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General insurance

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asked Jun 20 in BUS 1003H - Introduction to Financial Risk by Ireneus (410 points)

1. Why is the average claim expected to increase when an insurance company has a no claims bonus?

2. What effect would excess have on claim value and claim frequency of general insurance company?

1 Answer

+1 vote
answered Jun 21 by Valentine (520 points)
selected Jun 28 by Rowan
 
Best answer

1. Policyholders will not report small claims, because they want the no claims bonus, but if the claim is large enough they will report it because they won't be able to cover the costs. So the average claim is expected to increase.

2. Excess will reduce the total claim value for the insurer because the insurer no longer covers 100% of the claim. Claim frequency will decrease because policyholders will not report small claims, i.e. claims for which the cost is less than the excess.

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