuring members are actively at work before membership begins
• Setting take-up rates on voluntary schemes
• Laying down take-over terms where the group was previously covered elsewhere