Hi all, Page 12 of Chapter 8 ".. commission may be proportion to the sum insured, which better reflects an insurer's preference for higher sums at risk as source of profit". Why is higher sum at risk (sum assured - reserves) preferred and how is it a better source of profit when commission is expressed as a proportion of sum insured?
Can go like this.. Higher SA will attract higher commission (income) for the distribution channel. Higher SA is generally offered to good risk, and thus, becomes a source of profit for the insurer.
Hi Kze, Note also that the Core Reading says "This would reflect an insurer's preference for higher sums at risk ...", which doesn't say that they will prefer this as a source of profit - I think it's just saying that if an insurer does prefer higher sums at risk as a source of profit, then this would be an appropriate form of commission. Anna
