Hi,
Past exam problem 2008 - #16c) goes like this :
For many years, an insurance company has sold auto collision coverage almost exclusively at a $250 deductible. The $250 deductible rate is adequate.
Earlier this year, the company introduced a new campaign to encourage existing policyholders to move to a $1,000 collision deductible. As part of the campaign, the company priced the $1,000 deductible rate below the indicated rate.
Identify and briefly explain the effect this campaign is likely to have on the company's:
c. (0.5 pt) Collision profitability
Because the $1000 deductible policy is underpriced, profitability with decrease
I understand that since the premium will decrease the profitability should decrease too. What about the decreased frequency? Shouldn't we consider this in our answer? What if my answer is as follows : If the effects of a lower frequency are more important than a decrease in premium, then profitability should increase due to less losses. Is this kind of answer usually considered good in a real exam?
Thanks.
Past exam problem 2008 - #16c) goes like this :
For many years, an insurance company has sold auto collision coverage almost exclusively at a $250 deductible. The $250 deductible rate is adequate.
Earlier this year, the company introduced a new campaign to encourage existing policyholders to move to a $1,000 collision deductible. As part of the campaign, the company priced the $1,000 deductible rate below the indicated rate.
Identify and briefly explain the effect this campaign is likely to have on the company's:
c. (0.5 pt) Collision profitability
Because the $1000 deductible policy is underpriced, profitability with decrease
I understand that since the premium will decrease the profitability should decrease too. What about the decreased frequency? Shouldn't we consider this in our answer? What if my answer is as follows : If the effects of a lower frequency are more important than a decrease in premium, then profitability should increase due to less losses. Is this kind of answer usually considered good in a real exam?
Thanks.
2008 - #16bc (WM Ch. 6)
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