1. 1. Special characteristics of group risks
1.1. free cover
1.1.1. Cover free from underwriting, applications up to free cover limit will be accepted without further investigation beyond proposal form. May have simple health declaration
1.2. control of intermediary
1.2.1. Group usually sold via brokers Broker influence over info available info, revenue and claims might be channeled via broker Actuary will want level of detail that is accurate, and at least the same as other companies Prob of degree of ability to influence employer attitude and behavior - not pricing issue. Broker wary of threatening its own relationship by asking detailed questions. - reflect as factor affecting claim sizes or uncertainty in claims by margin
1.3. Limited insured information
1.3.1. Detail of individual lives insured (no, age, gender etc) not known at time when cover commences Therefore an estimate maybe made of premium to deposit, and then adjusted at end of period once know exact details Deposit and adjustment premiums
1.4. Newcomers/leavers
1.4.1. change in profile
1.4.1.1. Assumption that leavers are the fittest lives so assuming them not to be ill health retirees, therefore, higher risk on average - healthier career pursuits if experience rated, premiums can change, if left with heavier morbidity portfolio.
1.4.2. reduction in group size
1.4.2.1. Large reduction, downsizing of work force, prompt claims for health care while still covered.
1.4.3. increase in group size
1.4.3.1. Good feature, newcomers usually younger and fitter Large influx from take cover, need care, need to discover if claims history on incoming lives. Might be significantly different.
1.4.4. Concern about significant changes in numbers and profile of lives
1.5. Flexible benefits
1.5.1. Range of alternate benefits offered in place of life and health care. Pricing viewpoint, careful selection doesn't permit advantage to be taken of insurer. Limits probably used and statements of good health.
2. 2. Calculation of the book rate
2.1. Introduction
2.1.1. Group premium rate starts with calculation of insurers standard risk premium - Book rate. - usually lower than individual as better claims experience as less anti selection, and expenses lower due to lower underwriting and economies of scale.
2.2. Risk Cells
2.2.1. Book rate for a given portfolio should be consistent with individual product premiums, but may be better risk - Relationship for risk groups should be similar - young old etc Body of experience will be split into appropriate cells. Historic rate derived, and adjusted so appropriate for body of lives and period of risk - trend and inflation adjustments Group usually one or two year renewable.
2.3. Rating factors
2.3.1. Assess premiums to be charged Risk premium on group needs to reflect overall characteristics of group of lives. Two tyoes of rating: *Individual level rating factors - apply to members - age, gender, smoker, occupation *Group level rating factors-size of group, employers attitude, Larger schemes, more likely price will depend on historical aggregate claim and less on individual life rating factors.
3. Using the experience when pricing group schemes
3.1. Experience rating
3.1.1. Premium for a group given depending on experience of the group as a whole Book rate may become inappropriate if peculiar employer. Experience of group is influenced by characteristics of the group. economic changes can affect different employers differently. Experience rating usually factored into PMI or IP group pricing, where as individual business normally priced on community rating without reference to individual claims experience - premium assessed by all lives in the same risk cell. community rating: all PH charged same premium regardless of factors, or applying tabular rates to applicant irrespective of claims history.
3.2. Credibility
3.2.1. Between 0 and 1, represents the proportion of final risk premium that is derived from past experience, the balance coming from book rates. Value of factor depends on size of scheme, very large, justify factor of 1 - commercial pressures in territories have given full credibility to many PMI group schemes, where less than 100 man years of info available. Group IP demands more credibility. May move away from theoretical credibility factors for competitive reasons - and use experience ratings similar to other main insurers. Experience rating structure defined in conditions of group scheme. Credibility factor could be function of experience volume.
3.3. Burning cost
3.3.1. Accumulation of claims in one or more recent years which might be taken as a first measure of premium adequacy. Burning cost from glossary: estimated cost of claims in forthcoming insurance period, calculated from previous years experience, adjusted for changes in numbers insured, nature of cover, medical inflation. also include estimates of Reported but not settled, and incurred but not reported - more application for group PMI and group CI than for group IP where claims are paid out over several years from a single incidence.
3.4. Relevance of previous experience
3.4.1. Actuary will look at past experience and judge extent to consder as proxy for future risk. Significant changes of: *personnel *Location *Work practices *Cover required are factors that can alter applicability of past experience.
4. 4. Specifics of group PMI pricing
4.1. Experience rating
4.1.1. Some sort of experience rating is usually incorporated into PMI group at a level below which a strict statistical approach would demand. Greater frequency of claims with group PMI permits wider use of experience rating where full or partial credibility will be afforded to past history, depending on the number of member years that are availabile at time of pricing.
4.2. No claims discount
4.2.1. Sometimes used for individual and group business in order to make some allowance for individual claims experience in premium rates. NCD - form of experience rating where adjustment is applied to future premiums. May have a low claims discount - common for small groups
4.3. Different group sizes
4.3.1. Larger groups, often over 50, are often flat rated according to benefit class, where as individual business is almost always age rated. Smaller groups, may use some individual rating factors in addition to group ratings. Large groups frequently self insure up to a certain point and purchase administration and stop loss insurance from insurer. so PH - employer meets all claims during the year until they exceed say 125% of expected claims cost, after this, insurer covers. Insurer does all the admin. Individual business -indiviudally prices - age, occupation Small groups - group rating factors, ages, NCD, LCD Medium groups - Flat rated premiums based on group rating factors and experience rating using credibility factors Large groups - Self insure with stop loss cover and admin from insurer.