Study ten

Question 1

Define group insurance.

Answer 1

• provides coverage for a defined group or class of people, under a single policy.

Question 2

Define group master contract.

Answer 2

• is the policy that an insurer issues to a group policyholder.

Question 3

Define group policyholder.

Answer 3

• is the person or legal entity that makes the decision to obtain group ins, negotiates the terms of master contract with insurer and purchases coverage.

Question 4

Define certificate of insurance.

Answer 4

• is a document issued to each group life insured or group person insured, that describes the coverage and explains the insureds rights under the contract.

Question 5

Define qualifying period.

Answer 5

• aka probationary period
• is a certain period of continuous employment after which the employee is eligible to enroll in a group insurance plan.
• often 30-60 days

Question 6

Define eligibility period.

Answer 6

• is the time during which a new employee may enroll in a contributory group insurance plan.

Question 7

Define manual rating.

Answer 7

• is a pricing method in which an insurer uses rates that are based on its own experience rather than on that of the specific group for which it is calculating a premium.

Question 8

Define experience rating.

Answer 8

• is a pricing method in whish the insurer factors a groups own loss and expense performance into the calulation of that groups premiums.

Question 9

Define credibility rating.

Answer 9

• is an assessment of the degree which a groups claims experience is credible
• if they have high credibility rating, experience rating will be used
• if they have a lower credibility rating, a combo of experience and manual rating is used (blended rating)

Question 10

Define blended rating.

Answer 10

• is a pricing method used wih mid-sized groups, that combines both manual and experience appraoches
• larger the group, the less manual rating involved

Question 11

What type of group benefits are offered?

Answer 11

1) life insurance
2) weekly indemnity benefits
3) long term disability income
4) AD+D
5) extended health care
6) dental insurance
7) vision care coverage
8) employee assistance program

Question 12

What are characteristics of group insurance plans?

Answer 12

1) same schedule of benefits applies to all eligible employees within a class
2) a minimum participattion level is required to establish a group plan

3) no medical evidence of individual insurability
- unless coverage amount exceeds the predetermined amount in the group plan

4) membe eligibility depends upon meeting certain requirements
5) the employer is responsible for remitting premiums to the insurer
6) group policies are almost always issued on a YRT basis

Question 13

Explain what the coverage schedule entails.

Answer 13

Benefits depend on insurance class
- employees are divided into insurance classes based on their rate of pay or position within company

Group members cannot choose basic benefit amounts

• basic benefit levels are set out in group master contract
• protects insured from being selected against

Some plans include optional, or additional coverage
- allow group members to purchase additional coverage but must sibmit appropriate underwriting info

Question 14

Explain the minimum participation requirements.

Answer 14

Minimum number to form a group

• law of large #’s requires that each group include enough members to ensure mortality and morbidity are reasonably predictable
• greater the enrolment, the greater spread of risk
• usually need at least 25 members

Minimum level of participation within a group

• must reach a certain % of eligible employees which musy be high enough to safeguard insurer from being selected against
• is a condition of group insurance policies

Contributory VS non-contributory

• contributory plans require minimum acceptable part. level is usually 85-90% for groups with 50 or less member, and 75% for large groups
• non-cont. plans usually require 100% member part.

Question 15

What is a non-contributory plan?

Answer 15

• policyholder pays entire premium

- requires 100% part.

Question 16

What is a contributory plan?

Answer 16

• group members pay a portion of the premium and policyholders pay a portion
• offer employees and employer advantages such as:
  i) cost-sharing of premium costs of providing group benefits
  ii) a greater appreciation by the emploee of costs of benefits being provided
  iii) potential tax advantages for the employees (premiums for disability coverage benefits will be tax-free)

Question 17

What are an underwriters goals?

Answer 17

1) to evaluate whether group’s loss experience will be acceptable
2) to safeguard insurer from being selected against
3) to assign the group an appropriate risk classification
4) to determine an appropriate premium
5) to keep admin costs as low as possible

Question 18

What characteristics do underwriters evaluate a group application on?

