03 Group Underwriting

8/2/2019 03 Group Underwriting

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PowerPoint Presentation

by Sombat Khongsawaskiat

A presentation bySombat khongsawaskiat

Group Underwriting


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PowerPoint Presentation by Sombat Khongsawaskiat 1

Agenda

Introduction

Distribution

Types of Group Coverage

Information Source for Group Underwriting

The Proposal for Insurance

Rating Methods for Group Cases

Post - Issue Underwriting for Group Insurance

Scope of Group Underwriting

The Proposal Group

The Proposal Coverage


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Changing times

1980s Products

1990s Distribution

2000 Consumer

2010 Microchip, digital interactive

multimedia


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Group Organization Model

Model 1

Group Underwriting Group Marketing Group Administration

Group Department


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Group Marketing Group Operation

Sale Term 1

Group Administration

Model 2

Sale Term 2 Sale Term 3

Group Claim Settlement


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Model 3 President

Devision

Group Marketing Department

Devision

Group Operation Department Group Claim Department


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Distribution

Group Products

Brokers

Consultants

Group representatives

Direct response

Banks


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Group Insurance

Provides coverage for number of people under

one contract

As part of an employee benefit plan


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Types of Group Coverage

Important for group underwriters to understandthe various kinds of group products :

Life

AD & D

Medical

Short term - long term disability income benefits

Group underwriters use knowledge of Varioustypes of coverage to help tailor coverage to agroup specification and needs

Each group policy different features and options.


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Types of Group Coverage (Cont.)

Group underwriters for group life consider risk age

sex

geographic location

claim experience Group underwriters for group health consider

risk

hospital expense

surgical expense major medical

dental expense

prescription drug


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Information Sources for Group Underwriting

Request for Proposal

Name and Address of the group

Nature of the group (employer - employee, debtor -creditor, etc.)

Proposed effective date of coverage

Classes of employees to covered Amount of policyholder contribution toward the cost of

the coverage

Types of coverage requested

The groups provides insurance history, if any,premium amounts paid, claim experience and durationof coverage

The groups current benefits , if different from thosebeing proposed


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The Proposal for Insurance

Although these proposals for insurance vary froman insurer to another most include the followinginformation :

The name of the Proposed group, the eligible employergroups and dependents, and the number of eligibleemployee and dependents

A benefit schedule (approve or not approve thecoverage as requested)

A list of rates used and the premiums quoted for eachtype of coverage

Underwriting principles and assumptions for theproposed coverage

Details of plan administration, including theresponsibilities of the policyholder and the insurer


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Rating Methods for Group Cases

Adequate to cover insurers cost of doingbusiness and setting claims

Equitable so that each insured group pays a

premium rate that fairly reflects the groups risk

Competitive enough to attract prospects

Manual Rating (probationary period, risk charge, etc.)

Experience Rating (groups claim experience)

Health claim figures for up to the past 3 years Life claim figures for the past 5 years


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Rating Methods for Group Cases (Cont.)

Advantages of experience rating This rating method helps an insurer charge equitable

premiums to each insured group

Experience rating allows an insurers to compete

successfully with other insurers

Experience rate helps insurers avoid the effects of anti-

selection


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Blended Rating (Underwriters perform byassigning a credibility factor to the groups

experience and including that factor in the

premium calculations.)

multiplying the premium calculated using experiencerating by the credibility factor assigned to the rating

multiplying the premium calculated using manual

rating by the remaining percentage of the groups

future claim cost

adding the two resulting number


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For instance : Premium calculated by experience rating = $ 275

Credibility factor for experience rating = $ 25%

Premium calculated by manual rating = $ 325

The Underwrite calculates the premium using

blended rating as follows :

($ 275 x 0.25) + ($ 325 x 0.75) = $ 68.75 + $ 243.75 = $ 312.50


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Rating Approaches for Small Groups Step rates based on the insurers experience

age - graded

sex - tables

To calculate by using step, the Underwriter

1. Adds the each step rates to determine that the total

premium

2. Divides the total premium by amount of employer

($ 1,190/5 = $ 238)


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Post - Issue Underwriting for Group Insurance

Approval of Late Entrants (to avoid anti-selection)

Require a health questionnaire

Require a medical examination

Detaining medical treatment


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Post - Issue Underwriting for Group Insurance(Cont.)

Approval of Benefit Changes (increase type or

extent benefits)

To be added constitute a minor addition to the whole

group

To be added make up a considerable proportion of thewhole group (the underwriter evaluates the age, sex

and salary of the individuals)

The geographic location changes

Information about previous coverage of the newemployees

Type of new industry employees work (hazard

changes)


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Post - Issue Underwriting for Group Insurance(Cont.)

