Chapter 1: Group Insurance
Main characteristics
1. One policy covers a number of lives : provide coverage of number of people under one/single contract “Master contract”
2. Normally buy for the purpose other than obtaining insurance: welfare benefit for employees
3. Selection of risk for a group as a whole not individual selection of risk (unlike individual life insurance)
4. Mostly non-medical exam (spread the risk within the group) risk distribution, risk sharing
5. Premium rate is not high because the sum insure is not high (sum insure is related to the position, number year of service, work)
Party to the contract
1. Insurer < --- > policyholder(employer) 2. Insured = employees
3. Beneficiary
- employee life ---- > dependants (family members) - employee health --- > himself/herself
Why normally require non-medical exam?
1. Save expense and time for insurer
2. Amount of sum insure is not high --- > liability of insurer is not high
Individual insurance ---- > cover one insured
Group insurance --- > cover a t least 10 person
Period of protection of group insurance = 1 year (renew year by year) G.Y.R.T Group Yearly Renewable Term Insurance
Benefit under group insurance is preclude individual selection
Preclude = each employee under the group or each member of the group cannot select their own benefit (cannot select their own sum insure) because the benefit is determined by benefit formula according to position or number of year of service.
Group Eligibility
Which kind of group is qualified for group insurance? • good risk
• new employee • young
Enter
• high risk • old employee • retired and
resigned
Leave
Group Insurance
The group must be formed for a purpose other than obtaining group insurance. If the group is formed for the purpose of obtaining insurance, there will be amoral hazard and anti selection involve. Which means the employer will select only the unhealthy employees to be the member of the group and leave the healthy one outside the group in order to save the medical expense that have to be responsible by the employer (by law)
Types of eligible groups - Labor union groups
- Professional and other association groups
- Debtor – creditor groups
It’s a special form of group term insurance issued to a creditor cover the lifes of his debtors in the amount of outstanding and interest subject to maximum and payable to the creditor should the debtor die before his loan is paid back.The eligible debtor should include all persons who become indebted to the creditor/policyholder as a result of an installment loan or purchase in the eligible class of indebtness.
ABAC alumni association
n
Insurer ABAC
alumni
Insurer BKK bank
creditor
Nature of eligible group
1. Size of group (at least 10 persons)
2. Flow of new members to group (steady stream of new member entering the group and old member leaving out the group)
Why underwriter focus on the size of the group 1. To prevent antiselection
2. Spread the expense (EOS) less operation cost
3. The group size has a strong impact on underwritings’ ability to predict group’s probable future loss rate.
Good risk > Bad risk Offset bad risk!!!
In order to keep status insurability of the group, keep mortality rate constant
Advantage & Limitation of group mechanism
Advantaqges
The group insurance mechanism has proved to be an excellent solution to the need for employee death benefits for a number of reasons:
1. Group insurance is low premium insurance. It affords the greatest amount of protection because amount of sum insurer is not high + non medical + EOS 2. Group life insurance affords pure protection for individual during his
working years and during child-bearing period when his obligations are at peak and his ability to pay premiums is limit
3. Group method also provides efficient distribution and administration procedures (save administration expense and underwriting expense)
4. Group term life insurance also offers a number of tax advantages to both employer and employee.
Limitations
1. The greatest limitation of group life insurance especially as concerns those persons insured is that the coverage is temporary only during you work for company.
An employee loses his insurance protection under either two circumstances:
1. The plan to which the employee belong may terminate (master contract terminate!)
2. When the employee terminates (voluntarily or involuntarily) his/her employment before retirement age, he usually loses his insurance protection. (Retire or resign)
Group membership requirement
1. Contributory group plan
Both employer and employee must be responsible in paying premium and at least 75% of employees must be member of the group.
If not require 75% , it will be small size and only unhealthy employees will attend the group.
2. Non-contributory group plan
Employer must be responsible in paying total premium and 100% of employees must be member of the group.
