The following is a glossary of the most common terms used in the group insurance industry. I have attempted to cover the generally accepted meaning of the terms, giving alternative definitions whenever possible.
Actively-at-work provision
A provision which requires an employee to be actively at work on the date they are eligible for coverage. If they are ill or on leave-of-absence coverage would not become effective until they return to active full-time employment. However, if an employee is on a scheduled vacation they are considered to be actively-at-work.
Adjusted Premium
If there has been a renewal rate adjustment, during the experience period under review, the premium is adjusted to the level it would have been had the current rates been in effect during the entire period. This allows for an accurate assessment of the current rates for the purpose of determining the required renewal rates.
Administrative Services Only (ASO)
ASO is an arrangement whereby an insurance company, or other organization, is contracted for the sole purpose of adjudicating claims. The administrator settles claims but does not guarantee payment because the plan is uninsured. There are no reserves established by the administrator under ASO arrangements and the entire financial risk is borne by the employer.
Adverse Selection
See Anti-selection.
Anniversary Date
See Renewal Date.
Anti-selection
The tendency of people with poorer than average health expectations to apply for, or continue, insurance coverage to a greater extent than do people with average or better health expectations. Also referred to as Adverse Selection.
Assignment
An agreement under which one party (the assignor) transfers their rights to another party (the assignee). This is most often used under dental plans where the employee assigns the benefit payment to the dentist. The dentist submits the employee’s claim electronically to the insurance carrier and the carrier sends the payment back directly to the dentist.
Assuris
(Formerly CompCorp) www.assuris.ca
A federally incorporated, non-profit company established by the CLHIA to protect Canadian consumers against loss of benefits in the event a life or health insurance company becomes insolvent. All life insurance companies licensed in Canada are required to become members of Assuris and to remain members as long as they have any business in Canada.
Benefit Period
The specified period of time for which disability income benefits will be paid.
Benefit Year
The 12-month period commencing on the effective date of the group policy and each subsequent 12-month period.
Book Rates
See Manual Rates
Break-even Loss Ratio
See Target Loss Ratio.
Canada Health Act
The Canada Health Act is federal legislation that puts in place conditions by which individual provinces and territories in Canada may receive funding for health care services.
Canadian Council of Insurance Regulators (CCIR) www.ccir-ccrra.org/CCIR/ The collective body formed by the provincial Superintendents of Insurance. They meet regularly to share information, discuss common concerns, and recommend uniform insurance legislation to the provincial legislatures.
Canadian Institute for Health Information (CIHI):
www.cihi.ca
The CIHI was specifically created by the federal/provincial/territorial governments to be a central repository for administrative health data. CIHI is a good source for statistical information about the Canadian health system and the delivery of health care.
Canadian Insurance Services Regulatory Organization (CISRO):
The CISRO is an organization of licensing and regulatory authorities for insurance intermediaries across Canada. Its mandate is to facilitate and promote an effective regulatory system in Canada to serve the public interest and enhance consumer protection.
Canadian Life and Health Insurance Association (CLHIA): www.clhia.com CLHIA was established in 1894. It’s a voluntary, non-profit industry association of life and health insurance companies operating in Canada. The association’s overall mission is to serve its members in areas of common interest, need and concerns. The CLHIA publishes guidelines concerning various aspects of insurance matters known as CLHIA Guidelines. It also represents the industry at various levels of the government.
CLHIA Guidelines:
The CLHIA Guidelines replace the former Guidelines of the Superintendents of Insurance. They maintain the spirit of consumer protection and fair practices inherent in the former Superintendents’ Guidelines. It is a series of guidelines developed by the CLHIA regarding various insurance matters and it provides a minimum standard for group insurance practices. All insurers are expected to abide by these guidelines as a condition of their membership to the association. These guidelines apply to life insurance, accidental death and dismemberment insurance, disability insurance, accident and sickness insurance, health and dental insurance. They do not apply to annuities, blanket insurance, creditor group insurance, family insurance and personal accident and sickness insurance issued to the client base of a credit card issuer.
Canadian Life and Health Insurance Compensation Corporation (CompCorp)
On December 1, 2005 the name was changed from CompCorp to Assuris. See Assuris.