Answer 18

1) purpose for which group was established
2) type of group involved
3) size of group
4) stability of group
5) minimum part. requirement
6) schedule of benefits
7) activities which group participates in

• purpose group was established can alert underwriter to potential for adverse selection
• same as type of group applying for coverage
• the stability of group is significant in 2 ways:
  i) cost of administering a plan in which member turnover is high can be prohibitive
  ii) some attrition naturally occurs in any group as older members leave which helps ensure age distribution within group remains stable over time
• activities can also determine risk

Question 19

What are the group eligibility requirements?

Answer 19

• to ensure groups loss experience is predictable and acceptable, and premiums are appropriate

1) Actively-at-work provision
- limitied to full time employees
- on the day they join the plan

2) Inference of good health
- ind. able to work full time are in reasonably good health
- actuaries develop group mortality and morbidity tables from claims made by actively working, full-time, employees they are able to calclate appropriate premiums

3) Group qualifying perios 30-90 days
- 2 factors affect when an employee is covered unde group ins. plan
i) qualifying period
ii) eligibility period

Question 20

How are premiums paid?

Answer 20

1) employer contribution makes plan attactive for employees
- in cont. group ins. plans employee involvement is volunteer
- employers premium contribution makes group coverage more affordable and more attractive for employees
- all group ins. plans require employer to pay a portion (at least 25%)

2) employee contribition by payroll deduction
- policyholder remits full amount of premium directly to insurer
- employer often pays 100% of premiums for certain coverages
- employee often pays 100% for long-term disability coverage
- employer deducts contributions from employees pay
- simplifies premium collection and helps control admin costs

Question 21

How do premium calculations work for group insurance?

Answer 21

Rate per year

• use rate tables which lust a montlhy premium per benefit unit for each age group
• IND. RATE = RATE x # OF $1000’s COVERAGE PROVIDED

Employees grouped by age

• in order to determine the total number of benefit units provided for each age category
• this # x appropriate rate = total premium for that age cateogory

Plan premium VS Plan rate
- when plan premium is divided by total # of benefit units provided under policy, the result is the plan rate

Plan rate may be adjusted by discount or loading factor
- determine plan premiums on a case-by-case basis to reflect characteristics and anticipated loss experience of each group

Question 22

What methods are used for group rating?

Answer 22

• depending on size of group, number of years that is has been in existence and reliability of data regarding group ins. claim

1) Manual rating
- based on insurer’s experience rather than the groups
- used for new groups which have not yet developed sufficient loss or expense history
- used to set initial premiums for small groups

2) Experience rating
- insurer considers a groups own loss and expense performance in setting the premium rate
- use this for groups that are large enough to generate reliable, credible loss and expense results
- can be used to establish initial premium for a large group that is replacing its current coverage (as long as groups loss/expense history is available)

3) Credibility rating
- an assessment of the degree to which a groups claims experience is credible
- a lrage group that has been in force for a # of years and has a stable composition might be considered to have a 100% credibility rating and might be exclusively rated on experience rating basis
- those with low credibility ratings, rates are usually set using a combo of experience and manual rating (blended rating)

4) Blended rating
- is a method that combines both manual and experience rating
- use with mid-size groups that are too small to generate entirely credible and loss/expense data
- the larger the group, the more credible, therefore the less an insurer will have to rely on manual rating

Question 23

What are the group funding methods?

Answer 23

1) non- refund accounting
- traditional approach
- policyholder pays premium to insurer and insurer pays all losses and policy admin expenses
- if there is a shortfall insurer may not recover from policyholder
- if losses/expenses are less than expected, insurer profits (no dividends/refunds)

2) refund accounting
- policyholder pays a premium and insurer pays all losses and policy admin expenses
- any surplus resulting from premiums exceeding claims/expenses is refnded to policyholder
- refunds are referred to as dividends or experience refunds
- if claims/expenses exceed premiums, deficit is carried forward and paid off by policyholder

3) self insured group plans
- is most commonly used with extended health, dental or weekly indemnity coverages

4) admin services only (ASO contract)
- employers that selfinsure are able to assume full responsibility for plan admin and claim settlements
- many employers contract insurers or third party admin that have necessary experience and expertise

Question 24

What are the different types of groups that insurers cover?

