Chapter 20 - group business

Question 1

Reduction in group size

Answer 1

Might indicate a down-sizing of workforce, which might prompt more workers to claim for healthcare insurance while they are still covered

Question 2

Calculation of group insurance premium rate

Answer 2

• begins with calculation of book rate

Question 3

Rating factors

Answer 3

• factors, relating to the risk presented by a specific policy, according to which the premium charged may differ from those charged to others

Question 4

Rating factors for group business

Answer 4

• individual-level rating factors
• group-level rating factors e.g. industry, location, size of group, employer attitude to employee health
• group’s own historical experience

Experience rating usually incorporated in group PMI whereas individual business is normally priced on community rating

Question 5

Community rating in group context

Answer 5

applying tabular rates to applicants irrespective of claims history

Question 6

Credibilty

Answer 6

• Represents the portion of final risk premium that is derived from past experience, the balance coming from book rates
• factor depends on the size of the scheme

Question 7

Burning cost

Answer 7

Accumulation of claims in one or more recent years
- typically the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience, adjusted for number covered and inflation
- compare against premiums received for premium adequacy (include IBNR and RBNS)
- Total claims divided by relevant exposure measure e.g. PMI = number of people covered
CI = total sum assured (to get rate per 1000 SA)
LTCI = total benefit payable per annum

Question 8

What factors alter the applicability of past experience to the future?

Answer 8

Significant changes:

• of personnel
• of location
• of work practice
• in the cover required

Question 9

How does PMI differ?

Answer 9

• experience rating: usually incorporated in pricing at a level below that which a strict statistical approach would demand
• NCD (rather than requiring no claims, may just require low claims. based on total amount of claims)
• different group sizes (large = flat-rated according to benefit class, small = individual + group factors + experience). Large groups frequently self-insure

Question 10

Special characteristics of group business

Answer 10

1. free cover
2. life insured information
3. changes in the workforce
   - leavers healthy/unhealthy
   - joiners likely to be healthy
   - down-sizing might prompt claims
   - increase might improve claims experience
4. flexible benefits