Certificate of Insurance
This is a document the insurer must provide to each employee covered under a group insurance plan. It includes the plan description and outlines the principal benefits and conditions under the master group insurance contract.
Claims:
Paid
The amount of actual cheques issued during a specific period of time.
Incurred
The sum of paid claims plus the change in the Incurred But Not Reported (IBNR) claims reserve.
Claims Fluctuation Reserve (CFR)
This is a reserve established by the insurer when a group is underwritten on a retention accounting basis. The reserve is funded through emerging surplus until the ultimate level is reached. The ultimate level is dependent upon the size of the group and plan design and usually ranges between 10% and 20% of the annual premium. The purpose of the reserve is to absorb any potential significant increase in paid claims over a period of time. If a deficit is generated in any given year the loss is first recovered through the CFR. Any remaining deficit would be carried-forward and recovered through future year’s surplus. Also referred to as a Rate Stabilization Fund.
Co-insurance
The arrangement by which both the insurer and the insured share, in a specific ratio, the covered expenses under a policy. For example, the insurer may reimburse the insured for 80 percent of covered expenses with the insured paying the remaining 20 percent. Also referred to as Co-pay.
Contingency Charge
A charge set up under each policy to offset any insurance company contingencies or catastrophic losses. Also referred to as a Risk Charge or Contingency Reserve.
Contribution Basis
The specific percentage of the premium paid by the employee and employer under group insurance plans. Also referred to as Cost-sharing.
Contributory Plan
A group insurance plan in which the employee pays a portion of the premium cost.
Conversion Privilege
In Canada, all group life insurance policies are required to include a conversion privilege. This provision allows an insured, whose coverage terminates for certain reasons, to convert the group insurance coverage to an individual policy without providing evidence of insurability.
Co-Pay
See Co-insurance
Cost-of-Living Adjustment (COLA)
The provision usually applies to Long Term Disability (LTD) benefits whereby the monthly benefit is increased annually (January 1st) by the lesser of CPI or the maximum percentage increase indicated in the contract.
Cost-Plus
A special arrangement whereby the policyholder pays to the insurer enough funds to reimburse an employee for certain medical or dental costs plus a margin to cover the insurer’s administrative costs. The cost-plus arrangement is usually used for expenses which are either not covered under the insured plan or are in excess of the amount allowable under the insured plan.
Cost-Sharing
See Contribution Basis.
Consumer Price Index (CPI) www.statcan.ca/english/Subjects/Cpi/cpi-en.htm
CPI is the measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in the CPI are used to assess price changes associated with the cost of living.
Credibility
The size of the group and/or the length of time it has been insured with the carrier will determine the degree of weighting which is given to the group’s own claims experience. This is referred to as the degree of credibility. The theory stems from the fact that the more people insured, and the longer they are insured the more predicable, or credible, their claims experience becomes. The higher the degree of credibility, the greater reliance the carrier places on the group’s own claims experience to establish rates. The lower the degree of credibility, the more reliance the carrier will have on their manual rates. The degree of credibility is usually expressed as a percentage.
Deductible
A flat amount of covered expenses that an insured must pay out-of-pocket before benefits become payable by the insurer. Most plans have a calendar year deductible but benefit year deductibles are not uncommon.
Carry-over deductible
A provision whereby, if the deductible has not already been satisfied, expenses incurred in the last 3 months of the calendar/benefit year are used to satisfy the deductible for the following year.
Pro-rated deductible
The procedure utilized by insurers to allow for the appropriate deductible amount to be utilized in claims settlements based on the date of change of a health/dental plan from one carrier to another. For example, if a company has health coverage with insurer “A” with an anniversary date of January 1 and a deductible of $100 and then places their health coverage with insurer “B” as of July 1 – the deductible utilized by insurer “B” on a pro-rated basis would be $50.
Direct Claims:
Submission
A method whereby the employee submits claims directly to the insurer rather than submitting claims through the policyholder. Insurers also have arrangements with pharmacies, hospitals, dentists and other providers whereby claims may be submitted directly from them to the insurer.
