Group Underwriting

A presentation by
Sombat khongsawaskiat

PowerPoint Presentation
by Sombat Khongsawaskiat
 Agenda
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
Changing times
times

 1980’s Products

 1990’s Distribution

 2000 Consumer

 2010 Microchip, digital interactive

multimedia

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 Group
Group Organization
Organization Model
Model
Model 1

Group
GroupDepartment
Department

Group
GroupUnderwriting
Underwriting Group
GroupMarketing
Marketing Group
GroupAdministration
Administration

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 Group
Group Organization
Organization Model
Model
Model 2

Group
GroupMarketing
Marketing Group
GroupOperation
Operation

Sale
SaleTerm
Term11 Sale
SaleTerm
Term22 Sale
SaleTerm
Term33

Group
GroupAdministration
Administration Group
GroupClaim
ClaimSettlement
Settlement

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 Group
Group Organization
Organization Model
Model
Model 3
President
President

Devision
Devision Devision
Devision

Group Marketing Department Group Operation Department Group Claim Department

Group Marketing Department Group Operation Department Group Claim Department

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 Distribution
Distribution

 Group Products

– Brokers

– Consultants

– Group representatives

– Direct response

– Banks

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 Group
Group Insurance
Insurance

 Provides coverage for number of people under on

e contract

 As part of an employee benefit plan

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 Types
Types of
of Group
Group Coverage
Coverage
 Important for group underwriters to understand t
he various kinds of group products :
– Life
– AD & D
– Medical
– Short term - long term disability income benefits
 Group underwriters use knowledge of Various typ
es of coverage to help tailor coverage to a group
specification and needs
 Each group policy different features and options.

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 Types
Types of
of Group
Group Coverage
Coverage (Cont.)
(Cont.)
 Group underwriters for group life consider risk
– age
– sex
– geographic location
– claim experience
 Group underwriters for group health consider ris
k
– hospital expense
– surgical expense
– major medical
– dental expense
– prescription drug

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 Information
Information Sources
Sources for
for Group
Group Underwriting
Underwriting
 Request for Proposal
– Name and Address of the group
– Nature of the group (employer - employee, debtor - cre
ditor, 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 group’s provides insurance history, if any, premiu
m amounts paid, claim experience and duration of cove
rage
– The group’s current benefits , if different from those be
ing proposed

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 The
The Proposal
Proposal for
for Insurance
Insurance
 Although these proposals for insurance vary from
an insurer to another most include the following i
nformation :
– The name of the Proposed group, the eligible employer
groups and dependents, and the number of eligible em
ployee and dependents
– A benefit schedule (approve or not approve the covera
ge as requested)
– A list of rates used and the premiums quoted for each t
ype of coverage
– Underwriting principles and assumptions for the propos
ed coverage
– Details of plan administration, including the responsibili
ties of the policyholder and the insurer

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 Rating
Rating Methods
Methods for
for Group
Group Cases
Cases
 Adequate to cover insurer’s cost of doing busine
ss and setting claims
 Equitable so that each insured group pays a prem
ium rate that fairly reflects the group’s risk
 Competitive enough to attract prospects
– Manual Rating (probationary period, risk charge, etc.)
– Experience Rating (group’s 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
Rating Methods
Methods for
for Group
Group Cases
Cases (Cont.)
(Cont.)

 Advantages of experience rating

– This rating method helps an insurer charge equitable p
remiums to each insured group
– Experience rating allows an insurers to compete succes
sfully with other insurers
– Experience rate helps insurers avoid the effects of anti-
selection

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 Rating
Rating Methods
Methods for
for Group
Group Cases
Cases (Cont.)
(Cont.)
 Blended Rating (Underwriters perform by assigni
ng a credibility factor to the group’s experience a
nd including that factor in the premium calculatio
ns.)
– multiplying the premium calculated using experience ra
ting by the credibility factor assigned to the rating
– multiplying the premium calculated using manual rating
by the remaining percentage of the group’s future clai
m cost
– adding the two resulting number

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 Rating
Rating Methods
Methods for
for Group
Group Cases
Cases (Cont.)
(Cont.)
 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 ble
nded rating as follows :
($ 275 x 0.25) + ($ 325 x 0.75) = $ 68.75 + $ 243.75 = $ 312.50

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 Rating
Rating Methods
Methods for
for Group
Group Cases
Cases (Cont.)
(Cont.)

 Rating Approaches for Small Groups

– Step rates based on the insurer’s 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
Post -- Issue
Issue Underwriting
Underwriting for
for Group
Group Insurance
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
Post -- Issue
Issue Underwriting
Underwriting for
for Group
Group Insurance
Insurance (Cont.
(Cont.
))
 Approval of Benefit Changes (increase type or ext
ent benefits)
– To be added constitute a minor addition to the whole g
roup
– To be added make up a considerable proportion of the
whole group (the underwriter evaluates the age, sex a
nd salary of the individuals)
– The geographic location changes
– Information about previous coverage of the new emplo
yees
– Type of new industry employees work (hazard changes
)

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Post
Post -- Issue
Issue Underwriting
Underwriting for
for Group
Group Insurance
Insurance (Cont.
(Cont.
))
 Renewal Underwriting (Use experience rating)
– The group’s claim experience during the previous year
– Changes in the group’s average age and sex distributio
n that occurred during the previous year
– Changes in benefit payment that occurred during the p
revious year
– Changes in the group’s industry or business segment
– Economic condition affecting the financial strength of t
he group

