Group 34 and SN101 DI Claim Costs

Question 1

LTD Net Manual Premium (Claim Cost) Formula

Answer 1

1. net monthly premium = (incidence rate)sum of (benefitt ContinuanceT*InterestDiscountT)
2. Incidence includes mental disorders, maternity, all other
3. Social Security Offsets
   
   3. 1 use probability of soc sec disability awards
   4. 2 SSDI benefit depends on bend points adjusted for inflation

Question 2

Adjustments to LTD Net Manual Prems

Answer 2

1. Max Ben, min Ben, EP, BP, def of disability, social security offsets
2. Higher income replacement reduces incentive to work
3. Other offsets including state cash sickness plans, workers’s comp, pension, sick pay, and part time work
4. Limits on Mental and nervous Conditions, Alcoholism, drug abuse
5. Optional features: survivor benefits, COLA riders
6. UW Variations: At-work refs, evidence of insurability, pre existing condition limits
7. EE contribution/participation
8. Group characteristics: age, gender, occupation, industry, avg earnings per EE, area, size of group

Question 3

STD claim cost sources of data

Answer 3

1. Best source of data own experience
   
   1. 1 Studies of own experience based on loss ratio studies
   2. 2 STD credibility faster than LTD
2. TSA 1983 Reports
3. 1985 CIDA

Question 4

STD Net Manual Prem and Adjustments

Answer 4

1. Unlike LTD, don’t separately freeman rates of disablement and annuities
2. Variables contribute to frequency: Age, gender and EP
3. Adjustments to experience Studies
   
   3. 1 marketing strategy, distribution, underwriting, claim administration
   4. 2 Graduate data
   5. 3 Trends should be recognized
   6. 4 Frequency and severity of AIDS claims changed significantly
   7. 5 Make appropriate allowance for maternity cost

Question 5

LTD Claim Cost Sources of Data

Answer 5

1. Insurer studies
   
   1. 1 Calendar year LR study (aka financial basis)
      
      1. 1.1 Inc claims = pd claims + increase in claim reserves
      2. 1.2 Closest relation to company’s financial statements, but not the clearest picture of historical trends
   2. 2 Incurred year LR study (aka runout basis)
   3. 2.1 inc claims = pv (claims to date) plus current claim reserve, all discounted to hear of incurral
   4. 2.2 do not correspond directly to financial statement, but better historical trend
   5. 3 A/E claim incidence and claim information studies
   6. 4 Study by age, gender, EP, benefit, group size, industry
2. Other: SOA group LTD experience committee, 1987 CGDT, and SOA 2000 Basic Experience Table

Question 6

Step to calculate STD and LTD gross premium

Answer 6

1. Base rates / premium
   
   1. 1 LTD base rate = incidence*reserve/12
   2. 2 base premium = base rate * unit of benefit
   3. 3 also monthly base premium = I * total liability /12 I = incidence
   4. 4 STD base rate = incidence * D/12
      
      1. 4.1 D = expected length of claim in weeks
2. Offset credits = amount of offset * base rate
   
   2. 1 called base premium with offset credit (net base premium)
3. Adjusting NBP for demographic and plan provisions result in “final claim cost”
4. Non-claim adjustment (retention)
   
   4. 1 commissions, insurance expense, premium taxes, profit

Question 7

DI experience rating steps

Answer 7

1. Determining a manual claim rate as described above
2. Determining experience based claim rate
   
   2. 1 if large claims are pooled, a pooling charge should be added
3. Blending the two into a case claim rate
   
   3. 1 fully credibility between 15000 -25000lives for LTD and 400-1500 lives STD
   4. 2 credibility (z) = N (number of life-years)/(N+K(constant))
4. Adding expenses and profit charges to arrive at case premium rate