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April 2019 q2iii

K

km_18

Member
In the mark scheme it says:

- More commercial business like energy, political, terror etc.
- less consumer business like A&H, motor, warranty etc.

I don't understand the rationale behind these two points.
 
These are just two examples following the comment at the top of the list, ie characteristics of winners (low commission companies).
Commercial business is less likely to pay commission, consumer business more so. This is explained further in mini-ASET.
 
I don’t understand why this question focuses so heavily on commission. There are other aspects of acquisition costs too? Eg I made points such as it will impact growing businesses more as higher proportion of new business & will impact business with higher marketing costs more - would such examples not score?
 
Ian Senator said:
These are just two examples following the comment at the top of the list, ie characteristics of winners (low commission companies).
Commercial business is less likely to pay commission, consumer business more so. This is explained further in mini-ASET.
Click to expand...

Sorry I realize this topic is old, I came across the above point in the asset and it has me confused. Is commercial business not primarily written through brokers and thus likely to incur higher acquisition costs?

Also the asset mentions writing reinsurance leading to receiving more reinsurance commission, is that not the opposite of how re-insurance commission works? As in it's the re-insurer that pays commission to the ceding insurer.
 
Yes, commercial is often written through brokers, although there are of course many other differences which may or may not result in different commission amounts being paid between different LOBs - I don't think it really matters which example you give, it's more the effect that's important.

ASET - yes, not worded brilliantly, sorry. Examiners' report mentions inwards reinsurance as an example of low commission companies, which is probably a better example, as that will result in commission being paid to the cedant as you say.
 
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