Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceMedium
A group health insurance policy covers employees of a large corporation. The insurer calculates the premiums for this group based on the actual claims experience of the group itself, rather than using a larger pool of similar risks. What method of premium calculation is being used?
- AIssue Age Rating
- BCommunity Rating
- CAttained Age Rating
- DExperience Rating
Show answer & explanationAnswer & explanation
Correct answer: D. Experience Rating
Experience rating is a method where the premium for a group policy is determined by the group's own past claims experience. This is common for larger groups, as their individual experience is statistically credible.
Why the other options are wrong
- A. Issue age rating means premiums are based on the insured's age when the policy was issued and remain level thereafter.
- B. Community rating involves charging all policyholders in a given area the same premium, regardless of their health status or claims experience.
- C. Attained age rating means premiums increase as the insured gets older, typically used for individual policies.
Experience Rating
Experience rating is a method of determining group insurance premiums based on the historical claims experience of that specific group, rather than the broader community.
- Used for larger groups
- Premiums reflect the group's actual claim history
- Can lead to lower premiums for healthy groups
- Can lead to higher premiums for high-claiming groups
Memory trick: Experience Rating: Your group's 'experience' directly impacts the price.