Question

Why might an insurer impose a simple insurability condition on members joining an employer-employee group insurance scheme?

a.

To increase the insurance premiums

b.

To ensure the group has adequate mortality experience

c.

To avoid selection against the insurer by the sponsor

d.

To make the insurance application process more complicated

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).To avoid selection against the insurer by the sponsor Explanation:An insurer might impose a simple insurability condition, such as requiring a new member not to be on sick leave when joining the scheme, to avoid selection against the insurer by the sponsor. This is known as avoiding anti-selection. The rationale behind this condition is to prevent a situation where the insurer faces higher than expected mortality rates because individuals with known health issues join the scheme, thereby increasing the risk to the insurer without adequate compensation through premiums.

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Q. Why might an insurer impose a simple insurability condition on members joining an employer-employee group insurance scheme?
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