Ch 16 Product design

Discussion in 'SP2' started by Actuary@22, Mar 6, 2022.

  1. Actuary@22

    Actuary@22 Very Active Member

    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
     
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    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
     

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