CHAPTER 14 : PRINCIPLES OF GROUP INSURANCE

Principles of Insurance : Life, Health and Annuities , 2nd Edition, LOMA

CHAPTER 14 

PRINCIPLES OF GROUP INSURANCE

After reading this chapter, you should able to:

• Identify the parties to a group insurance contract
• Contrast (membandingkan) group underwriting with individual underwriting and identify the most important group underwriting consideration
• Distinguish between contributory and noncontributory group insurance plans
• Describe the operation of the probationary (percobaan) period and the actively-at-work requirement 
• Identify situations (hal-hal)  in which a group member's coverage terminates (jaminan keanggotaan grup)  while the group policy remains in force
• Distinguish among manual rating, experience rating and blended rating
• Contrast (membandingkan) insurer-administered (dikelola oleh perusahaan asuransi) plans with self-administered plans

Since the first modern group insurance plans were established early in the 20th century, group insurance coverage has grown rapidly.

GROUP INSURANCE CONTRACTS (Kontrak Asuransi Kumpulan)

 Although individual insurance and group insurance are similar in many ways, these insurance products also differ in many ways. The most obvious (jelas) difference is that, a group insurance plan insures a number of people under a single insurance contract, called a master group insurance contract. (kontrak induk asuransi kumpulan)

The parties to a master group insurance contract are the insurance company and the group policyholder, which is the person or organization that 

• decides what types of group insurance coverage to purchase for the group members, 
• negotiates (merundingkan) the terms of the group insurance contract with the insurer, and
• purchases the group insurance coverage

The terms policyholder is used because the group policyholder does not have the same ownership rights in the group insurance policy that a policyowner has in an individual life insurance policy. Instead, some of these rights are granted to the insured group member. 

When an insurance company and a group policyholder enter (memulai) into a master group insurance contract, the insurer issues a policy that contains the terms of the contractual agreement (perjanjian kontrak).

An important part of every group insurance policy is a description of the individuals who are covered by the policy. The individuals covered by a group insurance policy are referred to as the group insured or a group life insured or a group person insured.

The policyholder is usually responsible for :

• handling some of the administrative aspects of the group insurance plan.
• making all premium payments to the insurer, although the policy may require that the insured group members contribute some or all of that premium amount.
• If insured group members are not required to contribute any part of the premium for the coverage, then the group insurance plan is a noncontributory plan.
• If the group members must contribute some or all of the premium in order to be covered under the group insurance policy, the the plan is a contributory plan. A contributory group insurance policy issued to an employer to cover employees typically requires the covered employees to pay their portion of the premium through payroll deduction.

FORMATION OF THE CONTRACT (Format Kontrak)

An insurance contract is an informal contract that must be formed in accordance with the rules of contract law. Thus, the policyholder and the insurer company must meet the following requirements (memenuhi persyaratan): 

• Mutually agree to the contract's terms (saling menyetujui persyaratan kontrak)
• Both have contractual capacity (kedua pihak memiliki kapasitas kontrak)
• Exchange legally adequate consideration (secara hukum saling memberi pertimbangan yang cukup/memuaskan)
• Form the contract for a lawful purpose (terwujudnya kontrak untuk tujuan yang sah)

The parties to a group insurance contract meet the first three of these requirements. However the last requirements is met somewhat differently. The lawful purpose requirement is met for a group insurance contract because the policyholder enters into the contract in order to provide a benefit to covered group members.

CERTIFICATES OF INSURANCE

Insured group members are not parties to the master group insurance contract, do not participate in the formation of the contract, and do not receive individual copies of the contract. However, insured group members have certain rights under the contract. Insurance laws require the insurer to provide the group policyholder with written descriptions of the group insurance plans; the group policyholder then delivers a written description to each group insured.

The document, known as the certificate of insurance, describe

1. the coverage the group insurance contract provides and
2. the group insured's rights under the contract

As a result, an insured group member is often referred to as a certificate holder.

GROUP INSURANCE UNDERWRITING (Underwriting Asuransi Kumpulan)

Group insurance underwriting generally focuses on the characteristics of the group and does not usually require each proposed group insured to provide individual evidence of insurability.

The goal of group underwriting to determine:

• whether a group of people presents as average risks and
• whether the group's loss experience will be predictable and
• acceptable to the insurer

When evaluating a group, the group underwriter also 

• seeks to prevent anti-selection and to ensure that the administrative costs involved in providing the insurance are as low as possible.
• assign (menetapkan) the group a risk classification 
• determine the appropriate premium rates to charge for the group insurance

GROUP UNDERWRITING CONSIDERATION (Pertimbangan underwriting asuransi kumpulan)

Each group insurance company establish its own underwriting guidelines that define the types of group insurance coverage it will provide and the types of groups it will insure. 

The group underwriter considers specific characteristics of a group when evaluating whether the group is an acceptable risk. 

These risk characteristics include:

• the reason for the group's existence
• the size of the group
• the flow of new members into the group
• the stability of the group
• the required percentage of eligible group members who must participate in the plan
• the way in which benefit levels will determined and
• the activities of the group

GROUP INSURANCE POLICY PROVISIONS (Ketentuan Polis Asuransi Kumpulan)

Standard policy provisions define which group members are

• Eligibility requirements (memenuhi syarat)
• Grace period Provision (Ketentuan Grace Period)
• Incontestability Provisions (Ketentuan yang tidak dapat di sangkal)
• Termination Provision (Ketentuan Penghentian)

GROUP INSURANCE PREMIUMS (Premi Asuransi Kumpulan)

The group policyholder is responsible for paying the premiums to the insurance company, though group members must contribute to that premium payment if the group insurance plan is a contributory plan. 

PREMIUM RATES

• Manual Rating
• Manual rating is a method insurers use to calculate group insurance premium rates without considering the particular group's prior claims and expense experience.
• Experience Rating
• Experience rating is a method of setting group insurance premium rates under which the insurer considers the particular group's prior claims and expense experience.
• Blended Rating
• Some groups are too small for an insurer to rely fully on experience rating, yet they are large enough for the insurer to consider their claims and expense experience to be significant
• Additional Premium Rate Considerations
• Setting a group's premium rate is often a complicated process. In addition to determining whether or to what extent a group's own experience can be used, an insurer must also consider a number of other factors when setting premium rates.

PREMIUM AMOUNTS

Group insurance premiums are typically payable monthly. Although the premium rate is generally guaranteed for one year, the premium amount payable each months varies, depending on the amount of insurance in force that months. 

PREMIUM REFUNDS

At the end of each policy year, a portion of the group insurance premium may be refunded to the group policyholder. Group insurance premium refunds are similar to the policy dividends provided for participating individual life insurance policies and are usually called dividends by those companies that also issue individual participating policies. Companies that do not issue participating policies generally call these premium refunds experience refunds.

GROUP PLAN ADMINISTRATION