Chapter 20 - Pricing Group Business

Question 1

Special characteristics of group risks: (5)

Answer 1

1. Free cover
2. Control of intrmediary
3. Limited insured information
4. Newcomers/leavers
5. Flexible benefits

Question 2

What is book rate?

Answer 2

Insurer’s standard risk premium

Question 3

2 reasons why group insurance book rates may be lower than individual business premium rates:

Answer 3

1. Claims experience for group business tends to be better due to lower levels of anti-selection (especially if cover is compulsory)
2. Expenses for group business tend to be lower due to:
   - lower levels of underwriting
   - economies of scale

Question 4

Define experience rating

Answer 4

Experience rating is the phrase given to the practice whereby the premium for a group contract depends wholly or partially on the past experience of that group

Question 5

4 factors that can alter the applicability of past experience to the future (group business)

Answer 5

Significant changes of:
- personnel
- location
- work practices
- cover required