Group insurance
Group insurance is an effective means of providing protection from the adverse financial impact of unforeseen events, to individuals who share a common bond. Group insurance, as used throughout this text, means a benefit program where coverage is provided to a group of individuals. This includes not only traditional coverage provided under insurance policies, but also includes self insured benefit programs provided by employers, associations and labor unions, government programs, and health service corporations such as health maintenance organizations.
Group insurance is provided to a group of individuals who are connected to one another through some common characteristic. Typical groups include employees of a single employer or group of employers, debtors to a common creditor, members of professional or trade associations, labor unions, or individuals eligible under a government plan.
A fundamental principle underlying all insurance is the pooling of risk. The risks covered by insurance policies are typically infrequent and potentially costly events. The policy holder pays a relatively small, predetermined amount in the form of the insurance premium to the provider of the insurance coverage. In return, the provider of the coverage pays for the cost of the insureds covered event, or provides services directly, should the event occur. In this way the participants in any particular insurance program share in the financial risk of the covered event.
Another key principle underlying insurance programs is the concept of insurable interest. That is, the policyholder and beneficiaries of a program must experience loss or hardship if the covered event should occur, and therefore have a vested interest in mitigating the risk. Insurable interest on behalf of the policyholder and beneficiaries is required for an insurance program to be financially, and often legally, viable.
Group insurance shares these basic principles with other types of insurance. Group insurance differs from individual insurance in that the provider of the insurance coverage considers the entire group of eligible individuals as a whole in evaluating the risk. Group insurance allows a more efficient means of issuing coverage than individual insurance, since greater numbers of insureds are added to the insured pool at any one time. However, the insurer still must itself against anti-selection, and therefore, will require certain standards be met by the group before offering coverage. For example, the insurer may require that at least seventy five percent of the group certificate in the insurance program. Likewise, for employer sponsored plans, the insurer may require that the employer pay for some minimum percentage of the employees premium, so that employees have a greater incentive to join the group insurance program. These requirements encourage greater participation in the program, which turn helps to establish an appropriate level of risk.
Group plans also provide a more efficient means of marketing and delivering insurance programs. The primary level of marketing is to the plan sponsor, which can be an employer, association or other entity. A secondary level of marketing is to eligible individuals, and the typically accomplished in a common setting either in the workplace or through other regular communications to the group, such as association news letters. Group plans are marketed through a variety of distribution networks, including agents, brokers, consultants, and by direct sales. However, instead of needing to make the sale with every potential insured, the primary sales effort can be focused toward the sponsor decision makers. Therefore, the cost of the marketing effort is typically lower on a per-participant basis than for individual insurance. Likewise, administrative expenses are typically premium billing is not required, and plan sponsors often provide low cost access to participants for communication and information distribution.
The group insurance market includes a diversity of product lines. Medical coverage represents a large portion of group coverage in the United states, and may include medical indemnity insurance, preferred provider organization plans, point of service, and health maintenance organization plans, as well as the government sponsored Medicare and Medicaid programs, which are available only to certain disabled, needy and older Americans. In Canada, where nearly all residents are covered by the provincially sponsored healthcare system known as Medicare, private group medical plans cover only those benefits not generally available under the public system. Therefore, while group medical coverage is widespread in Canada, it is not as large a part of the total group insurance market as it is in the United States. In both the United States and Canada, a variety of other coverages are also sold on a group basis, including indemnity and managed dental plans, short and long term disability income coverage, life insurance, vision and hearing coverage, long term care insurance, prepaid legal, group property and casualty, and other special risk coverages such as accidental death and dismemberment and travel accident.
Group insurance has its roots in ancient times, as far back as the Romans. Medieval craft guides used insurance concepts in their operation. Then, late in the nineteenth century, the industrial revolution contributed to the growth of group insurance concepts. As transition occurred from an agricultural to an industrial economy, many workers moved from self-employment to larger employers. Employer liability law began to develop, and employee benefit programs began to emerge.
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