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Critical Illness: Restrictions on group schemes

Discussion in 'SA2' started by edcvfr, Apr 7, 2016.

  1. edcvfr

    edcvfr Member

    CMP Chapter 1 Page 37 - Critical Illness

    "As well as clearly defining benefit eligibility and structure, there are other factors to consider in the design of group CI schemes. In particular, the insurer has to restrict anti-selection or, if present in a limited form, make a charge for it. Restrictions involve:
    • applying exclusions
    • setting free cover limits
    • ensuring members are actively at work when cover begins
    • setting take-up rates on voluntary schemes
    • laying down take-over terms where the insurer accepts a scheme previously insured elsewhere"

    What does the 'setting take-up rates on voluntary schemes' mean?
     
    edcvfr, Apr 7, 2016
    #1
  2. Sisyphus

    Sisyphus Member

    Under a voluntary scheme, the insurer is open to anti-selection, whereby the critical illness benefit is taken up by those most likely to claim, and those who are at lower risk of getting a critical illness, do not choose the CI benefit, they choose something else they think might be more useful to them. On the opposite end of the scale, if the CI scheme is compulsory, the anti-selection risk is greatly minimised. In order to reduce the selection risk arising from voluntary schemes, and to try to get as close as possible to the compulsion situation, the insurer may insist that a certain minimum number of employees out of the total (minimum take-up rate) join the scheme, otherwise the insurer will not offer the benefit with free cover.
     
    Sisyphus, Apr 7, 2016
    #2
  3. edcvfr

    edcvfr Member

    That makes sense, thanks!

    For the first two points (applying exclusions / setting free cover limits), I'm assuming those are also only relevant only to voluntary schemes? Otherwise how could there by anti-selection risk if the scheme is compulsory.
     
    edcvfr, Apr 7, 2016
    #3
  4. Sisyphus

    Sisyphus Member

    With these, I'm a little bit more shaky, so hopefully a tutor can confirm or correct me here:

    1. Setting free cover limits will be done on all group business. Based on past/expected future experience, the FCL will be set high/low.
    2. The insurer may apply exclusions, or they may not.

    In both cases, the bigger the scheme, the more lax the insurer will be with certain terms and conditions. For a smaller scheme, the insurer may be more restrictive, and apply exclusions and/or a lower FCL.
     
    Sisyphus, Apr 7, 2016
    #4
    edcvfr likes this.
  5. kntg24

    kntg24 Active Member

    Hi, may I know what does this sentence mean?
    "laying down take-over terms where the insurer accepts a scheme previously insured elsewhere"
     
    kntg24, Dec 5, 2018
    #5
  6. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi

    This is referring to the situation where an insurer is taking over the insurance of a group CI contact from another insurer. In order to manage its risks, the insurer will set out rules to which it will insure these group of lives, such as ensuring the previous insurer is responsible for claims arising before the takeover date and rules for determining whether a claim has arisen before the takeover date (which is the responsibility of the previous insurer) or on or after the takeover date (which is the responsibility of the new insurer).

    Hope this helps

    Thanks

    Em
     
    Em Francis, Dec 18, 2018
    #6
    kntg24 likes this.
  7. Adam

    Adam Member

    Thank you for the discussion above.

    Can I make the following statement: in general or on average, individual CI policies can have higher sum insured than group CI policies due to extra underwriting for individual products.
     
    Adam, Sep 21, 2019
    #7
  8. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi Xu Shi
    If this was a 'discussion' question in an exam then yes I think that is a valid point, ie the fact that there is limited underwriting may limit the size of the sum assured and so result in group having a lower sum assured than individual. However, be mindful of other factors, such as what type of group company it is and the extent of the individual underwriting, the distribution channels used for both, etc...
    Hope this helps.
    Thanks
    Em
     
    Em Francis, Sep 24, 2019
    #8

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