Payment
A payment method whereby reimbursement of the claim is deposited directly into the employee’s bank account. The explanation of the benefit payment (EOB) is mailed to the employee’s home address.
Disabled Life Reserve (DLR)
An actuarial reserve, established by the insurer, for totally disabled employees who qualify for benefit payments under the terms of a Long Term Disability contract. The insurer bases the level or amount of this reserve on estimates of the present value of all expected future payments. This reserve is necessary because once a claimant qualifies for benefits the insurer must continue to provide benefits even if the policy subsequently cancels. Also referred to as an Open Claims Reserve.
Electronic Data Interchange (EDI)
This is the electronic transfer of claim documents between computers. Pharmacists, dentists and other providers can submit claims electronically, on behalf of their patients, to a central computer source which automatically re-routes the claim to the appropriate insurance carrier. The entire process is automated and no paper processing is involved.
Electronic Funds Transfer (EFT)
The electronic transfer of funds may be used for direct with-drawl of monthly premiums from the employer’s bank account or direct deposit of claim reimbursement into the employee’s bank account. It should be noted that if EFT is used for claims payment the reimbursement will be deposited into the employee’s bank account, and not the claimant’s (if a dependent), because the employee is the certificate holder.
Eligibility Period
The period of time between the date an employee is hired and the date the employee becomes eligible for coverage under the terms of the group insurance policy. Also referred to as the waiting period or probationary period.
Elimination Period
Usually in reference to disability coverage, it refers to the length of time between the date of disability and the date benefit payments commence. Also referred to as the qualifying period.
Errors and Omissions (E&O) Insurance
Insurance that protects an agent, or advisor, against financial liability resulting from his or her negligent acts or mistakes.
Evidence of Insurability
Any statement or proof of a person’s physical condition and/or other factual information affecting his/her acceptability for insurance. Generally submitted for excess Basic Life or Optional Life insurance, excess Long Term Disability insurance, or late enrolment in a plan of insurance.
Experience-rated:
Partially Experience-rated
A method of determining premium rates by giving
partial credibility to the group’s own claims experience and partial credibility to the insurer’s manual rates.
Fully Experience-rated
A method of determining premium rates by giving full credibility to the group’s own claims experience.
Experience Adjustment
This represents the premium rate adjustment which is required based purely on the group’s own claims experience. It is calculated by dividing the loss ratio, or if applicable, a weighted loss ratio by the target loss ratio.
Experience Credibility
(See Credibility)
Experience credibility refers to that portion of the group’s own claims experience which will be used in the establishment of the premium rates. It is expressed as a percentage.
Extended Health Care (EHC)
EHC is a benefit which provides hospital and medical coverage over and above the services provided under the government health plan. Also referred to as a Major Medical Benefit.
Fee Guide
A fee structure published annually by each provincial dental association (with the exception of Alberta*) which suggests dollar limits for various dental procedures. Insurers use this fee guide to establish what they’ll pay for dental services claimed. The annual increase in the Ontario Dental Association (ODA) Fee Guide over the last three years has been between 2% and 4%. Also referred to as a Fee Schedule.
* Effective January 1, 1998 the Alberta Dental Association (ADA) announced to its members that it would no longer produce a suggested fee guide. Instead of a structured fee guide the ADA would survey its members and produce a document outlining a range of fees charged within the province for each procedure. Dentists would be able to set their own fees based on their individual business situations. From January 1, 1998 to December 31, 2000 the insurance industry based their reimbursement on the 1997 ADA fee guide. On January 1, 2001 they agreed to assume a common inflationary increase. Today most insurers have their own method of establishing the fees they’ll allow for Alberta claims.
Fellow, Life Management Institute (FLMI)
This is an educational program, sponsored by LOMA, which is designed to help students achieve a working knowledge of the life and health insurance business. There are two levels to the program. A certificate is granted upon completion of level 1 and a diploma and designation upon completion of level 2.
Financial Services Commission of Ontario (FSCO) www.fsco.gov.on.ca The Financial Services Commission of Ontario (FSCO) was created on July 1, 1998, as an arm’s length agency of the Ministry of Finance. FSCO integrates the operations of the former Ontario Insurance Commission (formerly the Office of the Superintendent of Insurance), Pension Commission of Ontario, and Deposit Institutions Division of the Ministry of Finance. This is the agency responsible for administering Ontario’s insurance laws and regulations.
