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2006 Sep Q9 (ii)

P

ping2002

Member
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.
 
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