Rates

The premium rate for group insurance is considerably lower than would obtain if the lives were covered in the regular way. This is made possible by saving in loading and by expected saving in mortality cost, owing to the great care with which the groups are selected. The commissions paid for securing group contracts are lower and, since all companies require that the premium be paid by the employer,4 the cost of collection is almost negligible and the lapse ratio is greatly lowered. The cost of inspecting the plant as a whole is also much smaller than would be the cost of individual medical examinations. In one company, issuing a participating contract, a separate department has been established to handle its group business and distribute the savings, which are reflected to a greater extent in the quoted rates of the non-participating companies. These latter companies guarantee their rates for a- term of five years, reserving the right to make such changes at the end of this period as their experience seems to warrant. The participating company guarantees its gross rate in perpetuity, adjustments to experience being effected by the payment of dividends.

Premiums are ordinarily paid monthly, adjustments being made for the withdrawal of old and the addition of new employees. One company, while covering each new life from the beginning of employment, makes no premium charge until the beginning of the following months and, to offset this, gives no premium credit for fractions of a month following withdrawal.

Mr. H. Pierson Hammond, actuary of the Connecticut Insurance Department, recently inspected an establishment with a view to considering practically a concrete example of group insurance. The results of this inspection have been described as follows: "The employees of this establishment I have used as a unit for illustration. The rates upon which the cost for group insurance is predicated are those which have already been used similarly in practice. The amount of insurance in each case is one year's salary. The number of employees considered is 784, of which 344 are male, and 440 female. The total annual payroll is $811,000. The average age of these groups is about 38 and 28, respectively. The health of the employees, except in a few cases, appeared to be exceptionally good, no unusual amount of sickness having been reported among them. The offices are light and well ventilated, the building comparatively new, and the "environment generally excellent. In the tabulated census returns, I was struck with the distribution of the ages of the male employees as contrasted with the female employees. This was explained by the fact that the employer had added very few male clerks recently, but had taken in more than the usual number of female clerks. This tendency was particularly emphasized by the fact that a number of young women had been added temporarily to the force to handle special work and some of these had been retained permanently by the employer. I have, therefore, presented the following results so as to show the information which was ascertained, in three groups, namely, male employees, female employees, and the total group:

The above figures are based on the facts as presented by the employer. A few of the male clerks who have been employed some time are above the average age of the group and are drawing salaries in excess of $2,500 per annum. This, of course, tends to raise the cost of the particular group which was selected.

The cost in the above example is based upon a participating rate. To show the results upon the non-participating basis, Mr. Hammond has also calculated the aggregate cost based upon the American 3 percent, yearly renewable-term rates loaded I2y2 percent, for commissions and expenses as follows:

Male employees, aggregate annual cost, $9,344.06, namely, 1.7 percent, of the payroll.

Female employees, aggregate annual cost, $2,555.09, namely, 1.0 percent, of the payroll.

Total groups, aggregate annual cost, $11,899.15, namely 1.5 percent, of the payroll.