GROUP INSURANCE

insurance provided to members of a formal group such as employees of a firm or members of an association. Group insurance is distinguished from individual insurance in which single policies are sold to one person at a time and from social insurance (e.g., unemployment insurance, social security), which is sponsored by the government. The concept of group insurance probably originated in ancient Rome with the Roman burial societies, but the first modern group policy, covering the employees of the American retail merchandising company Montgomery Ward & Co., went into effect in 1912. Group insurance is offered in every country in which private insurance companies operate and is growing in importance every year. There are several different types of group insurance. Group life insurance is perhaps the most common form. It is usually offered as group term insurance, which is in force only for a specified period of time and which does not build up any cash value. Sometimes group permanent life insurance is offered. This type builds up a cash value and stays in force until the policy reaches maturity and is cashed or until the death of the insured. Group health insurance includes group medical expense insurance, which pays part or all of the insured's hospital, surgical, and other medical bills, and group disability income insurance, which replaces part or all of the income lost due to illness or accident. Group accidental death and dismemberment and group travel accident insurance combine elements of both life and health insurance. In recent years some companies have offered membership in a health maintenance organization (q.v.; HMO) as an alternative to standard group health insurance. HMOs are associations of physicians and other health professionals who for a lump sum or periodic payments provide comprehensive health care, including hospitalization if necessary. All group insurance plans share a number of characteristics. The insurer writes and sells only one contract per group, and that contract is with the employer or organization rather than with the individual members of the group. Large economies in selling and administration are thus made possible. After a group policy has been in force long enough, the insurer can base premiums partly on the experience of that particular group, or, in the case of very large groups, wholly on the experience of that particular group. Also, group insurance plans are usually of a continuing nature and seldom have to be resold or renegotiated. As some persons leave the group others join, and the group as a whole frequently increases in size. These characteristics make group insurance plans attractive to insurers because of their lower cost, higher volume, and at least somewhat greater predictability than is the case with individual insurance. Group insurance is attractive to the insured because of its lower cost and the guaranteed availability of the insurance without the necessity of undergoing a medical examination or providing other evidence of insurability. Persons viewed as unacceptably high risks by insurance companies would be unable to obtain any life or health insurance whatsoever were it not for the group insurance concept. Another benefit under most group plans is that anyone who leaves the group may keep the insurance in force by switching to an individual policy. In very rare instances group insurance has been written for as few as two people. In common practice, however, the minimum size is 10 members. Another requirement is that the group must have a purpose other than to acquire insurance. The nature of the groups covered varies widely, but groups composed of the employees of individual organizations (companies, non-profit institutions, governmental units) are the most common. Substantial amounts of group insurance are also written for multiple-employer groups, labour unions, professional associations, college alumni groups, veterans associations, and other common-interest organizations. The largest group insurance plan in the world is that covering U.S. federal employees.