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stop loss medical insurance - If you are a small business owner or operator and would like to get an explanation of methods premiums are priced for the company, then please continue reading. There are basically two ways these premiums could be calculated.

Group Insurance Pricing

The pricing (rate making) process in group insurance policies are essentially the same as pricing in other industries. The insurance company must generate enough revenue to pay the cost of its claims and expenses and bring about the surplus of the company. It differs in that the price of a group insurance method is initially determined on such basis as expected future events and may even also be subject to experience rating so that the final price to the contract holder can be discovered only after the coverage period ends. Group insurance pricing contain two steps.

(1) The resolution of a unit price, termed as a rate or premium rate for each and every unit of benefit (e.g., $1,000.00 of life insurance, $1 of daily hospital benefit, or $1 of monthly income disability benefit)

(2) The resolution of the total price or premium that will be paid by the contract holder its the coverage purchased. The approach to group insurance rate making differs according to whether manual rating or experience rating is utilized. In the case of manual rating, the premium rate is determined independently of a particular groups claim experience. When experience rating is used, the past claims connection with a group is considered in determining future premiums for the group and/or adjusting past premiums after a coverage period ends. As in all rate making, the main objective for all types of group insurance coverage is to develop premium rates which are adequate, reasonable, and equitable.

Manual Rating

san francisco - Within the manual rating process, premium rates have established yourself for broad classes of group insurance business. Manual rating is utilized with small groups that no credible individual loss experience is available. This lack of credibility exist because the size of the group is really that it is impossible to ascertain whether the experience is because of random chance or is truly reflective of the risk exposure. Manual rating can also be used to establish the initial premiums for larger groups which are subject to experience rating, particularly when a group is being written the first time. In all but the largest groups, experience rating is utilized to combine manual rates as well as the actual experience of a given group to determine the final premium. The relative weights depend upon the credibility with the groups own experience. Manual premium rates (also called tabular rates) are quoted in the company's rate manual. As outlined above earlier, these manual rates are applied to a specific group insurance case so that you can determine the average premium rate for the case that will then be multiplied from the number of benefit units to obtain a premium for the group. The rating process requires the determination of the net premium rate, which is the amount necessary to fulfill the cost of expected claims. For just about any given classification, this really is calculated by multiplying the probability (frequency) of your claim occurring from the expected amount (severity) with the claim.

The second part of the development of manual premium rates will be the adjustment of the net premium rates for expenses, a danger charge, and a contribution to learn or surplus. The word retention, frequently used in connection with group insurance, usually is described as the excess of premiums over claim payments and dividends. It contains charges for (1) the stop-loss coverage, (2) expenses, (3) a danger charge, and (4) a contribution to the insurer's surplus. The sum of these changes usually is reduced from the interest credited to certain reserves (e.g., the claim reserve and then any contingency reserves) the insurer holds to pay for future claims beneath the group contract. For large groups, a formula is normally applied that is in line with the insurers average claim experience. The formula varies through the size of a group and the type of coverage involved. Insurance companies that write a large volume of any given kind of group insurance count on their own experience in determining how often and severity of future claims. In which the benefit is a fixed sum, as with life insurance, the expected claim will be the amount of insurance. For many group health benefits, the expected claim is a variable that depends on such factors because the expected length of disability, the expected amount of a hospital confinement, or the expected amount of reimbursable expenses. Businesses that do not have enough past data for reliable future projections can use industry wide sources. The key source for such U.S. industry wide information is the Society of Actuaries. Insurers must also consider whether to establish a single manual rate level or develop select or substandard rate classifications on objective standards related to risk characteristics of the group such as occupation and type of industry. These standards are largely in addition to the groups past experience.

The adjustment from the net premium rate to supply reasonable equity is complex. Some factors for example premium taxes and commissions vary with all the premium charge. Concurrently, the premium tax rate is not affected by how big the group, whereas commission rates decrease since the size of a group increases. Claim expenses have a tendency to vary with the number, not how big claims. Allocating indirect expenses is usually a difficult process out of the box the determination of the danger charge. Community-rating systems, developed originally by Blue Cross Blue Shield, are often defined to limit the demographic as well as other risk factors being recognized. They typically ignore most or every one of the factors necessary for rate equity and may be as simple as one rate applicable to people with families. If you don't actuarial rationale for charging all groups exactly the same rate regardless of the expected morbidity. Community rating continues to be mandated in some jurisdictions. It is then a matter of public policy rather than an actuarial pricing question.

Experience Rating

bay area - Experience rating is the method whereby a contract holder is offered the financial benefit or held financially accountable for its past claims experience in insurance-rating calculations. Probably the primary reason for using experience rating is competition. Charging identical rates for those groups regardless of their experience would result in adverse selection with employers with good experience seeking out insurance companies that offered lower rates, or they would turn to self funding as a way to reduce cost. The insurer that did not consider claims experience would, therefore, have only the poor risk. This is why Blue Cross Blue Shield had to abandon community rating for group insurance cases over a certain size. The starting place for prospective experience rating will be the past claim experience to get a group. The incurred claims for any given period include those claims which were paid and those in technique of being paid. In evaluating the amount of incurred claims, provision is usually made for catastrophic claim pooling. Both individual and aggregate stop-loss limits are established where exceptionally large claims (above these limits) usually are not charged to the group's experience. The "excess" servings of claims are pooled for all groups and an average charge is taken into account in the pricing process. The approach is to give weight for the individual groups own experience to the extent that it is credible. In determining the claims charge, a credibility factor, usually based on the size of the group (based on the number of insured lives insured) and also the type of coverage involved, is used. This factor can differ from zero to one depending on the actuarial estimates of expertise credibility and other considerations such as the adequacy of the contingency reserve produced by the group.

In effect, the claims charge is really a weighted average of (1) the incurred claims at the mercy of experience rating and (2) the expected claims, using the incurred claims being assigned a equal to the credibility factor and the expected claims being allotted to a weight equal to one without the credibility factor. The incurred claims subject to experience rating need consideration of any stop loss provisions. Where the credibility factor is a, the incurred claims subject to experience rating could be the same as the claims charge. In such cases, the expected claims underlying the objective rates will not be considered. Thus, when companies insure several substantial size, experience rating reflects the claim levels caused by that group's own unique risk characteristics. It is common practice to offer to the group the financial benefit of good experience and hold them financially responsible for bad experience after each policy period. When experience actually is better than was expected in prospective rating assumptions, the surplus can either be accumulated within an account called a premium stabilization reserve, claim fluctuation reserve, or contingency reserve or perhaps the excess can simply be refunded. The refund is either termed as a dividend (mutual company) or even an experience rating refund (stock company).

The internet result of the experience rating process is usually called the contract holder balance, representing the final balance attributed to the individual contract holder. As pointed out earlier this balance or a portion of the balance could be refunded to the contract holder. The adequacy of the group's premium stabilization reserve influences dividend or rate adjustment decisions.