Cigna 2012 Annual Report Download - page 32

PART I
ITEM 1 Business
interest and mortality experience. Mortality charges are subject to
Other Products and Services
guaranteed maximum rates stated in the policy.
Cigna offers personal accident insurance coverage, which consists
The profitability of this segment’s products depends on the adequacy
primarily of accidental death and dismemberment and travel accident
of premiums charged and investment returns relative to claims and
insurance to employers. Group accident insurance may be
expenses. The effectiveness of return to work programs and mortality
employer-paid or employee-paid.
levels also impact the profitability of disability insurance products.
Cigna also offers specialty insurance services that consist primarily of Cigna’s previous claim experience and industry data indicate a
disability and life, accident, and hospital indemnity products to correlation between disability claim incidence levels and economic
professional or trade associations and financial institutions. conditions, with submitted claims rising under adverse economic
conditions, although the impact of the current adverse economic
Voluntary benefits are those paid by the employee and are offered at conditions is not clear. For life insurance products, the degree to
the employer’s worksite. Cigna plans provide employers, among other which future experience deviates from mortality, morbidity and
services, flexible enrollment options, list billing, medical expense assumptions also affects profitability.
underwriting, and individual record keeping. Cigna designed its
voluntary offerings to offer employers a complete and simple way to In order to reduce its exposure to large individual and catastrophic
manage their benefits, including personalized enrollment losses under group life, disability and accidental death policies, Cigna
communication and administration of the benefits program. purchases reinsurance from unaffiliated reinsurers.
Financial information, including premiums and fees, is presented in
the Group Disability and Life section of the MD&A beginning on
Markets and Distribution
page 44 and in Note 23 to Cigna’s Consolidated Financial Statements.
Cigna markets the group insurance products and services described
above to employers, employees, professional and other associations
Pricing and Reinsurance
and groups in the following customer segments:
This segment’s products and services are offered on a fully insured, National segment – these are multi-site employers generally with
experience-rated and ASO basis. Under fully insured arrangements, more than 5,000 employees;
policyholders pay a fixed premium and Cigna bears the risk for claims
Middle Market segment – generally defined as multi-site employers
and costs. Under experience-rated funding arrangements, a premium
with more than 250 but fewer than 5,000 employees, and single-site
that typically includes a margin to partially protect against adverse
employers with more than 250 employees; and
claim fluctuations is determined at the beginning of the policy period.
Cigna generally bears the risk if claims and expenses exceed this Select segment – generally includes employers with more than 50
premium. If premiums exceed claims and expenses, any surplus but fewer than 250 employees.
amount is generally first used to offset prior deficits and is otherwise
In marketing these products, Cigna primarily sells through insurance
generally returned to the policyholder if surplus exceeds minimum
brokers and consultants and employs a direct sales force. As of
contractual levels. With experience-rated insurance products, Cigna
December 31, 2012, the field sales force for the products and services
may recover deficits from margins in future years if the policy is
of this segment consisted of approximately 200 sales professionals in
renewed. Under ASO arrangements, Cigna contracts with groups
27 office locations.
sponsoring self-insured plans to administer claims and perform other
plan related services in return for service fees. The self-insured plan
sponsor is responsible for self funding all claims. The majority of this
Competition
segment’s products and services are fully insured.
The principal competitive factors that affect the Group Disability and
Premiums and fees charged for disability and life insurance products Life segment are underwriting and pricing, the quality and
are generally established in advance of the policy period and are effectiveness of claims management, relative operating efficiency,
generally guaranteed for one to three years and selectively guaranteed investment and risk management, distribution methodologies and
for up to five years, but policies are generally subject to early producer relations, the breadth and variety of products and services
termination by the policyholder or by the insurance company. offered, and the quality of customer service. For certain products with
Premium rates reflect assumptions about future claims, expenses, longer-term liabilities, such as group long-term disability insurance,
credit risk, investment returns and profit margins. Assumptions may the financial strength of the insurer, as indicated by ratings issued by
be based in whole or in part on prior experience of the account or on a nationally recognized rating agencies, is also a competitive factor.
pool of accounts, depending on the group size and the statistical
The principal competitors of Cigna’s group disability, life and accident
credibility of the experience, that varies by product.
businesses are other large and regional insurance companies that
Premiums for group universal life insurance products consist of market and distribute these or similar types of products. As of
mortality, administrative and surrender charges assessed against the December 31, 2012, Cigna is one of the top five providers of group
policyholder’s fund balance. Interest credited and mortality charges disability, life and accident insurance in the United States, based on
for group universal life, and mortality charges on group variable premiums.
universal life, may be adjusted prospectively to reflect expected
10 CIGNA CORPORATION - 2012 Form 10-K
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