Hi Please explain the solution to the question "Explain why the premium rate is not crucial to competitiveness for UK style with profit contracts" on pg 5 as per 2019 acted material. I didn't understand clearly how the solution relates to the question. Thanks in advance
Hi The solution has two main ideas. Firstly the premium doesn't matter very much for a with-profits contract because a higher premium means a higher asset share and hence a higher benefit. So there's no point a policyholder choosing the insurer with the lowest premiums as, all other things being equal, they will get the lowest benefit. Secondly, policyholders for without-profits contracts usually choose the sum assured and then pick the insurer with the lowest premium for that sum assured. In contrast, for with-profits contracts the policyholder's objective is often to save a given amount and so they will tell the insurer the premium they wish to pay. Best wishes Mark