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2009 Mock Exam, Q.7

M

marymaj86

Member
Hello

I am a little confused about part (iii) of Q.7 in the 2009 Mock Exam, as the question says that the premium rates within each cover level are to be "the same for all policyholders".

Does this mean that you should average all of the risk premiums within a given cover level? The solution didn't go down this route - it seemed to be a pretty standard pricing answer, I thought. Would anybody know if keeping premiums uniform within each level of cover is a key part of this question, and if so, how to go about it?

Thanks
 
The hint in the question is that the premium rates within a cover band are the same for all policyholders.

This is dealt with in the solution by allowing for mix changes and possible anti-selection.

You're right, it's a pretty standard pricing answer, but with a fair bit of tailoring to the features of the product in the question. Notice also that there aren't many marks available for this part of the question, so a lot of detail isn't necessary to score well.
 
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