Flashcards in Chapter 4 Group Products Deck (16):
-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.
Group products can arise where:
-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
Differences arise when dealing with group products (4) :
-the purpose of the product
-in the underwriting and acceptance procedure
-in the methodology for pricing
-in its manner of distribution
Purposes of group insurance
-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.
- 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.
Group insurance: Underwriting & acceptance
-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.
Group Insurance: Use of average assumptions.
-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.
Group insurance: Free cover
-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.
The aim of Free cover
-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.
Group PMI Benefits?
-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.
How can Group PMI benefits be customised?
-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.
Challenges with declining risk profiles in group plans
-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.
Group CI Insurance Benefits
-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:
-definition of a valid claim
-period of benefit
Purpose of Group CI Insurance
-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.
Group CI Insurance: Underwriting & acceptance
-There are other factors to consider in good scheme design.
- Restrictions used to limit anti-selection include:
-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.