The notes say that for eg you have a policy that has a premium review every 6 months and is renewed annually, the last claim will occur within 18 months of the last premium review. I'm a little confused. Since premiums are reviewed every 6 months, why would the last claim be 18 months from the last policy review? Thanks.
Hi JamaicanJem, Let's imagine that premium reviews occur every 6 months - on 1 Jan and 1 Jul. Premiums are therefore reviewed on 1 Jan 2020. Suppose I buy a one-year policy on 30 Jun 2020, so pay a premium based on prices at the 1 Jan 2020 review. This policy will expire on 30 Jun 2021, so any claim made during that year, up to 30 Jun 2021 will correspond to the 1 Jan 2020 review. That's a maximum of 18 months. I hope that helps, Anna
There would be, but that set of rates would apply to a different cohort of lives. For the policy that begins on 30 Jun 2020, for which the ! Jan 2020 premiums are paid, claims can occur up to 30 Jun 2021. Policies that start on 30 Jun 2021 will pay premiums based on the 1 Jan 2021 premium review, and for these, claims can occur up to 30 Jun 2022. You need to think of individual cohorts of policies and ensure that the premiums paid for these correspond to the claims incurred.
Hi Anna, I didn't think of that at all. So basically the premium basis changes annually even though a review takes place in June. I think I understand. Thank you! Regards.
