Chapter 4 - Group Products

Question 1

Group products can arise where:

Answer 1

• employer pays the whole premium on behalf of the employee
• where the cost is shared between 2 parties
• where the employer facilitate the payroll deduction, but employee pays all the cost
• where the ‘group’ is not employment based but linked to vredit cards or club memberships for example

Question 2

Different considerations apply to product design and control when considering HC packages sponsored by an employer. Differences will arise: (4)

Answer 2

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

Question 3

Purposes of group arrangements (4)

Answer 3

1. May be legal requirement
2. May be a positive message to prospective employees at recruitment process, or to existing employees at a certain stage of promotion
3. Can promote health and ensure speedy return to work
4. Group covers may have tax advantages

Question 4

What is free cover?

Answer 4

Free cover is the process whereby a certain level of benefits is available to all members of a group without individual underwriting. Only those seeking benefits above the limit need to provide medical information or undergo tests

Simple declarations of health may still be required e.g active at work requirement

Free cover limit is normally a function of number of members in the group or the aggregate level of benefits

Question 5

The level of free cover would typically depend on: (4)

Answer 5

• size of the scheme
• whether membership is compulsory/voluntary
• the proportion of employees taking up the cover
• the total and average sum insured

Question 6

Key requirements when establishing a group scheme are: (2)

Answer 6

• definition of who is eligible for benefits under the scheme
• the benefits under the scheme are clearly defined by:
  
  • size
  • definition of a valid claim
  • period of a benefit (if applicable)

Question 7

How to restrict anti-selection for employee group schemes: (5)

Answer 7

1. Applying exclusions
2. Setting free cover limits
3. Ensuring members are actively at work when cover begins
4. Setting take-up rates in voluntary schemes
5. Laying down take-over terms where the insurer accepts a scheme that was previously insured elsewhere

Question 8

3 approaches to experience rating:

Answer 8

1. Retrospectively. It is adjustment to initial premium based on actual experience. Can be based on number of claims or amounts
2. Prospectively. It is based on prior period experience and applied to future rate
3. Credibility approach has Z factor as rating. Z is from 0 to 1 and is weiggting applied to won experience vs book rates. Value of z depends on volume of claims and size of group