Question

How does the size of an employer-employee group affect the Free Cover Limit (FCL) set by insurers?

a.

Larger groups tend to have lower FCL due to increased administrative costs.

b.

Smaller groups generally have a higher FCL to encourage participation.

c.

Smaller groups will have a lower FCL because of the potential for anti-selection by key employees.

d.

The size of the group does not influence the FCL as it is set uniformly across all group sizes.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).Smaller groups will have a lower FCL because of the potential for anti-selection by key employees. Explanation:The size of an employer-employee group significantly impacts the Free Cover Limit (FCL) set by insurers. Smaller groups will have a lower FCL because of the potential for anti-selection, particularly from top employees who might be in a higher age bracket or in poorer health. This phenomenon arises because the influence and health status of a small number of employees can disproportionately affect the risk profile of the entire group. Therefore, insurers vary the FCL with the size of the group and the average benefit level amongst members, taking into account the higher risk of anti-selection in smaller groups.

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Q. How does the size of an employer-employee group affect the Free Cover Limit (FCL) set by insurers?
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