Learning Objective 2 Flashcards
Components of gross premium [Card 55]
Acronym - Claims + Retention
Claims Cost Admin expense Taxes/Fees Commissions CTR Less and investment earnings
Considerations in developing administrative expense assumptions [Card 56]
Acronym - Allocation
How are expenses allocated by PRODUCT??
a. Activity Based - Based on some measure of use
b. Functional - How time is allocated to tasks (billable hrs)
c. Multiple - Combination of both activity and functional
How are admin expenses allocated to GROUPS??
a. Should differentiate between new and renewal groups
b. Different ways to calculate them (% prem, claims etc)
What does the COMPETITION include as expenses in their pricing?
Types of bases used for allocating expenses [Card 57]
Acronym - 2(PC) vs. EC (2Pac vs. East Coast)
Percent of premium
Percent of claims
Per policy
Per Claims
Per Employee
Per Case
Common rating characteristics included in manual rates for GH insurance [Card 58]
Acronym - LA LIGHTS
Location
Age
Length of premium period - LTC could have multi yr period, which increases risk Industry Gender Health Status Tier SIC (Industry)
Common rating tiers for group health insurance [Card 59]
Acronym - Five Tier
One Tier: composite
Two Tier: EE only, family
Three Tier: EE only, EE + 1 dep, family
Four Tier: EE only, EE + 1 dep, EE + Children, Family
Five Tier: EE only, Couple, EE + Child, EE + Children, Family
Considerations in developing manual claim table for life insurance [Card 60]
Acronym - AMERCA TM (America’s Team)
Antiselection issues Mortality changes Experience data or other sources (SOA) Reinsurance - net cost Conversions to individual policies Age/Gender mix
Manual claim tables
a. Premium tables - calc manual prem rate, then adjust for group size. Reflects margin, profit, expenses appropriate for the group size, relative to the averages in the table
b. Claim tables - calc manual claim rate, then add the appropriate margin, profit and expenses
Manual adjustments are made for group-specific traits
Use of general population data for pricing life insurance [Card 61]
Acronym - AGE Improvements
Determining ratios of mortality by AGE bracket
Comparing mortality by GENDER
Developing rates for those not EMPLOYED (very young/old)
Estimating annual IMPROVEMENTS in mortality
Manual claim tables adjustments for group life [Card 62]
Acronym - PED CLAIMS
Plan options - additional coverage
Effective date adjustment - If not July 1
Disability factors - manual tables usually assume waiver of premium is totally disabled. Need to adjust if different
Contribution schedule - 100% contribution limits antiselection and could get a 5% discount
Lifestyle factors - i.e. smoking
Area factor
Industry factor
Marketing considerations - added charges for guarantees
Size factor and volume adjustments
Types of living benefits (accelerated death benefits) for life insurance [Card 63]
Acronym - Time to get ILL
Terminal illness - single amount upon diagnosis with 6 to 12 months to live (25% - 50% face)
Critical illness - single amount upon diagnosis (25% face)
LTC - monthly benefit of 2% face amt up to a % of DB
Steps in developing claim costs for use in a rate manual [Card 64]
Acronym - DNT
Collect DATA for a 12 month period
NORMALIZE the data for important rating variables
TREND data from the experience period to the rating period
Important rating variables when normalizing data for use in the rate manual [Card 65]
Acronym - Use AIRBAGS when normalizing
Utilization management programs - adjust for changes
Age
Industry
Reimbursement arrangements - adjust for changes
Benefit options - adjust data to reflect a common plan
Area
Gender
Size
Methods of adjusting manual rates for specific benefit plans [Card 66]
Acronym - Continuance Cost Models
Continuance tables (CPD) - typically used to estimate impact on claims cost of deductibles, coinsurance, OOP Max and annual benefit max
Actuarial Cost Models - Build estimated claim costs by developing a new claim cost for each service and summing them
Data sources for estimating disability claim costs [Card 67]
Acronym - Public Experience Studies
Public rate filings Research publications In-house experience data Data from consulting firms or reinsurers Insurer studies (Loss ratio, A/E) Industry Data (NAIC, SOA, CGDT)
Types of disability income experience studies [Card 68]
Acronym - Loss Ratio A/E
Calendar Year Loss Ratio Study
a, Compute the ratio of incurred claims to earned premium for a given CY
b. Consistent w Financial Statement reporting
c. Interest earned on reserves
Incurral year loss ratio study
a. Compute the ratio of incurred claims to earned premium for a given incurral period
b. No interest on reserves since incurred in same yr
Actual-to-Expected incidence or termination rates
a. 1987 Commissioners Group Disability Table (CGDT)
b. SOA 2000 Basic Experience Table
c. SOA Group LTD Experience Committee
Formula for disability income net monthly premium [Card 69]
Disability Income Net Monthly Premium
= Incidence Rate * ∑ ( Benefit * Continuance * v^t )
Group characteristics that impact disability income claims cost [Card 70]
