Which of the following is an important underwriting principle of group life insurance

Key features of Principal group life insurance.

When you combine group term life (employer-paid) and voluntary term life (employee-paid) coverage, you offer an even broader range of protection for employees. Best of all, your employees have guaranteed coverage—meaning they can get up to a certain amount of life insurance without answering medical questions.

Our flexible life insurance lets you customize a package just right for your company. Here are a few highlights of our coverage.

Understanding group life insurance terms

Flat benefits

Coverage is a set amount. For example, a flat $20,000 is a life insurance benefit of $20,000.

Percentage of salary

Coverage is a percentage of the employee’s salary. For example, an employee has a life insurance policy that is twice (or 200%) their salary. Their salary is $50,000, which means a life insurance benefit of $100,000.

Increments

Choose from a flat dollar amount and let employees elect a benefit that fits their needs and their budget by selecting a benefit that is a multiple of that dollar amount. For example, if you select a $20,000 increment, employees could purchase $20,000; $40,000; $60,000, etc.

Accidental Death & Dismemberment (AD&D)2

It’s no surprise. People have accidents every day. And, unfortunately, some of them are severe. Adding Accidental Death & Dismemberment coverage to group term life or voluntary term life provides your employees with even greater protection. A core benefit is paid for the loss of life, hands, feet, thumb and index finger, and vision as the result of an accident.

Extra features3—at no extra cost to you

Some of our group life insurance policies give employees access to extra services.

• Travel assistance: Helps employees ease some of the worries of traveling - whether in the U.S. or internationally.
• Will and legal document center: Lets employees create simple legal documents online.
• Identity theft kit: Allows employees to be proactive in protecting one of their most important assets—their identify.
• Beneficiary support: Helps those coping with the death of a loved one.
• Emotional health support line: Provides free access to licensed behavioral health clinicians who can provide emotional support, tips for healthy coping, and referrals to local resources.

Introduction

When underwriting group life prospects, the primary focus for the underwriter is evaluating the prior experience and current demographics of the group. This information is normally provided by the group or broker as a standard part of a proposal request. The proposal request includes considerable material with key data in the form of census data and prior claims/premium experience. The underwriter has a challenging task in reviewing this material and making tough decisions regarding information to include or exclude, and the weight to apply to specific data. Experience exhibits and manual raters are the primary tools underwriters use to price group life opportunities. These tools provide the best indicators of future results for the group, but is it the complete picture? Accurately evaluating and entering census and experience data is important, but understanding the underlying components of these rating tools is a key part of underwriting.

For instance, manual raters consider a number of risk characteristics applied to both individuals and to the overall group to derive a recommended rate. Loads and discounts are applied to a number of factors, such as age, gender, salary, face amount, location, experience, group size, and industry. Though there is some consistency, both the criteria and adjustments in the manual raters are different with each insurance carrier. The underwriter should understand the key components of their respective company’s rating tools. This knowledge will assist underwriters in deciding if the recommended rate and the applied data have fully and accurately considered the risk.

Also, understanding the underlying drivers of individual mortality is important. Familiarity with death rates and mortality trends is an example of knowledge that on the surface might not seem crucial when evaluating group risk, but it’s an important piece of the underwriting puzzle. One example is the disparity in mortality based on wealth and income. People who earn less income have a lower life expectancy than higher wage earners. This not only applies at the extreme ends of the income scale, but mortality consistently improves as income increases.

Finally, the underwriter must weigh information from a number of sources that can affect pricing decisions. Information learned may influence if discounts or loads are warranted and perhaps whether to accept or decline the risk. There are a variety of risk factors that have to be considered when weighing underwriting decisions. We will examine some of the primary drivers of mortality in the U.S. population and also in group life, discuss possible reasons for the demographic differences in mortality, as well as identify recent trends. In addition to being “good to know” information, we feel this knowledge will make better underwriters because creating an underwriting edge is crucial in the competitive group insurance market.

U.S. Mortality

As evidenced by continuing experience studies conducted by the Society of Actuaries (SOA), academic researchers and individual companies, longevity in the U.S. has continually improved over the past 100 years. According to the Social Security Administration, in 1910 a 65-year-old male was expected to live to age 76 and a 65-year-old female to age 77; in 2010 a 65-year-old male was expected to live to age 82 and a 65-year-old female to age 85.1

If we look at mortality rates of the general population for approximately the last 20 years, it has continued to improve with some leveling off the last few years. The recent mortality improvements from medical advancements in the treatment of cancer, heart disease, and other conditions has been partially offset by the increase in accidental death in younger ages. Unlike older ages, accidental deaths is the leading cause of death in younger people.

In recent years, we have seen an increase in accidental death from motor vehicle accidents, likely attributed to distracted driving. All but two states have enacted some form of either texting ban, cell phone, or complete handsfree ban while driving. Thirty-eight states focus these laws on younger people and ban cell phone use for teen or novice drivers, while other states have laws that apply to drivers of all ages.2 While there are no studies that have been able to separate distracted driving from other motor vehicle accidents, state governments have recognized distracted driving as a problem, particularly for younger ages.

