Presentation on theme: "Lecture 16 Group Insurance Ratemaking"— Presentation transcript:
1 Lecture 16 Group Insurance Ratemaking Steps in RatemakingManual RatingExperience RatingProspectiveRetrospective
2 Steps in Ratemaking Determination of the unit price Determination of the total premiumGoal is to have rates that are:AdequateEquitable
3 Manual Rating Rating basis Benefit unit Factors affecting claims Term life - each $1000 of death benefitShort-term disability - each $10 (or higher) of weekly incomeLong-term disability - each $100 of monthly incomeMedical expense - each employee or category of dependentsFactors affecting claimsSex AgeGeographical location OccupationIncome SizeFrequency of premium payment period
4 Calculation of Manual Rates Number of employees by categoryAmount of coverageExpense loadingsExpense reductions
5 Calculation of Manual Rates Group Term Life Example Company has one 25 year old male employee eligible for $20,000 of coverage and one 55 year old female employee eligible for $100,000 of coverageAge Sex Coverage Rate (p. 376) Cost25 M55 FTotal Unadjusted Cost 104Expense Charge (p. 377)TotalExpense reduction (p. 378) 0Adjusted monthly premium 112Final monthly rate: $112/ /1000(premium/total coverage)
6 Experience Rating Rationale Prospective EquityCompetitionProspectiveBases future rates on past experienceRetrospective (or Dividend Calculation)Bases rate on experience during policy period
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