Goods and Services Tax
This is a federal tax charged on the sale of most goods and performed services in Canada. In group insurance it is charged on the Administration Fee for non-insured plans.
Grace Period
The grace period for group insurance is usually 31 days from the premium due date, and coverage remains in-force during the grace period. If the policyholder doesn’t pay the premium by the end of the grace period the coverage terminates.
Group Insurance
This type of insurance issued on a group of people under a master contract. It is usually issued to an employer for the benefit of his/her employees. The insured employees are given certificates as evidence of their insurance.
Guaranteed Issue Limit
See Non-Evidence Maximum.
Health Spending Account (HSA)
This is an individual employee account, funded by employer contributions, that provides for reimbursement of certain health and dental expenses that are not covered under either the group insurance plan or provincial health plan.
Hold-Harmless Agreement
An arrangement by means of a formal agreement whereby the policyholder agrees to be responsible for any emerging deficit upon contract termination, usually in exchange for the insurer’s agreement to charge lower premiums than it believes are required.
A hold-harmless agreement may also be used for the Incurred But Not Reported (IBNR) claims reserve. Under this arrangement the policyholder is responsible
for the payment of any claims incurred prior to the contract termination date but reported after the contract termination date.
Incurred But Not Reported Reserve (IBNR)
The fund held by the insurer to cover the potential liability at contract termination for claims that have been incurred but have not yet been reported.
Incurred Claims
Paid claims plus the change in the Incurred But Not Reported claims reserve.
Inflation Factor
The regular but varying annual increase in health costs based on increases in the cost of medical services. It is usually closely tied with the general economic inflation forecasts. Sometimes referred to as a trend factor.
Insurance Tax
This is a provincial tax applicable to every insurance company. It is more commonly referred to as Premium Tax.
Large Amount Pooling
An approach whereby individual health claims in excess of a pre-determined level are not charged to the group’s claims experience but rather to the pool of the insurer. The insurer charges a pooling charge for this protection.
Level Commission Scale
A commission scale which applies the same % commission rate to the premium each year, regardless of the policy year.
Level Down-Scaled Commission Scale
A commission scale which provides a varying rate of commission based on the size of the annual premium. This is the most common type of commission scale used under group plans. There is often a separate scale for Life & Health and LTD. The AD&D premium may be included with the Life & Health premium or it may have a separate flat commission rate. A typical level down-scale is as follows:
Life and Health Premium
LTD Premium
On the 1st $10,000
10.0%
On the 1st $15,000
15.0%
On the next $15,000
7.5%
On the next $10,000
10.0%
On the next $25,000
5.0%
On the next $25,000
5.0%
On the next $50,000
3.0%
On the next $50,000 plus
1.0%
On the next $150,000
2.0%
On the next $250,000 plus
1.0%
Life Office Management Association, Inc. (LOMA) www.loma.org This is an international association committed to a business partnership with its worldwide members in the insurance and financial services industry to improve their management and operations through employee training and development, research and information sharing. LOMA also sponsors the FLMI insurance Education Program.
Long Term Disability (LTD)
An income replacement benefit which is usually payable monthly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings.
Loss Ratio:
Paid Loss Ratio
The ratio of paid claims to paid premium.
Incurred Loss Ratio
The ratio of incurred claims to paid premium.
Major Medical Benefit
See Extended Health Care
Manual Rates
The premium rates produced through the use of standard rate tables and standard expenses. The standard rate tables are set by the Actuary and reflect the claims experience of the insurer’s entire block of business. Manual rates for a specific group are calculated by taking into account various components such as the benefit plan design and the composition of the group. The manual rates for each group will be different because each group’s employee composition is different. Also referred to as book rates or pooled rates.
Minimum Continuing Capital and Surplus Requirement (MCCSR)
These are regulatory rules that contain detailed instructions for determining the amount of capital that a life insurance company is required to maintain. In general, companies are expected to maintain a MCCSR ratio of available capital over required capital of at least 120%.