Acronym - Allowable Earnings
ALLOWABLE rating factors
Age and Gender
Occupation
a. Hourly vs salary
b. Blue vs white collar
c. Union vs non-union
Industry
Area
Group Size
Average EARNINGS per employee
Data sources for developing dental claim costs [Card 71]
Acronym - Outside Public CARD
Outside databases
Public Rate Filings
Consulting firms - have manuals containing utilization data
3rd Party Administrators
Reinsurers
Data from inside the company
Plan characteristics that impact dental claims costs [Card 72]
Acronym - BC WP
Benefits covered - plans often have a missing tooth provisions and limit the replacement of dentures to once every 5-7 yrs
Cost sharing provisions - deductibles, coins, copay are important bc dental procedures are typically elective
Waiting period - used to discourage members from enrolling to treat an issue then drop
Period of coverage - need to project past experience into the future since medical and dental trend differ
Network and care management practices that impact dental claim costs [Card 73]
Acronym - Provide Care
Provider reimbursement levels
a. FFS - Based on UCR rates
b. PPO - contract reduced fees with dentist
c. Capitation is common for Dental HMOs
Care Management Practices
a. Preauthorization
b. Self management under capitation - providers recommend less expensive procedures bc of incentives
Insured characteristics that impact dental claim costs [Card 74]
Acronym - Allowable PUT
Allowable rating factors
Age Gender Area Industry Group Size
Participation % - higher claims with lower participation %
Utilization is pent up for new members
Employee turnover - new members have high utilization
Major effects of the year 2000 changes in the NAIC LTC Model Act [Card 75]
Acronym - CRADLES
Commissioner can ban insurers for 5 years if they consistently file inadequate rates
Reimbursements of unnecessary rate increases
Actuarial certification is required when filing rates
Disclosure of rating practices when filing rates
Limits expense allowances in the event of a rate increase
Eliminates minimum loss ratio requirements
a. Lifetime loss ratio must not be less than a weighted average of 58% initial premium and 85% premium increase
If in rate SPIRAL, policyholders can switch to currently sold insurance without underwriting
Major effects of HIPAA on LTC [Card 76]
Acronym - DOS 2 TAX
Defined qualified plans
Standardized benefit triggers
Clarified taxation of premium and benefits
a. LTC insurance is treated as an accident and health insurance contract for tax purposes
Allowed tax reserves are calculated on a one year preliminary term basis for qualified plans
Major stakeholders in the group LTC policy design process [Card 77]
Acronym - I BEE
Insurance company
a. Concerned with up front costs, risk of low enrollment
b. Costs vary greatly by participation level
Brokers - opens door to new markets for them
Employer groups
a. LTC is low cost with stable pricing
b. compliments other offerings
Employees
a. Not yet aware of what’s even covered by LTC
Assumptions needed for a LTC asset share pricing model [Card 78a & 78b]
Acronym - IMPROVES Claims Cost
Interest rate on assets Mortality - 1994 GAM Table Profit targets Reserve basis - What's the margin? Other assumptions Voluntary lapses = Total Termination Rate - Mortality Rate Expenses - Start up expenses are usually high Selection factors - reflects UW wear off
Morbidity/Claims Cost Variables:
a. Marital status
b. Gender
c. Benefit trigger
d. Area
e. Case managers - Leads to lower claims
Reasons for experience rating [Card 79]
Acronym - WANTS
GROUPS want it
INSURERS want to quote and charge premiums that are as competitive as possible
INSURERS wants to avoid antiselection
Theoretical considerations in determining credibility levels [Card 80]
Acronym - (FSCL)^2 [Fiscal squared]
Frequency needs to be high enough to minimize volatility, otherwise you need a larger exposure base
Varying severity and claim volatility
Confidence interval chosen by the insurer
Longer experience periods can be used to increase exposure and therefore credibility
Squared => statistical fluctuations vary inversely with the square root of the number of claims/lives.
a. So, it will take 4x the exposure to double the credibility
Practical considerations in determining credibility levels [Card 81]
Acronym - APE CCC
Ability of management and admin to handle experience rating
Philosophy on experience rating (management)
Effect on existing business if credibility level is changed
Competitive pressures
Cost/Benefit analysis of experience rating and new cases
Consistency among classes of business
Steps in prospective experience rating [Card 82a]
SAME PROCESS AS URRT
- Develop past incurred claim experience
- Pool data as necessary
- Calculate NET premium by trending claims
- Apply retentions to get GROSS premium
- Add loads for antiselection risk, other financial impacts
Small group considerations
a. Formula based methods (10+) - a group is assigned to a rate class then reassigned at renewal if experience is good
b. Re-Underwriting method - look at outlier cases to see causes of bad experience to determine prospective rates
