CEBS GBA 2 - Module 2 Rating and Premium Setting Questions 100% Answered!!
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Course
CEBS GBA 2 - Module 2
Institution
CEBS GBA 2 - Module 2
1.1 - If premium is $1,000 and loading fee is 40%, what is the gross premium? - ANSWERThe gross premium = pure premium divided by (1-loading%). $1000/(1-.40=.60), $1000/.60=$1,666.67. The gross premium is $1,666.67.
1.2 What is included in the loading percentage? - ANSWERit includes objective ri...
CEBS GBA 2 - Module 2 Rating and
Premium Setting Questions 100%
Answered!!
1.1 - If premium is $1,000 and loading fee is 40%, what is the gross premium? - ANSWERThe gross
premium = pure premium divided by (1-loading%). $1000/(1-.40=.60), $1000/.60=$1,666.67. The
gross premium is $1,666.67.
1.2 What is included in the loading percentage? - ANSWERit includes objective risk, profit and costs
of marketing, adjudicating and processing claims, coordinating benefits and providing access to
networks. In other words, all costs other than losses and loss adjustment expenses.These costs are
reduced by any investment earnings when premiums are calculated.
1.3 What are two major factors that determine the size of the loading percentage? - ANSWERloading
fee varies by firm size with smaller loading percentages for larger groups. The size of the loading
percentage depends not only on the actual marginals costs of running the insurance but also on the
nature of the competition the insurer faces.
1.4 What does the ACA require in terms of MLR(medical loss ratio) for small groups up to 100
workers, nongroup plans and what is its mandate for fully insured large groups? - ANSWERMLR for
small groups and for individual plans can be no less than 80%. For large fully insured, MLR can be no
less than 85%. If insurer has a threshold below the limit it must refund a share of its premiums back
to purchaser. Does not apply to self-insured.
2.1 What is a care-out coverage? - ANSWERCoverage that may have been provided as part of a
particular plan but is now provided separately is care-out coverage. Prescription drug and mental
health benefits are often cared out.
2.2 Explain the concept of objective risk? - ANSWERObjective risk is dispersion (which is often
measured by standard deviation,variance or range) in losses related to some measure of expected
losses and the number of covered lives. Object risk declines as the size of expected losses increases -
law of large numbers. Losses are more predictable when the number of exposure units increases.
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