3502(drennan) topic 4
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definition of group insurance
Arrangement for insuring a group of persons
- • Under a single contract
- • Provides insurance coverage to individuals who have a specific
- relationship to the policyholder
who is policyholder of a group insurance contract?
insured persons under a gi contract are or could be:
- Employees of the Employer
- Dependents of the Employees
- Former Employees
In go, where is the money held?
in a collectively bargained multiemployer or single employer trust
insured person under a trust fund gi contract would be:
- Members of the union
- Dependents of the members
- Former members
what are the two decisions in gi underwriting?
- insure or not?
- how much to charge
what is the unit of observation for underwriting purposes in group insurance?
the group as a whole, not any particular individual.
Broad-‐ based characteristics of the group are used in the underwriting process or
- Age distribution
- Gender mix
- Claims Experience in the past
- Group size + number of dependents
Purpose of underwriting
An insurer offers insurance in the marketplace for a stated premium
adverse selection exists when:
- Only high risks buy or buy in a higher proportion than the low risks AND not being charged “high risk premiums”
- Insurer either does not have the correct information to classify the risks or cannot use observable information
- Arises from asymmetric information
best solution to a.s.
acceptable groups in group insurance
- Employer-‐Employee group
- Taft-‐Hartley Plan (collectively bargained trust)
- Professional Associations
- Student Groups
- Alumni Associations
reason for existence in the group for gi purposes should be
- Should exist for reasons other than obtaining “underwriting-‐free” insurance
- Purchase of insurance should be “incidental” to the group
- o “True Group”
- o Not a “fictitious group”
- Prevents Adverse Selection
not ideal because the average mortality and morbidity rate increases every year making it unstable
how does a group remain stable?
steady flow of persons in and out of the group
if an er has a relatively closed group:
- overtime, costs increase
- o If plan is contributory, contribution increases
- o Good risk may drop out
- o Adverse Selection death spiral
why is persistency of a group important?
- Long term relationships
- Desirable for the Employer to remain with the insurer for a number of years
- o Initial acquisition expenses are amortized over time
- o Insurer gains information about the group overtime
- Controls Adverse Selection
ideally, determination of benefits in gi should____
- there should be little choice
- this creates lower admin costs and controls adverse selection
determination of eligibility(definition)
An Employee or individual must satisfy All eligibility standards before moving to participation in a given benefit
how does limiting benefits to only fte's control a.s
there is a high turnover rate among part time ee's
Minimum period of time a newly hired employee must wait before becoming eligible to participate
pro's of probationary periods
- Controls admin costs
- o Turnover is higher among newly-‐hired Employees
- o Controls Adverse Selection
- o Rewards longer service Employee’s
what types of insurance typically have shorter waiting periods?
Health, life, disability “protection/needs”, oriented benefits
what types of insurance typically have longer waiting periods?
- Retirement Plans
- Capital accumulation benefits
ways gi plans control a.s.(5)
- employment status restrictions
- probationary periods
- actively at work requirement
- pre-existing conditions
- enrollment periods
pre existing condition
a condition that existed prior to being covered by Insurer B and that is involved in an on-‐going claim
two permissible enrollment periods
insurers specify a minimum participation percentage of around____ for contributory benefits
is a low participation rate possible evidence of a.s.
yeah, in favor of hce's
why might participation percentage be too low?
- Contribution is too high
- Adverse Selection Problem
- Not a good or desirable benefit
- Communication is not good
- Possibility of duplicate coverage or a subsidy # of partcipants
- # of eligible person-‐those covered elsewhere
- Too many options for a particular benefit
is there an a.s problem in a non contributory benefit?
are there a.s. problems in voluntary benefits?
What would you like to do?
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