Morbidity
The incidence and severity of sickness and accidents in a well-defined class of people.
Mortality
The incidence of death in a well defined class of people.
Non-contributory plan
A group insurance plan in which the employer pays the total premium cost.
Non-Evidence Maximum (NEM)
The amount of coverage available to an insured, under a group insurance contract, without having to prove his/her state of health. Also referred to as Guaranteed Issue Limit or Non-Medical Maximum.
Non-Medical Maximum
See Non-Evidence Maximum.
Office of the Superintendent of Financial Institutions Canada (OSFI) www.osfi-bsif.gc.ca The federal agency responsible for regulating and supervising banks, insurance, trust, loan and investment companies, federally-regulated pension plans, and co-operative credit associations that are licensed or regulated by the federal government. The federal Minister of Finance oversees OSFI.
Office of the Superintendent of Insurance
This is a provincial agency established to administer the province’s insurance laws and regulations. While most provinces call this agency the Office of the Superintendent of Insurance, Ontario replaced this agency with the Ontario Insurance Commission in 1990 and then with the Financial Services Commission of Ontario (FSCO) in 1998. The director of the Office of the Superintendent of Insurance is known as the Superintendent of Insurance.
Ontario Insurance Commission
See Financial Services Commission of Ontario.
Open Claims Reserve (OCR)
See Disabled Life Reserve.
Open Enrolment
Usually refers to the granting, by the insurer, of group insurance benefits to a specified group of employees as of a certain date or between two specified dates. The offer usually entails waiving the normal evidence of insurability requirements.
Participation
The number of employees insured under the group plan in relation to the total number of employees eligible for coverage. It is usually expressed as a percentage. All insurers have minimum participation requirements on contributory plans, which usually vary by the size of the group.
Pooled Rates
See Manual Rates
Pooling
This is a funding method whereby the premiums and claims, for a particular benefit, are combined or pooled with those of many other groups.
Pool Adjustment
Pool adjustment refers to the portion of the Health and/or Dental renewal rate which represents the carrier’s pooled, or manual, rate. This is the non-credible portion of the premium rate.
Pool Credibility
Pool credibility refers to the amount of the pool adjustment that will be used in the determination of the Health and/or renewal rates. It is expressed as a percentage and calculated as 1- the Experience Credibility.
Pre-existing condition
With respect to group insurance plans, a condition for which the employee received medical care or consulted a physician immediately prior to the effective date of his or her coverage.
Premium:
Paid Premium
The actual amount of premium paid by a policyholder to an insurer.
Earned Premium
The actual amount of premium due to the insurer, as of a particular point in time, based on the billed premium.
Premium Rate
The rate charged per unit (i.e. per $1,000 of coverage, per employee, etc.) for a particular benefit. With respect to health and dental coverage the premium rate may be divided into the following:
Single rate
The rate charged for single coverage
Couple rate
The rate charged for 2 persons (usually husband and wife)
Family rate
The rate charged for family coverage. Also called the married rate.
Dependent rate
The portion of the family rate applicable to coverage on the lives of the employee’s family. It is calculated by subtracting the single rate from the family rate.
Premium Tax
See Insurance Tax.
Probationary Period
See Eligibility Period and Waiting Period.
Proposal
A written submission to a prospective group insurance policyholder usually made through an advisor. This submission outlines the benefits and costs under the plan being proposed and the basis on which the insurer is willing to provide it. Also referred to as a quote, quotation or prospectus.
Qualifying Period
See Elimination Period.
Rate Change Date
See Renewal Date.
Rate History
The chronological history of all premium rate revisions, and date of these revisions, on a particular benefit or group of benefits.
Rate Stabilization Reserve (RSR)
See Claims Fluctuation Reserve.
Reinsurance
The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer.
Renewal Date
The annual date on which a group insurance plan is reviewed and the premium rates recalculated for the upcoming policy year. Also referred to as the anniversary date or rate change date.
Retail Sales Tax
This is a provincial tax applicable in Ontario & Quebec and is charged on all insurance plans regardless of whether they are insured or self-insured.