Probationary period (waiting period for group insurance)
1. Contributory
2.Non-contributory
Probation period
31 days eligibility period (enrollment period)
The specified period that employees is entitle to apply for group insurance without
submitting evidence of insurability
Employee must submit medical report if want to apply to a group beyond eligibility period
Probation
period Eligible to enroll in group plan All new employees are automatically
enrolled into group plan at the end of probation period
Chapter 2 : Group Life Insurance Policy
Provision
Beneficiary designation
- Insured (employees) have the right to name beneficiary
Determination of benefit amount (Sum insure)
- Preclude individual selection = each members of the group cannot select their own amount of sum insure to prevent anti-selection. Group benefit is
determine by predefined benefit formula (vary to position and number of year of service)
Grace period
Mostly premium for group insurance is calculate for the period of 1 year
Misstatement of age
- In contrary to the situation in individual life insurance, which age correction is usually done by increase/decrease in the amount of sum insure.
- The age correction in group insurance is almost made by an adjustment of premium with employer.
Initial premium
Grace period
The period that can pay renewal premium
and policy is still in force. 1 year 31 days
If you don’t pay renewal premium during grace period, policy will lap and if you want to reinstate the policy you must pay premium during lap period as well.
Conversion Privilege
Give the insured member (must be member of the group at least 5 years) who is terminating group membership the right to convert group insurance to individual policy without presenting evidence of insurability.
Insurance company must issue insurance policy if 1. The master policy is in force in the date of conversion.
2. Both the application of conversion and the payment of first premium are made within 31 days of termination of group membership.
*When convert, the sum insure in individual life insurance must not more than maximum sum insure in group insurance.
*Employee must pay premium by himself after conversion.
The group certificate
The booklet and card which hold by employees , the summarization of sum of the provisions include in the master contract that describe only those clause or policy condition which are directly affected the right of employee and his beneficiary.
Termination of the master contract
The master contract may be terminated either by the employer or the insurance company.
1. Non-payment of renewal premium at the end of grace period.
2. Give an advance written notice in the case of the claim ratio in the past few years is highly unacceptable.
Experience rating
In group insurance, a review of the previous year’s group claim experience (or loss) used to establish premium for the next period
1. Past claim experience: unfavorable >>> charge higher premium rate for upcoming year
2. Past claim experience: favorable >>> charge lower premium rate for upcoming year
1st year of group insurance
Subsequent year
Chapter 4 : Rating methods for group
cases
1. Manual rating (manual rating book)
- For new group business with no group experience - Small group
2. Experience rating
- Use group’s claim experiences to calculate the group’s premium for upcoming year.
- Favorable group’s claim experience: reduce group’s premium for next year or give premium refund
- Unfavorable group’s claim experience: rise group’s premium for next year
Premium refund/experience refund/dividend = will occur when the claim experience is better than while calculating the group insurance premium rate at the beginning of the year.
3. Blended rating (manual + experience)
- For group that is too small to relied only on the grou0p’s claim experience - Group mortality rate that are based partially on a group’s own experience and partially on manual rating.
- Blended rate are used to determine the appropriate group insurance premium rate for intermediate size group
Example : Suppose an underwriter assigns a 15% credibility to a group’s experience and 85% of manual rating. Suppose that a group’s premium is calculated as $300 by manual rating and as $250 by experience rating. The calculation of a premium by blended rating is as follow
Claim Liability
1. Total claim paid during the period
2. Claim incurred prior to the period and paid during the period
3. Claim incurred during the period but not yet paid 4. Claim incurred during the period but not yet report
*Claim liability will consider only the claims that incurred in that year. So number 2 will be excluded!
Chapter 5 : Creditor group life
insurance
It is a special form of group term insurance issued to a creditor covering the live of his debtors in the amount of their outstanding loan + interest subject to maximums and payable to the creditor should the debtor dies before his loan is paid.
1. No conversion privilege
2. Must include all persons who become indebted to the creditor 3. Only loan made to a natural person not juristic entity (company)
Insurance on life of a debtor terminates if……… 1. The master policy terminates
2. The indebtedness is discharge (loan is already paid back to the creditor) 3. The indebtedness is transferred to another creditor
Chapter 6 : Marketing in group life
insurance
Distribution channel
1. Agency : can represent only one insurance company and get commission 2. Brokerage : can be a representative of more than one insurance company 3. Group representative : the insurance company full-time employees that is normally work in group insurance department. They will get the regular salary + commission as they making a sale volume.
