Organizational Behavior 11e Stephen P' Robbins

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Group Underwriting
A presentation by Sombat khongsawaskiat
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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 Department
Group Underwriting
Group Marketing
Group Administration
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Group Organization Model
Model 2
Group Marketing
Group Operation
Sale Term 1
Sale Term 2
Sale Term 3
Group Administration
Group Claim Settlement
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Group Organization Model
Model 3
President
Devision
Devision
Group Marketing Department
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 understand
  the various kinds of group products
• Life
• AD D
• Medical
• Short term - long term disability income benefits
  
• Group underwriters use knowledge of Various types
  of coverage to help tailor coverage to a group
  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
  duration of coverage
• The groups current benefits , if different from
  those being proposed

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The Proposal for Insurance

• Although these proposals for insurance vary from
  an insurer to another most include the following
  information
• The name of the Proposed group, the eligible
  employer groups and dependents, and the number of
  eligible employee and dependents
• A benefit schedule (approve or not approve the
  coverage as requested)
• A list of rates used and the premiums quoted for
  each type of coverage
• Underwriting principles and assumptions for the
  proposed coverage
• Details of plan administration, including the
  responsibilities of the policyholder and the
  insurer

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Rating Methods for Group Cases

• Adequate to cover insurers cost of doing
  business 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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Rating Methods for Group Cases (Cont.)

• Blended Rating (Underwriters perform by assigning
  a credibility factor to the groups experience
  and including that factor in the premium
  calculations.)
• multiplying the premium calculated using
  experience rating 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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Rating Methods for Group Cases (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
  blended rating as follows
• ( 275 x 0.25) ( 325 x 0.75) 68.75
  243.75 312.50

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Rating Methods for Group Cases (Cont.)

• 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
  the whole group (the underwriter evaluates the
  age, sex and salary of the individuals)
• The geographic location changes
• Information about previous coverage of the new
  employees
• 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 insurance

Reason for existence Type of group Stability
Size Geographic location Nature of
business Employee classes Level of
participation Age Sex Dependents Expected
persistency Prior coverage and claim
experience Plan of insurance Plan of
administration Mode 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 as
  well as public employers such as municipalities
  and county or state governments)
• Multiple-employer groups(trade associations,negoti
  ated 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 predictions
  regarding mortality and morbidity
• Have fewer and smaller fluctuations in claims
• Generate less administrative expense as a
  percentage 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
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 identify

• Insurers identify other kinds of groups as
  representing 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) groups involved
  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

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 - 499
• 500 - 749
• 750 - 999
• Morn than 1,000

• Minimum participation Requirement
• 75 percent
• 65 percent
• 60 percent
• 55 percent
• Case-by-case evaluation

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Age

• Turnover rate has a significant effect on the
  groups 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 lower
  risk 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 their
  spouses? 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
  on the 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 insurance
• 1. 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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The Proposed Coverage (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 Proposed Coverage (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 employee 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 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 plan
  for a self-insured group that does not have
  financial responsibility for pay benefits

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Mode of commission payment

• If the underwriter doubts the probable
  persistency of proposed group - the commission
  will be spread over several year instead being
  paid as a single first-year commission.