Retention
The amount retained by the insurance company for its expenses, commission, premium tax, risk charge and profit charge.
Retention Accounting
The actual display of a group’s annual financial results detailing the premiums paid, claims paid, the insurer’s retention charges and the resulting surplus or deficit.
Retention Agreement
The document which outlines the terms and conditions under the retention accounting arrangement.
Risk Charge
See Contingency Charge.
Short Term Disability (STD)
An income replacement benefit, which is usually payable weekly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings. Generally, a Short Term Disability plan refers to a self-insured employer sponsored plan. Whereas, a Weekly Indemnity plan refers to an insured plan.
Stop-Loss
Under this arrangement the insurer accepts the financial risk for claims in excess of a pre-determined amount whereby stopping the policyholder’s losses. Stop-loss protection is available on either an individual or aggregate basis. When the stop-loss protection is on an individual basis it is more commonly referred to as Large Amount Pooling.
Target Case
A highly regarded case (because of the nature of its business, financial reasons, prestigious account, growth potential, etc.) which is sought after or targeted as a desirable case. Usually special underwriting and pricing considerations are necessary to be awarded these cases.
Target Loss Ratio (TLR)
This is the ratio at which the insurance company has covered both incurred claims and their cost of administering the plan. It is calculated by subtracting the carrier’s total cost, as a percentage, from 100%. (i.e. If the carrier’s total expenses equals 17% of the premium the target loss ratio would be 83% of premium.) As groups grow in size the expenses, as a percentage of the larger premium, is less. Therefore, the larger the group the higher the TLR. Also referred to as the Break-even Loss Ratio.
Third Party Administration (TPA)
The method of administration whereby a third party (neither the insurer or the policyholder) maintains all the records regarding the persons covered under his or her group insurance plan. The third party may be the advisor or a specialized administrative body. The third party prepares the premium statements for each premium due date and submits it with the premium cheque to the insurer. In certain instances, upon the approval of the insurer, the third party administrator may also be involved in the claims payment process.
Trend Factor
Most carriers include a trend factor in the renewal rating of the dental benefit. This is in addition to the fee guide adjustment and reflects the annual increase in claims due to pure utilization. See Inflation Factor.
Trended Incurred Claims
Trended incurred claims are determined by multiplying the incurred loss ratio, for each experience period, by the applicable trend and/or inflation factor. The purpose of “trending” the incurred claims is to bring prior year’s claims to the equivalent monetary level of the current year’s claims.
Trended Incurred Loss Ratio
This is the ratio of the incurred claims to the adjusted premium, multiplied by the trend and/or inflation factor.
Turnaround Time
The time required to complete a particular project from the date of receipt to the completion date.
Waiting period
See Eligibility Period and Probationary Period.
Waiver of Premium Provision
A provision whereby under certain conditions a person’s life insurance will be kept in full force by the insurer without further payment of premiums. It is used most often in the event of permanent and total disability.
Waiver of Premium Reserve
Once a waiver claim has been approved by the insurer they establish a waiver of premium reserve. The level of the reserve is determined by actuarial tables. The life insurance coverage continues, without any premium due, until death, recovery or the age limit specified in the contract.
Weekly Indemnity (WI)
An income replacement benefit, which is usually payable weekly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings. Also see Short Term Disability.
Weighted Loss Ratio
This is the average loss ratio determined through the weighting process. See Weighting.
Weighting
Weighting represents the portion of both the current and prior year’s experience which will be used to calculate an average loss ratio for the purpose of determining the experience rate. Generally the most current year’s experience is given the most weight since it is assumed to be the most accurate indication of future claiming patterns. However, the most recent year may not always be indicative of past or future claiming patterns so the previous one or two years are also given some consideration. Each carrier has their own weighting formula.
Year’s Basic Exemption (YBE)
As defined by the CPP/QPP, the first 10% of an employee’s annual earnings up to the amount of the YMPE.
Yearly Maximum Pensionable Earnings (YMPE)
The YMPE is a factor used to define and limit the amount of an employee’s annual contributory earnings on which the employee’s and employer’s compulsory annual contributions to the CPP/QPP are based.
