level 0, Chang in premium is 130 level 1, Chang in premium is 325 level 2, Chang in premium is 650*0.2 - 650*0.5 = 195 why, the chang in level 2 is not counted?????
Hello For someone at Level 2: If they do not claim, they stay at level 2. Premium they pay in next year = 650 * 0.5 = 325 If they do claim, they move to level 0. Premium they pay in next year = 650 Difference = 650 - 325 = 325, so they claim if cost of claim is greater than 325. Try reading the question carefully! If a policyholder makes no claims in a policy year, they move to the next high discount level (or remain at level 2). In all other cases they move to (or remain at) discount level 0.
