Before we discuss group lives underwriting it is essential to know the differences
between individual and group insurance.
While individual insurance is a contract
between an individual and an insurer
group insurance. is a contract
covering a number of lives. While
individual choose the term, plan or sum
assured of a policy according to his needs, choices and capacity to pay in the group mostly uniform cover is
granted depending on so many factors
such as a group size, occupation, group
profile, including the death strain in the group etc., Here there is
a master policy holder in the form of
the an employer associations trust etc.,
As we have non medical cover under individual insurance , we have the free cover limit in the group
insurance on the basis of the simple rules of the insurability I,e,
not absent from duty on grounds of illness on the date of commencement
of the scheme and normally no evidence of health is called for up to that
limit. This kinds of mass administration
and simple underwriting practice
lead to the low cost of group insurance.
Group underwriting is done on the basis of group profile, age grouping,
profession of the group etc., A part
from the above there is an element in group underwriting namely experience
rating where the premium rates are
adjusted periodically on the basis of experiences which we shall discuss later
on.
GROUP LIVES UNDERWRITING: Normally this is done for a year and when the scheme is renewed next year
the insurer gets a fresh data of additions and deletions and on that basis
group underwriting is done. Since group
underwriting is done on the basis of
group profile and in each group there are going to be a few lives of
substandard group, the underwriting may
go for a few safeguards such as the
following. 1. The group should be
reasonably homogenous by the nature of
occupation or the profession the members.
2. Insurance must be incidental
l i, e, the group is not to be formed
solely for the purpose of insurance. It should be already existing, . 3. Normally the group should
be a dynamic one--where old members go out and new members come in periodically (this helps the group to maintain a proper
age profile instead of being a stagnant group where are the older members are being unduly large in
number). A minimum size of the group is required to have proper viability. DIFFERENT TYPES OF GROUPS: 1. employer– employee groups. 2.
creditor --debtor groups., 3. professional groups., 4. miscellaneous– co-operative societies,
welfare societies, NGO’s.
PREMIUM CALCULATION FOR GROUP SCHEMES=The
concept of rebate for large sum assured is not applicable. It depends on many
factors such as a types of scheme,
amount of benefits age profiles, and
premium rates applicable as per the
professional/ occupation of the group. Premium depends whether it is only risk coverage or it
involves accumulations or funding. Hence
complete data is required from
the mas ter policy holder for calculation of premium. There should be minimum percentage for example 75% to join the group
insurance scheme. Otherwise there will
be anti selection against the insurer i,
e only the old and sick will join the scheme. All new members should
compulsorily join in order to
improve the age profile of the group.
Those people who did not volunteer to
join the scheme initially may not be allowed to join a on a later date
to avoid anti selection . The scale of benefit usually uniforms and there is not choice for the
individual . Some times the groups are
categories as managerial, supervisory,
clerical and subordinate and accordingly
different benefits are given to
different categories. The insurer always
has a right to call for the medical examination
if the sum assured exists the free cover limit for a particular life warrants a medical test.
EXPERIENCE RATING: Life cover is normally
granted for one year under group schemes and it
renewed every year providing
fresh data. This gives oppertunity
for the underwriting to revise
the premium on the basis of the
composition of the group as well as based on the claim experience of earlier
year. This kind of rating on the best basis of claim experience is called
experience rating. This can be profit
sharing , I ,e returning or adjusting a part of the earlier
year’s premium for the next year if the
claim experience is favorable or revision of the premium upward of the scheme
is making losses due to the more claims.
Thus, experience ratings is a vital means of adding flexibility to group
underwriting.
