3502(drennan) topic 4
Card Set Information
3502(drennan) topic 4
rmi 3502 topic 4 cards
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
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
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
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
Taft-‐Hartley Plan (collectively bargained trust)
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?
Capital accumulation benefits
ways gi plans control a.s.(5)
employment status restrictions
actively at work requirement
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?