Abstract

By creating a pool of individuals whose purpose is not only insurance coverage, group insurance usually reduces the risk of adverse selection and thus, group schemes are expected to require lower premiums than individual insurances. Furthermore, instead of being risk-based, the premium amount within a group is generally the same for each insured, regardless of the individual risk situation. Nevertheless, previous considerations do not apply to Long Term Care insurances. Indeed, on several insurance markets, such as the Israeli or the French markets, experience has not only shown that individual LTC insurances offer lower premiums, but also that benefits and coverage are in most cases better than for group LTC schemes. For example, individual LTC insurance policies may include some features, usually missing in group, such as unlimited benefit period or couple discounts. In addition, the cover of a group LTC insurance is commonly defined on a yearly basis, leading for the insured to an uncertainty concerning the amount of the benefit and premiums in the next years; whereas, with individual covers, premiums and benefits are set at the inception of the contract.

For equal guarantees, lower individual premiums may be explained by the fact that the eligibility in a group, leading to a group LTC coverage, is usually less regulated than the selection of individual LTC covers. Individuals with health conditions may for instance avoid medical selection or maximum age of entry and qualify to a group LTC insurance under simplified underwriting procedures. Furthermore, without new young joiners, the group may ages. As a consequence, the claims frequency within such groups increases. In fact, group LTC insurance shows higher incident rates. This can be explained for one part by the population and for other part, by the adverse selection.

Both an experience-based and a theoretical approach will be presented in the following to analyse these higher incidence rates and their impact on premiums depending on the insured population and regarding the main features of group and individual insurances.

Slides