Chapter 20: Pricing (2)

Question 1

List examples of rating factors used for group business

Answer 1

individual-level rating factors:
age, gender, occupation

group-level rating factors:
industry, geographic location

group’s own past claims experience

Question 2

Explainexperience ratingand discuss thecredibility factor

Answer 2

experience rating refers to when the risk premium depends on the group’s own past claim experience

experience rating is extensively used for group PMI

RP = ZA +(1-Z)E:
Z - credibility factor taking values between 0 and 1 inclusive - depends on the size of the scheme, very large body of experience would be needed to justify a factor of 1
A - risk premium based on group’s own past claim experience
E - standard risk premium

Additional factors influencing Z include significant changes of employees/ location/ work practices

Question 3

List reasons why it is important to consider changes in the workforce

Answer 3

leavers may be relatively healthy or unhealthy, depending on their reason for leaving

newcomerslikely to be relatively healthy (fit and young)

down-sizing of the workforce might encourage members to make claims while they are still covered