1. Pricing Group Life Assurance Benefits
Issues and Considerations, by
Ezweni Tshuma

2. 01 02 03 04 Contents aa Introduction Group Life Assurance
Pricing issues
Pricing GLA
Define Group Life Assurance as a product
Benefits covered
Pricing issues in general
Calculating annual premium for the scheme
Definition
Benefits covered
Stakeholder interests
Striking the balance
• Formula for annual premium
• Dealing with competitive issues

3. Introduction
What is GLA and what is covered?
Pricing issues in general
Calculating annual premium for a scheme

4. What is GLA?
Group Life Assurance is a simple way of providing Life Assurance cover to a group of people sharing common characteristics, for example:
Employees of one employer
Employees of a group of companies,
Trade union members, members of a society
Members of a professional body
Premiums are often cheaper than Individual’s Life Assurance because;
No room for anti-selection (people join group for other reasons other than taking insurance
People at work are usually considerably fit (better mortality)
Minimal underwriting (less costly)
Single point of premium collection
Renewable, implying low capital or reserving demands

5. Benefits covered under GLA
The following could potentially be covered under GLA:
Death
Funeral cover including extended family
Capital disability
PHI
Dread Disease

6. Pricing issues
Shareholder Issues
Policyholder Issues
Life Offices Issues
General Issues

7. Cash flows and the resulting conflicts

8. Profits (Shareholder) vs. Volumes (Marketing)
Conflict of interests
Profits (Shareholder) vs. Volumes (Marketing)
rates to be competitive,
rates to meet required return,
Innovation of products vs. Administration systems,
System capabilities can limit what business development brains can do.
Operational Perspective
pay Claims
security to Policyholders
meet expenses- Administration and Fixed Overheads
manage Cash flows

9. Striking a balance between different conflicts. Premium;
profit targets
competitive
offer good value for policyholders
meet regulatory requirements.

10. Pricing of GLA
Premium = Expected cost of claims + commission+ administration expenses +taxes + profit.
Expected cost of claims = sum assured x probability of dying within a year.
Probability of dying within a year = Probability of a claim = Mortality rate.
Commission is fixed in each market, e.g 10%.
Administration expenses are specific to a company or size of scheme.
Taxes include premium tax or VAT on commission or both
Profit margin is specified by the company

11. Application of loadings
Most companies use: for example loading for commission Premium = Expected cost of claims x (1+ commission rate) I prefer Premium = Expected cost of claims / (1- commission rate)

12. Application of Discounts
Competition may force you to offer discounts,
The premium charged to the client can be discounted at your own discretion.
The discount should not exceed the sum of:
Administration expenses, and
Profit loading

13. Interesting remarks
Setting a Group Life Assurance rate is more complex than meets the eye,
You should consider all the stakeholders and ensure that YOU manage the conflicting interests,
You should be able to determine the expected mortality experience that represents the Group,
Appropriate margins and loadings to meet required profit margins should be set,
Never over discount the premium to retain a scheme for the sake of retaining it, and
There is need to continuously monitor and review appropriateness of the rates.

14. QUESTIONS