GHDP 101-13: Group Disability Insurance - Pricing and Claims Practices

Question 1

Manural Rating

Answer 1

• Use assumptions to determine expected claim cost
• Combine with expense, profit, and other assumptions to determine premium

Question 2

Base Rates/Premium

Answer 2

Question 3

Based Rates / Premium - Example 1 LTD Rating

Answer 3

Question 4

Based / Premium - Example 2 STD Rating

Answer 4

Question 5

Offset Credits

Answer 5

• Other income can offset amount of monthly benefit and corresponding reserves
• Offset credits calculated by multiplying amount of offset by base rate
• For SSDI, pension, and workers’ compensation may be same base rate used to calculate base premium
• For shorter offsets, a different base rate must be used.
• Called Base Premium with Offset Credit (net base premium or NBP)

Question 6

Demographic Adjustments

Answer 6

• Multiplicative factors to reflect salary, occupation, industry and geographic location

Question 7

Plan Provision Adjustments

Answer 7

• Multiplicative adjustments to reflect definition of disability, maximum monthly benefit, minimum monthly benefit, and pre-existing condition exclusions
• Account for ancillary benefits, pension, conversion, and survivor benefits
• If employees can select coverage, need factor for adverse selection
• Adjusting NBP for demographic and plan provisions result in “final claim cost”

Question 8

Non-claim Adjustments (Retention)

Answer 8

• Commissions, insurance expense, and premium taxes

Question 9

Profit

Answer 9

• Typically expressed as percent of premium
• After this step, you have the “gross premium”

Question 10

Experience Rating

Answer 10

Steps in experience rating
1. Determining a manual claim rate
2. Determining experience-based claim rate
3. Blending the two into a case claim rate
4. Adding expenses and profit charges to arrive at case premium rate

Question 11

Manual Claim Rate

Answer 11

• Based on the structure outlined above
• Removing the expense and profit

Question 12

Experience-based Claim Rate

Answer 12

• Most recent 3 – 5 year period is used
• Paid claims and reserves discounted to midpoint of the experience period, or, to disability date of each
  claim
• If large claims are pooled, a pooling charge should be added
• Experience Based Claim Rate = Total discounted Incurred Claims / Exposure (units of covered salary)

Question 13

Case Claim Rate

Answer 13

Question 14

Determining the Case Premium Rate

Answer 14

• Usually dividing the blended rate by an applicable target loss ratio

Question 15

Claim Practices

Claims Process Steps:
1.Eligibility
2.Disability determination
3.Payment calculation
4.Offsets
5.Ongoing proof of disability

Answer 15

1. Eligibility
▪ In a class of employees that is insured?
▪ Plan in-force on date of disability?
▪ Meet actively at work requirements?
▪ Does cause of disability fall under pre-existing condition exclusion?

2. Definition of Disability
▪ Comparing individual’s disabling limitations to physical requirements of occupation
▪ Occupation can be narrowly defined or defined broadly against definition of occupation in
national economy

3. Payment Amount
▪ Pre-disability income times benefit percent less offsets

4. Offsets
▪ Key LTD offset is Social Security disability
▪ Applying for Social Security disability process:
(1) Initial application
(2) If denied, appeal for reconsideration
(3) If denied again, hearing with an Administration Law Judge

5. Ongoing Proof of Disability
▪ STD benefits approved for specified period, based on guidelines
▪ Claim at end of duration guideline either closed out or re-evaluated
▪ LTD claims re-evaluated minimum of once per year
▪ Any changes in claimant’s medical condition or definition of disability needs to be re-evaluated

Question 16

Tools Used in Claims Process

Answer 16

1. Medical evaluation – Attending physician statements, independent medical exams, independent specialist physician review, functional capacity examinations conducted by physical therapists
2. Rehabilitation – Vocational rehabilitation, physical rehabilitation
3. Financialevaluation
   ▪ Verification of pre-disability and current earnings
   ▪ Claimant and insurer may agree to close a claim for some settlement payment
   ▪ Insurer could be perceived as taking advantage of claimant
4. Fraud – Look for inconsistencies in information submitted, alterations to previously provided information, surveillance of the claimant
5. Managed Disability
   - Claim techniques to return disabled employees back to employment quickly