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 Scope
Scope of
of Group
Group Underwriting
Underwriting
 Risk assessment factors for group insurance
Reason for existence
Characteristics Type of group
of the Proposed Stability
Size
Group Geographic location
Nature of business
Employee classes
Level of participation
Age
Sex
Dependents
Expected persistency
Prior coverage and claim experience

Characteristics Plan of insurance

Plan of administration
of the Coverage Mode of commission payment

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 The
The Proposed
Proposed Group
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 f

or risk

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 Type
Type of
of Group
Group

 Employer-employee groups (private employers as

well as public employers such as municipalities a
nd county or state governments)
 Multiple-employer groups(trade associations,neg
otiated trustee-ships,and Multiple-Employer Welf
are Arrangements)
 Professional associations
 Debtor-creditor groups

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 Stability
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 group’s mem

ber change too frequently

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 Size
Size

 More closely follow actuarial predictions regardin

g mortality and morbidity
 Have fewer and smaller fluctuations in claims
 Generate less administrative expense as a percen
tage of the total premium amount the group pays

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 Geographic
Geographic location
location

 Application law and regulation in each location(c

onsider the environment economic and social co
nditions)

 mortality and morbidity rates in each location

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 Nature
Nature of
of business
business

Group Pricing Factor

Engineering surveyors 0.90
Radio and television broadcasters 1.00
Automotive production workers 1.20

Group Pricing Factor Annual Premium

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
Insurers identify
identify

 Insurers identify other kinds of groups as represen

ting higher-than-average risk.These groups includ
e:
– Groups that appear to be employer-employee groups, b
ut that subcontracting
– Groups representing excessive risk for catastrophic loss,
such as (1) groups in professional sports,(2) groups of ai
rcraft pilots or other flight personnel,and(3) groups invol
ved in water transportation or exploration,or in research
conducted at sea,in the air,or in space

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 Insurers
Insurers identify
identify (Cont.)
(Cont.)
– Groups requesting coverage for directors, partners, owne
rs,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, can
neries, restaurants and hotels, laundries, and taxi service
s
– Groups requesting coverage for a high percentage of par
t-time employees

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 Employee
Employee Classes
Classes
– All officers,managers,and supervisors
Classes based – All officers and managers
on occupation – All officers

– All salaried employees

Classes based – All salaried employees earning up to $ x per year
– All employees earning more than $ x per year
on salary
– All salaried employees with x year of service
– All employees with x year of service
Classes based OR
– All employees with x year of service
on length of – All employees with less than x years of service
service
– All salaried employees working x hours per year
Classes based – All employees working x hours per year
OR
on hours worked – All employees working x hours per year
– All employees working less than x hour per year

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 Level
Level of
of participation
participation
 Non-contributory plan 100%
 Contributory plan

Number of Eligible Employees Minimum participation Requirement

Less than 250 75 percent
250 - 499 65 percent
500 - 749 60 percent
750 - 999 55 percent
Morn than 1,000 Case-by-case evaluation

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 Age
Age

 Turnover rate has a significant effect on the grou

ps average age
 steady flow of new-particularly young-entrants he
lp maintain the desired age spread in a group

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 Sex
Sex

 A group of male represents a statistically lower ri

sk for health and disability
 a group of women trend to experience lower mort
ality but higher morbidity

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 Dependent
Dependent
 Is the group member eligible to participate in the
group plan? Usually a member’s dependent can b
e covered under group insurance only if that me
mber is eligible and participates in the plan.
 How many group members want to insure their s
pouses? 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
Dependent (Cont.)
(Cont.)

 Is an eligible dependent confined to a hospital on

the date that coverage begins for the group mem
ber? Insurers usually delay the effective date for
group coverage for a dependent who is hospital-c
onfined until the dependent is discharged from th
e hospital.

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 Expected
Expected persistency
persistency

 To reduce the amount of loss suffered when grou

p business canceled-the insurers usually charge
extra premiums to a group that has a history of c
hanging insurance companies often

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 Prior
Prior coverage
coverage and
and claim
claim experience
experience

 The reason for the transfer

 The amount of premium paid to the previous insu

rer

 The claim experience of the group

 How much the rates for the group’s coverage hav

e increased since the coverage began

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 The
The Proposed
Proposed Coverage
Coverage

 Plan of insurance
1. Eligibility requirements
• only full time permanent employees and their dependent
s can enroll in a group plan of insurance
• under a contributory plan, members who choose to partic
ipate can enroll in the plan anytime during the 31 days fol
lowing the date they become eligible for coverage

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 The
The Proposed
Proposed Coverage
Coverage (Cont.)
(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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 The
The Proposed
Proposed Coverage
Coverage (Cont.)
(Cont.)
2.2 Occupation distribution

Class Coverage

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

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 The
The Proposed
Proposed Coverage
Coverage (Cont.)
(Cont.)
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 the em
ployee at age 65
Age at
Which Benefit Coverage
Reduction Occurs

66 Original benefit reduced by 35%

70 Original benefit reduced by 50%
75 Original benefit reduced by 70%
80 Original benefit reduced by 80%

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 Plan
Plan of
of administration
administration
 Keeping plan cost low
 Persistency rate
 assist employees with claim submissions

Some self-insured group that do not want to particip

ate in plan administration have a third-party admi
nistration to handle these duties

Remark : A third-party administrator is an organizati

on that administers group benefit plan for a self-i
nsured group that does not have financial respon
sibility for pay benefits

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 Mode
Mode of
of commission
commission payment
payment

 If the underwriter doubts the probable persistenc

y of proposed group - the commission will be spr
ead over several year instead being paid as a sin
gle first-year commission.

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