Washington Administrative Code › Title 284 - Insurance Commissioner, Office of the › Chapter 284-16 - Insurers › MINIMUM RESERVE STANDARDS FOR INDIVIDUAL AND GROUP DISABILITY INSURANCE CONTRACTS › Section 284-16-410 - Definitions

Current through Register Vol. 24-14, July 15, 2024
For the purpose of this regulation, the following definitions
				  shall apply:
(1) "Annual-claim cost"
				means the net annual cost per unit of benefit before the addition of expense
				including claim settlement expenses, and a margin for profit or contingencies.
				For example, the annual claim cost for a one hundred dollar 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 thirty-five, in a
				certain occupation might be twelve dollars, while the gross premium for this
				benefit might be eighteen dollars. The additional six dollars would cover
				expense and profit or contingencies.
(2) "Claims accrued" means 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. A claim
				reserve, which represents an estimate of this accrued claim liability, must be
				established.
(3) "Claims incurred"
				means that portion of a claim for which the insurer has become obligated to
				make payment, on or prior to the valuation date.
(4) "Claims reported" means those claims that
				have been incurred on or prior to the valuation date of which the insurer has
				been informed, on or prior to the valuation date. These claims are considered
				as reported claims for annual statement purposes.
(5) "Claims unaccrued" means 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. A claim reserve, which represents an estimate of the unaccrued claim
				payments expected to be made, which may or may not be discounted with interest,
				must be established.
(6) "Claims
				unreported" means those claims that have been incurred on or prior to the
				valuation date of which the insurer has not been informed, on or prior to the
				valuation date. These claims are considered as unreported claims for annual
				statement purposes.
(7) "Date of
				disablement" means the earliest date the insured is considered as being
				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.
(8) "Elimination period" means a specified
				number of days, weeks, or months starting at the beginning of each period of
				loss, during which no benefits are payable.
(9) "Gross premium" is 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.
(10) "Group
				insurance" includes blanket disability insurance.
(11) "Level premium" means 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 may 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" means any
				insurance policy or benefit contract primarily advertised, marketed, offered,
				or designed to provide coverage or services over a prolonged period of time for
				either institutional or community-based convalescent, custodial, chronic, or
				terminally ill care. Long-term care insurance may be issued by insurers;
				fraternal benefit societies; health care service contractors; health
				maintenance organizations or any similar organization to the extent they are
				authorized. Long-term care insurance shall not include any insurance policy
				which is offered primarily to provide basic medicare supplement coverage, nor
				shall it include a contract between a continuing care retirement community and
				its residents.
(13) "Modal premium"
				means 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 one hundred dollars and if, instead, monthly premiums of nine dollars are
				paid then the modal premium is nine dollars.
(14) "Negative reserve" means a negative
				terminal reserve value. Negative reserves occur when the present value of
				future benefits is less than the present value of future valuation net
				premiums.
(15) "Preliminary term
				reserve method" means the method of valuation for which 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 that the
				terminal reserves will 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 such that 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.
(16) "Present value of amounts not yet due on
				claims" means the reserve for claims unaccrued which may be discounted at
				interest.
(17) "Reserve" includes
				all items of benefit liability, whether in the nature of incurred claim
				liability or in the nature 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:
(a) Claims which have been incurred, that is,
				for which the insurer has become obligated to make payment, on or prior to the
				valuation date. On these claims, payments expected to be made after the
				valuation date for accrued and unaccrued benefits are liabilities of the
				insurer which should be provided for by establishing claim reserves;
				or
(b) Claims which are expected to
				be incurred after the valuation date. Any present liability of the insurer for
				these future claims should be provided for by the establishment of contract
				reserves and unearned premium reserves.