Answer 24

1) employer group
- majority of group life/health polices are issued to employers for benefit of employees
- ind. employer includes companies with branch offices, parent companies and their subsidiaries

2) multiple-employer/trade association group
- a # of employers within a single industry join together
- group size allows for lower premiums, and enchanced coverage

3) associations
- may be eligible for group coverage provided that:
i) purpose of asso is other than to obtain insurance
ii) admin of plan, inlcluding membership enrolment and premium collection, can be managed efficiently

ex) groups who share a common occupation like doctors or lawyers

4) creditors group
- where financial institutions are policyholders and debtors are the group members
- the debtor pays the premium for coverage
- if debtor becomes disabled/dies, insurer pays the outstanding balance on the loan to lending inst.

5) unions
- labour union is the policyholder and makes premium contributions
- larger unions may elect to:
i) self insure proportions of group health plans
- a third party admin. may be contracted to provide expertise in plan admin and claims settlement
ii) use health and welfare trust
- a trustee is appointed to manage a fund into which the union members employer contribute
- plan benefits are paid from fund

Question 25

Explain how group health/A+S works.

Answer 25

- group health/A+S fall into 2 categories: 1) indemnity benefits which replaces lost income 2) reimbursement benefits which cover qualified medical expenses

Question 26

What are the features of group life insurance?

Answer 26

- most common coverage pays a lump sum benefit to beneficiary when life insured dies, irrespective of cause of death - features of group life ins. include: i) group conversion privilege - allows geoup members to replace group coverage with an ind. life policy without providing evidence of insurability - may only offer certain types of policy - amount of benefit for new policy may not exceed limit under group policy - usually for employees who have been employed for a minimum of 5 years - coverage is based on: i) lump sum to all plan members, regardless of occupation or salary ii) lump sum to all employees of a given class iii) coverage based upon multiple of employee's salary - provide 2 levels of life ins. coverage i) basic coverage - without medical underwriting ii) optional coverage - underwriting required ii) coverage for dependants - offers seperate benefits but is not automatic, group member must apply for dependant - benefits are typically modest - dependant may exercise conversion privelege if coverage it terminated - same mistatement of age/sex provision applies - survivorship benefit for spouse - come with various settlement options i) interest only option ii) fixed-term annuity iii) life annuity on life of beneficiary - preselected by plan member or by beneficiary upon death iii) group disability waiver or premium provision - premium is waived if employee becomes disabled - includes a charge for disability waiver provision - in order to qualify, employee + policyholder must meet following requirements: a) disability must be total as defined in master group contract b) onset mustbe prior to age 65, and duration must be 6 months c) must submit a claim, inlcluding proof of disability, not later than 6 months after onset of disability d) disability must not have resulted from excluded cause iiii) optional disability installment provision - for an additional premium can be added to group policy - provides a series of monthly installment payments to employee who is totally and permanently disabled prior to 65 - remains disabled for 3-6 months - payments usually limited to 5 years - death benefit will be reduced by amount received for disability payments

Question 27

What coverages are offered for group A+S?

