Disability Pricing

Question 1

Disability Pricing

Base Rate Formulas

Answer 1

• LTD = Incidence * Reserve / 12
• STD = Incidence * Duration / 12

Question 2

Disability Pricing

Experience Rating Steps

Answer 2

1. Manual claim rate
2. Experience claim rate
3. Blend
4. Add expenses and profit

Question 3

Disability Pricing

Full Credibility: # of Lives

Answer 3

• STD = 400 - 1,500
• LTD = 15,000 - 25,000

Question 4

Disability Pricing

Credibility (Z)

Answer 4

= N / (N+K)

• K = constant
• N = number of life years

Question 5

Disability Pricing

Claims Processing Steps

Answer 5

1. Eligibility
2. Disability Determination
3. Payment Calculation = Pre-disability earnings * Benefit % - offsets
4. Offsets
5. Ongoing proof of liability (STD = preapproved for specified period; LTD = reevaluated every year)

Question 6

Disability Pricing

Tools Used in Claims Process

Answer 6

• Medical evaluation
• Rehabilitation
• Financial evaluation (verification of earnings)
• Fraud