Group Life Question

[JuniorASA]

Currently working on some group life issue and see whether you might have some experience here.

1) Understanding that the premium rate for group life should have the discount from individual one. Is there any public studies like SOA having some indication on the ball park figures for this discount?

2) Convertibility Option: It is not uncommon that the insured could convert their group life coverage into the individual life after they have resigned from that company. Is there any risk control so that we could control the anti-selection? The worry for the antiselection is that there might be someone who has serious illness and then leave the company who will be the most likely the one applies for this convertiblity option. Is there any particular risk control towards anti-selection risk?

Thanks,

[JohnLocke]

Currently working on some group life issue and see whether you might have some experience here.

1) Understanding that the premium rate for group life should have the discount from individual one. Is there any public studies like SOA having some indication on the ball park figures for this discount?

Thanks,

I don't understand the question. Group life rates should be developed independently of whatever the individual rate is. It's not the same product. Different features make them incomparable.

[JohnLocke]

2) Convertibility Option: It is not uncommon that the insured could convert their group life coverage into the individual life after they have resigned from that company. Is there any risk control so that we could control the anti-selection? The worry for the antiselection is that there might be someone who has serious illness and then leave the company who will be the most likely the one applies for this convertiblity option. Is there any particular risk control towards anti-selection risk?

Thanks,

I don't see how you could (since it's a choice they get to make) but I'm no expert on it.

[JMO]

The SOA does separate mortality experience studies for ordinary and group life. Expenses are different, too. Underwriting for ordinary life does add to the expense, but it also provides lower mortality during the select period. I totally agree with what John Locke said about pricing the two products independently.

As for conversion benefits, you need to set aside some portion of the premium to cover the antiselection. First you need to figure out what percentage will take the conversion and how bad their mortality will be. Then amortize that cost over the entire group. I seem to recall a study note which had a transfer of funds from the group department to the individual department that took place when a conversion occurred. Even if the lines of business are not segregated that way in your country, you could still analyze it as if you were going to do that.