Chapter 4 Group Products Flashcards
1
Q
Group products
A
- group business is defined as any collection of individuals who combine to make a single proposal for uniform insurance cover.
- usually the collected individuals will be employees in the same company and the employer will pay for premiums in part or wholly.
2
Q
Group products can arise where:
A
- employer pays the whole premium on behalf of employees
- where cost is shared between employer and employee
- where employer facilitates with payroll but employer pays all costs
- where group is not employment based but linked to club membership or credit cards
3
Q
Differences arise when dealing with group products (4) :
A
- the purpose of the product
- in the underwriting and acceptance procedure
- in the methodology for pricing
- in its manner of distribution
4
Q
Purposes of group insurance
A
- these may be arranged because they are a legal requirement in some territories.
- it may be a positive message to prospective employees at recruitment stage or to existing employees at starve if promotion.
- it can act for both parties to promote health and ensure a speedy return to work following an op.
- group covers may have tax advantages over individual insurances in some territories.
5
Q
Flexible benefits
A
- employees will have the choice to select from a range of alternative provisions that the employer is prepared to make, some which will require staff contribution. Eg: benefit schemes, flex schemes, cafeteria benefits.
- there will be a list of core benefits on top of which the individual can then purchase additional types of benefit from further options available.
- each benefit brings its own tax considerations either in premiums contributes or on the benefits when paid.
- flexible benefit schemes give greater flexibility to match benefits to needs.
- they present insurers with problems of anti-selection and increased administration.
6
Q
Group insurance: Underwriting & acceptance
A
- This is designed such that enrollment is open to all members of the group.
- Membership implies guaranteed acceptance at least for basic level of cover.
- Standard premium rates apply for all members selecting a particular level of cover or benefit option.
- This introduces anti-selection.
- Strict controls like ensuring/forcing employees to join scheme within 3 months of starting employment. Reducing anti-selection.
- There will be good risks as well as bad.
- However members may also join group to gain these benefits and hence increase anti-selection.
7
Q
Group Insurance: Use of average assumptions.
A
- The insurer underwrites to ensure that on average the risk represented by the lives accepted for cover matches that expected when the premium rates were produced.
- Some lives in poor health may be accepted because they balance very good health within the group.
8
Q
Group insurance: Free cover
A
- This is a process whereby all members seeking cover do not need to be underwritten on an individual basis. Only those that seek cover above the limit need to provide medical information.
- Maybe granted to CI schemes with more than a specified minimum number of members, provided that membership is compulsory, and benefits are maintained at a level specified by a formula.
- To qualify for free cover member may be required to satisfy an “actively at work” qualification.
9
Q
The aim of Free cover
A
- Reduce the cost of underwriting to the insurer.
- Avoid inconvenience by asking clients too many people to be medically examined.
- Most companies have a free cover formula to enable most lives in most schemes to be accepted without underwriting.
- The formula should be set taking into account all info available. For reasons of anti-selection, statistical credibility.
10
Q
Group PMI Benefits?
A
- Benefits and exclusions are similar between group and individual products.
- Pre-existing conditions are more likely to be covered under group business because lower degree of anti-selection to be encountered.
11
Q
How can Group PMI benefits be customised?
A
- There is more scope to customise group PMI benefits.
- They can be customised by:
- choosing specific levels of excess or limits.
- choose certain benefits not available on standard MI products eg dental cover or prescription fees.
- exclude certain benefits it may not require eg psychiatric treatment.
12
Q
Challenges with declining risk profiles in group plans
A
-Group PMI where membership is restricted to a particular employer or industry may experience will be able to provide benefits adequately only if risk profile is good.
-This is possible where young healthy individuals subsidise older unhealthy individuals.
-If group risk becomes poor premiums may be inadequate.
-This may occur where fewer younger people are joining the industry.
-If premium rates are increased to remedy this then healthier lives may withdraw and self insure, which exacerbate the problem.
- because only bad risks may be left in the scheme.
-
13
Q
Group CI Insurance Benefits
A
- The same basic principles of group Life insurance hold to CI insurance.
- The key requirements to start a group scheme are:
- there is a definition of who is eligible for benefits under the scheme.
- the benefits under the scheme are defined by:
- size
- definition of a valid claim
- period of benefit
14
Q
Purpose of Group CI Insurance
A
- Valuable to staff
- Used by employer to attract new recruits
- groups of employees, trade unions might buy it
- Benefit can be provided to employees for whom income protection insurance is not available.
15
Q
Group CI Insurance: Underwriting & acceptance
A
- There are other factors to consider in good scheme design.
- Restrictions used to limit anti-selection include:
- 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 insurer accepts a scheme that was previously insured elsewhere.