Answer 27

- some include conversion privilege and coverage for dependants - disability benefits are broken down into 2 categories: i) short term/weekly indemnity benefits ii) long term disability 1) weekly indemnity/STD - designed to replace a portion of income lost when an insured employee is unable to work due to illness/injury - must meet definition of totally disabled, usually an own occupation definition for STD - benefit period usually 17,26 or 52 weeks - waiting period for accident is 1 day - waiting period for illness is 8 days - benefit amount typically 70% of regular salary 2) long term disability (LTD) - is designed to replace a portion of lost earnings over extended periods of time - an ind. must meet the definition of totally disabled set out in group master cpntract - at onset prevents ind. from performing essential duties of his/her regulation occupation - after 2-5 years, eligibilty depends on ind. being unable to work at any occupation that ind. is reasonably fitted by education, training, or experience - usually extends until age 65 - if disability arises from illness rather than injury, benefit period may be limited to 2-5 years - waiting period 30 days-6months - waiting period has impact on pricing in group disability premiums - usually 60-75% of pre-disability earnings 3) AD+D - can be added to life/health policy, or issued seperately - is usually equal to that provided under basic life coverage (principal sum) and pays out due to accidental death - also pays out if accidently dismemberment occurs, based on a % of principal sum 4) ext. health care - reimburses reasonable and medically necessary expenses not covered under prov. gov. health ins. plans - includes a) accomodation in semi private/private hosp. room b) ambulance services c) medical supplies, aids and appliances d) diagnostic service 9xrays) e) out of country emerg. medical care (travel ins) f) presciption drugs g) emerg. dental care necessitated by injury/accident h) private duty nursing - exclusions a) elected cosmetic surgery b) illness/injury resulting from military service/act of war c) intentionally self inflicted injury d) dental treatment, eye exams, glasses (can purchase separately) 5) dental coverage - eligible procedures set out in group master contract - typically exams, cleaning, xrays, floride, pit and fissure sealing, fillings, extractions, anaesthetics 6) vision care coverage - typically include annual max benefit limit and specify max amount that insuere will pay for single pair of glasses 7) employee assistance program - relatively new benefit - services are designed to help ind. deal with personal or professional challenges such as stress, mental/emotional illness, financial difficulties, marital/family issues, alcoholism, drug abusr - confidential counselling - typically an annual max benefit limit

Question 28

What is the coinsurance factor?

Answer 28

- may apply to certain benefits as stated in the policy - if the expense was subjecy to a coinsurance cfactor, the claim would be reduced according the the % stated in policy - coinsurance factor is calculated AFTER the deductible has been applied (deductible substracted, then coinsurance

Question 29

What are the CHLIA coordination of benefits guidelines?

Answer 29

1) to ensure total amt paid under all applicable polices does not exceed total eligible expenses incurred 2) to help control admin costs associated with settling claims 3) to ensure that claims are managed effectively and that claimants receive payment promptly 4) to control and reduce fraudulent submissions of duplicate claims - the guidelines set out the criteria to define the priority of payments by determining which insurer is the primary carrier and which is secondary carrier. Primary pays full benefit applicable, secondary determines benefit and pays the lesser of: i) amt that is payable under contract ii) 100% of all eligible expenses reduced by amt paid by primary

Question 30

When a claim is to be submitted and more than 1 carrier is involved, how does the claims process work?

Answer 30

1) submit claim to primary carrier and claim will be paid according to policy conditions 2) if part of expense was not reimbured by primary, then the claim can be submitted to secondary carrier 3) when the claim for is a depenent child, it should be submitted to the part whose birth month and day falls first in the calendar year - if theyre the same, then first letter of first name of parents 4) when parents are separated/divorced, claims would first be considered under custodial parents ins. plan

Question 31

What are the benefits of group plans to employers?

Answer 31

1) can help an org. compete in the labour market, attracting and retaining good employees 2) demonstrates an employers commitment to families of deceased/disabled employees, which engenders employee loyalty 3) offers employees peace of mind, resulting in improved morale and increased productivity 4) relatively easy to institute and administer, and are flexible to respond to changes in workplace 5) employer premium cont. are considered a deductible business expense for tax purposes

Question 32

What are the benefits of group plans to employees?

Answer 32

1) safeguards employees financial security and that of their families 2) premium cont. make group ins. less expensive than similar coverage purchased on ind. basis 3) are typically not required to provide evidence of insurability, unless they wish to purchase additional coverage 4) conversion privilege allows them to convert group ocverage into personal ins. without evidence of insurability

Question 33

Explain the marketing of group insurance.

Answer 33

- highly competitive market - sales conducted by group benefit consultants/ ind. brokers - consultants specialize in marketing group ins. plans - they represent applicants or group policyholder - they evaluate applicants needs, formulate group plans to meet those needs, acquire essential underwriting info, obtain quotes from several insurers, evaluate quotes and makre recommendation - may negotiate group master contracts on behalf of clients - typically obtain letter of authority from applicants authorizing them to work on clients behalf