Renewal Underwriting (Use experience rating) The groups claim experience during the previous year

Changes in the groups average age and sex

distribution that occurred during the previous year Changes in benefit payment that occurred during the

previous year

Changes in the groups industry or business segment

Economic condition affecting the financial strength of

the group


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Scope of Group Underwriting

Risk assessment factors for group insuranceReason for existenceType of groupStabilitySizeGeographic locationNature of businessEmployee classesLevel of participationAgeSexDependentsExpected persistency

Prior coverage and claim experience

Plan of insurancePlan of administrationMode of commission payment

Characteristics

of the Proposed

Group

Characteristics

of the Coverage


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The Proposed Group

Reason for existence

Are actively at work for at least 30 hours per week on

a regular basis

Have a reasonably steady income

Work in an industry or occupation considered average

for risk


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Type of Group

Employer-employee groups (private employers aswell as public employers such as municipalities

and county or state governments)

Multiple-employer groups(trade

associations,negotiated trustee-ships,and

Multiple-Employer Welfare Arrangements)

Professional associations

Debtor-creditor groups


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Stability

A group maintains a steady flow of younger

new member to replace

balance the gradual aging of older members

add administrative expense in case groups

member change too frequently


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Size

More closely follow actuarial predictionsregarding mortality and morbidity

Have fewer and smaller fluctuations in claims

Generate less administrative expense as apercentage of the total premium amount the

group pays


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Geographic location

Application law and regulation in each

location(consider the environment economic and

social conditions)

mortality and morbidity rates in each location


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Nature of business

Group Pricing Factor

Group Pricing Factor Annual Premium

Engineering surveyors 0.90

Radio and television broadcasters 1.00

Automotive production workers 1.20

Engineering surveyors 0.90 $9,000 ($10,000 x 0.90)

Radio and television

broadcasters 1.00 $10,000 ($10,000 x 1.00)

Automotive production

workers 1.20 $12,000 ($10,000 x 1.20)


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Insurers identify

Insurers identify other kinds of groups asrepresenting higher-than-average risk.These

groups include:

Groups that appear to be employer-employee groups,

but that subcontracting

Groups representing excessive risk for catastrophic

loss,such as (1) groups in professional sports,(2) groups

of aircraft pilots or other flight personnel,and(3) groupsinvolved in water transportation or exploration,or in

research conducted at sea,in the air,or in space


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Insurers identify (Cont.)

Groups requesting coverage for directors, partners,

owners,or consultants who are not full-time employees

of the group

Groups working in seasonal industries(generally working

less than nine months per year) or groups with unusually

high employee turnover,such as contractors, resorts,

canneries, restaurants and hotels, laundries, and taxi

services

Groups requesting coverage for a high percentage of

part-time employees


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Employee Classes

All officers,managers,and supervisors

All officers and managers

All officers

All salaried employees

All salaried employees earning up to $ x per year

All employees earning more than $ x per year

All salaried employees with x year of service

All employees with x year of service

OR

All employees with x year of service

All employees with less than x years of service

All salaried employees working x hours per year

All employees working x hours per year

OR

All employees working x hours per year

All employees working less than x hour per year

Classes based

on occupation

Classes based

on salary

Classes based

on length of

service

Classes based

on hours worked


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Level of participation

Non-contributory plan 100%

Contributory plan

Number of Eligible Employees

Less than 250

250 - 499500 - 749

750 - 999

Morn than 1,000

Minimum participation Requirement

75 percent

65 percent60 percent

55 percent

Case-by-case evaluation


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Age

Turnover rate has a significant effect on thegroups average age

steady flow of new-particularly young-entrants

help maintain the desired age spread in a group


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Sex

A group of male represents a statistically lowerrisk for health and disability

a group of women trend to experience lower

mortality but higher morbidity


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Dependent

Is the group member eligible to participate in the

group plan? Usually a members dependent can

be covered under group insurance only if that

member is eligible and participates in the plan.

How many group members want to insure theirspouses? If only a few eligible members choose

to insure their spouses, anti-selection may

become a factor, because the insured spouses

might have existing health impairments.


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Dependent (Cont.)

Is an eligible dependent confined to a hospital onthe date that coverage begins for the group

member? Insurers usually delay the effective date

for group coverage for a dependent who is

hospital-confined until the dependent is

discharged from the hospital.


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Expected persistency

To reduce the amount of loss suffered when

group business canceled-the insurers usually

charge extra premiums to a group that has a

history of changing insurance companies often


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Prior coverage and claim experience

The reason for the transfer

The amount of premium paid to the previous

insurer

The claim experience of the group

How much the rates for the groups coverage

have increased since the coverage began


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The Proposed Coverage

Plan of insurance1. Eligibility requirements

only full time permanent employees and their

dependents can enroll in a group plan of insurance

under a contributory plan, members who choose to

participate can enroll in the plan anytime during the 31

days following the date they become eligible for

coverage


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The Proposed Coverage (Cont.)

2. Benefit levels

2.1 Salary distributes

Class Annual Earnings Coverage

1 Less than $18,000 $22,000

2 $18,000 but less than $25,000 $30,000

3 $25,000 but less than $35,000 $38,000

4 $35,000 or more $46,000


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2.2 Occupation distribution

Company officers 3 times annual earnings, to a

maximum of $275,000

Supervisors and 2 times annual earnings, to a

department heads maximum of $250,000

General employees 1.5 times annual earnings, to a

maximum of $200,000

Class Coverage


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2.3 Length of service or hours worked

$50,000 for employees who have had 5 years service

$100,000 for employees with more than 5 years service

or

Those who work between 15 and 30 hours per week The

original benefit mentioned is the benefit level due theemployee at age 65

Age atWhich Benefit Coverage

Reduction Occurs

66 Original benefit reduced by 35%





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Plan of administration

Keeping plan cost low

Persistency rate

assist employees with claim submissions

Some self-insured group that do not want to

participate in plan administration have a third-party administration to handle these duties

Remark : A third-party administrator is an

organization that administers group benefit planfor a self-insured group that does not havefinancial responsibility for pay benefits


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Mode of commission payment

If the underwriter doubts the probablepersistency of proposed group - the commission

will be spread over several year instead being

paid as a single first-year commission.

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