September 2014 - question 1

In part vi(b), we consider Speedysure's experience if it prices at an average of $5k which means that it's premiums range from $3750 to $6200.

The model solutions states that this is unlikely to lead to any business. I beg to differ.

If we look at Speedysure's current customer base, we expect it to be positively skewed with a some VERY high premiums (>$6k) and also some high premiums for the market but low by Speedysure's average ($4-5k).

The former would be charged $6200 by speedysure but will probably find cover for $5k elsewhere. So are likely to move (unless there is some sort of bundling with property damage).

The $4-5k range will probably find that their cover reaches the maximum of the other insurers (as they would not be focused on this cohort). Hence Speedysure can not only keep this customer base but also possibly grow it, especially when you consider its expertise and possible bundling with property damage.

Finally the $5-6k range may be convinced to stay with Speedysure due to expertise and bundling Property Damage.

So Speedysure might be expected to be skimming off its highest risk customers to other insurers but maintaining correct pricing for its other customers that are deemed too risky for the other insurers.

Does that make any sense?

My fear is that it would have led to almost nil marks (for this section)