Florida Administrative Code
69 - DEPARTMENT OF FINANCIAL SERVICES
69O - OIR - Insurance Regulation
Chapter 69O-154 - HEALTH INSURANCE POLICIES
Section 69O-154.202 - Definitions

(1) Annual Claim Cost. The net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a $100 monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age 35, in a certain occupation might be $12, while the gross premium for this benefit might be $18. The additional $6 would cover expenses and profit or contingencies.

(2) Claims Accrued. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the insurer has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for accrued benefits.

(3) Claims Reported. For annual statement purposes, a reported claim is a claim that has been incurred on or before the valuation date and has been reported on or before the valuation date.

(4) Claims Unaccrued. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services expected to be rendered after the valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits.

(5) Claims Unreported. For annual statement purposes, an unreported claim is a claim that has been incurred on or before the valuation date but has not been reported on or before the valuation date.

(6) Date of Disablement. The earliest date the insured is considered disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period.

(7) Elimination Period. A specified number of days, weeks, or months starting at the beginning of each period of loss during which no benefits are payable.

(8) Gross Premium. The amount of premium charged by the insurer. It includes the net premium (based on claim-cost) for the risk, together with any loading for expenses, profit, or contingencies.

(9) Group Insurance. The term group insurance includes blanket insurance, franchise insurance, and any other forms of group insurance.

(10) Group Long-Term Disability Income. The term group long-term disability income includes group contracts providing group disability income coverage with a maximum benefit duration longer than two years. Group long-term disability income contracts are based on a group pricing structure. The term "group long-term disability" does not include group short-term disability (coverage with benefit periods of two years or less in maximum duration). It also does not include voluntary group disability income coverage that is priced on an individual risk structure and generally sold in the workplace.

(11) Level Premium. A premium calculated to remain unchanged throughout either the lifetime of the policy or for some shorter projected period of years. The premium need not be guaranteed, in which case, although it is calculated to remain level, it shall be changed if any of the assumptions on which it was based are revised at a later time.

Generally, the annual claim costs are expected to increase each year and the insurer, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.

(12) Long-Term Care Insurance. Insurance as defined in section 627.9404, F.S.

(13) Medicare Supplement Insurance. Insurance as defined in section 627.672, F.S.

(14) Modal Premium. Refers to the premium paid on a contract based on a premium term which could be annual, semi-annual, quarterly, monthly, or weekly. Thus if the annual premium is $100, and instead monthly premiums of $9 are paid, then the modal premium is $9.

(15) Negative Reserve. Normally the terminal reserve is a positive value. However, if the values of the benefits are decreasing with advancing age or duration it could be a negative value, called a negative reserve.

(16) Preliminary Term Reserve Method. Under this method of valuation the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so the terminal reserves shall be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable so the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period.

(17) Present Value of Amounts Not Yet Due on Claims. The reserve for claims unaccrued which may at the option of the insurer be discounted at interest.

(18) Reserve. Includes all items of benefit liability, whether in the nature of incurred claim liability or of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued. An insurer under its contracts promises benefits which result in:

(19) Terminal Reserve. The reserve at the end of a contract year, defined as the present value of benefits expected to be incurred after that contract year, minus the present value of future valuation net premiums.

(20) Unearned Premium Reserve.

(21) Valuation Net Modal Premium. The modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

(22) Credible Experience. For experience to be considered credible for purposes of sub-sub-subparagraph 69O-154.203(1)(b) 1.b.(I), F.A.C., the company shall be able to provide claim termination patterns over no more than six (6) years reflecting at least 5,000 claims terminations during the third through fifth claims durations on reasonably similar applicable policy forms.

(23) Best Estimate Assumptions. Assumptions designed to produce results which on average will prove to have been too high half of the time and too low half of the time. Alternatively, assumptions which have the greatest likelihood of being correct.

(24) Sound Values. To place a sound value on a claim liability means to estimate the amount of future payments in such a way as to reduce the likelihood that the estimate will be less than the amounts ultimately paid. Placing a sound value requires that as uncertainty of the amounts ultimately paid increases, the amount by which the estimated claim liability exceeds the estimated future amount of payments also increases. When past experience exists, it can be used, subject to emerging trends in recovery rates, inflation, and other factors which can be used to make reasonable estimates. In the absence of prior experience, the actuary shall rely on commonly accepted estimations such as fixed number of months of premium or paid claims, or an amount such that the paid claims plus change in the liability equal a percentage of premium. (Unless past experience is not credible the preceding method can be used only in the first two years after a benefit without prior experience has been sold.)

(25) Reasonable Margins. Adjustments (to most likely assumptions) necessary to produce contract or claim reserves which reflect sound values. The use of margins results in reserves which exceed an estimate of most likely future benefit payments. The margin for adverse experience is equal to this excess.

(26) Adequate Reserves. Reserves calculated based on best estimate assumptions adjusted to include reasonable margins. For purposes of this rule, reserves must equal or exceed reserves determined using the minimum standards provided herein.

(27) Adequate Provision for Accrued and Unaccrued Benefits. Amounts deemed necessary to comply with the requirements of Section 625.041, F.S.

(28) Commonly Accepted Actuarial Practice.

(29) Gross Premium Valuation. A projection of the present values of gross premiums, benefit payments (including dividends or experience refunds), expenses, and taxes, whose uses include testing reserve adequacy. Gross premium valuations use persistency and other assumptions considered most likely to occur. If significant doubt as to reserve adequacy remains after most likely assumptions are used, the gross premium valuation shall include additional sensitivity testing. Sensitivity testing involves adjusting some or all of the assumptions used in the gross premium valuation to measure the effects of adverse experience.

(30) Qualified Actuary. This is defined in Rule 69O-138.043, F.A.C.

(31) Reasonable Method. One which can be shown to produce claim reserves which reflect sound values.

(32) Reasonable Assumptions for Contract Reserves. A reasonable assumption is one which can be shown to produce adequate contract reserve.

(33) Rating Block. A grouping of contracts determined by the valuation actuary based on common characteristics, such as a policy form or forms having similar benefit designs.