Another reason for the increase in accidental deaths is from the opioid epidemic. Opioid death rates are increasing in dramatic numbers across the U.S. with spikes in recent years. In 2017 the National Safety council saw a record number of preventable deaths (169,936) and the highest death rate since 1973, 52.2 deaths per 100,000 population.3 The biggest change in preventable or accidental death, came

from an increase in death rates due to opioids. The opioid death rates affect a wide range of the population with the highest concentration in younger ages and males in particular.

In January, 2019 the SOA published U.S. Population Observations which included 2017 mortality data from the general population. This study included analysis of mortality rates for the period 1999-2017 and separately for the years 2016 and 2017. Figure 1 below shows that annual mortality improvement from 1999-2017 combined (both genders) has been 1.0%. However, combined mortality in the U.S. has not improved since 2012 and actually showed declines in both 2016 and 2017. Male mortality increased

faster than female mortality from 1999-2017, 1.1% vs. .9% annual improvement. The age group 25-34 showed significant negative changes to mortality in both 2016 and 2017 due to the increase in accidental deaths. Overall, this chart shows that mortality has improved approximately 1% per year since 1999 with flattening in recent years.4 Some carriers consider mortality improvements when

evaluating claims experience. Basically, the concept is that the expected mortality improvements is applied to death claims incurred in previous years that effectively lowers the expected future claim rate. Adding mortality improvements to experience calculations is complex and may require actuarial feedback, but underwriters should at least be aware of the rationale for this adjustment.

Group Life Characteristics vs. General Population

The group life population is healthier and a select pool compared to the working age sector of the general population. Insured people are typically better educated and have higher salaries than the working age group of the general working population. Generally, larger companies offer ancillary coverages to attract employees. Often, these employees are college educated and have higher salaries than the working, but uninsured population. Better educated and higher paid people are healthier and live longer. Companies strive to hire healthy employees, which is one reason employed people are a select risk compared to the general population. Hiring practices, including preemployment drug testing also improve the life risk. Drug testing requirements are becoming more commonplace, particularly for larger employers and companies in blue collar industries. Pre-employment drug testing improves the mortality risk of the group and provides some protection for the insurer. Finally, employees prove good health by being actively at work (AAW), a minimum number of hours a week. There are a number of reasons why the group life pool is a more favorable risk than both the overall general population and the uninsured working age population. Underwriters might consider reviewing the AAW policy wording and drug testing policy of prospective companies.

Group Life Mortality

The SOA has historically provided mortality studies based on the general population, but segregating group life data has more challenges and studies focusing on the insured population are not as frequent. In 2016 the SOA Group Life Insurance Experience Committee completed a study with a much larger amount of data than used in previous group life studies. The study included data from 15 group life carriers and comprised 97 thousand deaths and 45 million exposures for a four year period 2013-2017. The study excluded self-billed census and deaths, using list-billed census data only.

Some key findings include:

• The overall death rate for the insured population was 2.18 per 1,000. The mortality of the group life pool is 30-40% of the non-insured population at key working ages. What this shows is the group life death rate is much lower, essentially one third, of the death rate of the general population at working ages.
• The basic group life mortality rate dropped from 2.18 to 1.27 per 1,000 by face amount. Basic group life face amounts are often based on a multiples of salary so higher face amounts are generally associated with higher salaries.5 This shows that mortality improves as salary increases, likely driven by more access to health care, healthier diets, and increased exercise.

Connection between Income and Health

The positive relationship between income and good health is well established. People at upper income levels have better access to health care options, either through private coverage or employer-paid health insurance. Better educated people with more wealth, tend live in safer neighborhoods, have access to healthier food options, and have more opportunities for physical activity. Poorer people are generally lower educated, have less access to health care and if they are working, they often do not have employer-paid health insurance. Poorer people live in less safe communities, eat less expensive unhealthy food, and have less leisure time for physical activity.

Healthy behaviors of people with higher education and income is the primary driver of better mortality for that segment of the population. Better educated people understand the benefits of not smoking, exercise and nutritious food on improved health. People are swapping fruit juices, sports drinks and sodas for vitamin water, while replacing unhealthy snacks with nuts or whole fruits. At the same time, lower educated or poorer people often don’t have a full understanding of the effect of healthy behaviors. Even if poorer people understand the benefits of healthy behaviors, such as eating more nutritious food, they often do not have the income to spend on healthier, but often more expensive options.

Studies have shown that there is not just a widening income gap, but there is also a growing divide in diets. Dr. Dariush Mozaffarian, professor of nutrition at Tufts University, published a study that examined nutrition compared to income. Overall, he determined that Americans are eating better than 10 years ago, with the percentage of people eating what the study defined as a poor diet falling from 56% to 46%. However, the study did conclude that the quality of diet tracked in line with income. The majority of low income people, defined as making less than $30,000 a year for a family of four, were considered poor eaters. Just over 38 percent of low income people eat an intermediate diet, versus 62 percent of high income people, defined as making more than $69,000 per year for a family of four.6

What are some of the group characteristics important for underwriting?

What is the importance of group life insurance?

What are group life insurance policies generally written as?

Which of the following is not a required provision in a group life insurance policy?