Saturday, May 15, 2010

Case study - lower insurance premium

This is a case study. You are insured with an insurance company that has been operating fairly efficiently and has been providing satisfactory service. It incurs the following expenses and charges a premium of $1,000:

average claim per policy $550
expenses $200
commission to agents $150
profit margin $100
premium $1,000

Another insurance company offers you a lower premium of $900 but if the lower premium is due to any of the following factors:

a) they are more efficient in handling their claims
b) they are likely to be more difficult in paying claims due to inadequate premium
c) they may offer a lower quality of service
d) they are keen to gain market share and don't mind making a loss

Here are the results of the survey.