• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

What is cross subsidies?

N

Naman Jain

Made first post
Hi,

I want to know what is meant by cross subsidies? Can you please explain it.

Reference - Chapter 7 (Product design and stakeholder interest (2)) heading 1.10.

Thanks.
 
Hi Naman

Cross subsidies are where an insurer charges a different amount for policies than that determined in the pricing basis alone. It does this to spread the costs in a different way between policies, for example perhaps allocating small policies a lower expense contribution and cross subsidising this by charging larger policies slightly more. It can be done with risk too. For example, riskier applicants slightly less and less risky applicants slightly more (perhaps to keep policies affordable for the risky lives).

As soon as there is any cross subsidies the insurer needs to monitor its business mix. For example, if in our risk example they wrote more risky policies than expected, the cross subsidies would lead to insufficient premiums to cover the level of risk.

Hope this helps,
Sarah
 
You must log in or register to reply here.
Back
Top