No underwriting if join at first opportunity

Hi,

The chapter 5 solution states that parents who join at the first opportunity of the scheme can forego underwriting. Is this because even though sick parents would also join at first opportunity, the lack of underwriting is meant to increase the total number of parents who join?

Thanks.

 

Hi,
More people (e.g. those who do not have access to the notes) might be able to help if you provided more context. The benefit feature you describe appears to try to strike a balance between reducing lapses whilst managing the risk of being selected against.

 

Thanks for the suggestion. It was a practice question about a group CI plan offered to the parents of children at a prep school. The premium is supposed to be paid through any school fees if I remember correctly. I'm not sure if lapses are a part of the answer only because I haven't reached the Assumptions chapters yet.

Thanks.

 

I think you're right. Underwriting is used to avoid anti selection against the insurer. There's a much higher risk of anti selection from a parent who chooses not to join the scheme initially but then decides to join later (as maybe they are experiencing early warning signs of a critical illness and want insurance) than a parent who joins as soon as they are offered insurance. There may also be an element of forgoing underwriting initially to attract more customers to join.

 

Hi Anna,
Just wanted to check that the above is correct.
Thank you.