Chapter 4 - Group business

Question 1

Group business

Answer 1

Defined as any collection of individuals who combine to make a single proposal for uniform insurance cover

Question 2

When can group products arise?

Answer 2

1. when the employer pays the whole premium on behalf of the employees
2. where the cost is shared between the two parties (the employer may pay party or all of the employee cost but the member must pay for any coverage desired for spouse or children)
3. where the employer facilitates with payroll deduction but the employee pays all costs
4. where the group is not employment based but linked to club membership or credit cards

Question 3

Product design considerations

Answer 3

1. the purpose of the product
2. the underwriting and acceptance procedure
3. the methodology of pricing
4. in its manner of distribution

Question 4

Purposes of group insurance

Answer 4

1. It may be a legal requirement e.g. income protection in some territories
2. it may be a positive message to prospective employees
3. it can act for both parties to promote health and ensure a speedy return to work following operation
4. group covers may have tax advantages over individual insurance in some territories
   - in this case, the employer can offer the employee a benefit that has greater perceived value to the employee than its cost to the insurer

Question 5

Flexible benefits

Answer 5

A list of core benefits, on top of which the individual can then purchase additional types of benefit from the further options available.

Each benefit brings its own tax considerations.

Question 6

Disadvantages of flexible benefits to insurers

Answer 6

1. anti-selection
2. increased administration
3. difficulties in determining basic risk costs

Question 7

Group enrolment

Answer 7

• enrolment usually open to all members of the group
• membership of the group implies guaranteed acceptance for at least basic level (underwriting may be required for optional additional cover).
• standard premium rates usually apply for members selecting a particular level of cover

Question 8

Free cover

Answer 8

The amount of cover automatically granted without underwriting to individuals in a group scheme/ It applies to group CI schemes.. Only those seeking benefits above the limit need to provide medical information or undergo tests.

Question 9

Factors to take into consideration when deciding on free cover limit

Answer 9

1. the size of the scheme
2. whether membership is compulsory or voluntary
3. the proportion of employees taking up cover (if voluntary)
4. the total average sum insured

Question 10

Key requirements to establish a group scheme

Answer 10

1. there is a definition of who is eligible for benefits under the scheme
2. the benefits under the scheme are clearly defined
   - by size
   - by definition of a valid claim
   - by period of claim

Question 11

Restrictions on group cover

Answer 11

• applying exclusions
• setting free cover limits
• ensuring members are actively at work when cover begins
• setting take-up rates on voluntary schemes
• laying down take-over terms where the insurer accepts a scheme that was previously insured elsewhere

Question 12

Affinity group

Answer 12

Group of people who share a common interest, background or goal and are linked together by being members of the same organisation.