Massachusetts Health & Accident Insurance Practice Exam

How does an insurer typically evaluate group insurance applications?

1. On an individual basis

2. Based on the group as a whole

3. By comparing with industry standards

4. By assessing past claims history

The correct answer is: Based on the group as a whole

An insurer typically evaluates group insurance applications based on the group as a whole because this approach allows insurers to assess the overall risk associated with the entire group rather than focusing on individual members. This method takes into account the collective characteristics of the group, such as demographic factors, occupation types, and overall health status, to determine the potential claim likelihood and premium rates. Evaluating applications in this way supports the idea that group insurance spreads risk among a larger number of insured individuals, which can lead to lower premiums compared to individual insurance policies. Additionally, when evaluating the group collectively, insurers can more easily identify trends and predict future claims based on the characteristics of the population they are insuring, ultimately leading to more stabilized pricing structures for group policies.