How does the B as a percentage of GCP change as loss limit increases

Lcparga1Lcparga1
in Fisher.RiskSharing

Soln:"The basic premium, B, accounts for charges that do not vary with losses. So if the loss limit is increased, there are more losses; thus, the basic premium becomes a smaller percentage of the guaranteed-cost premium."


I'm not sure I understand the solution here from the Quiz Bank. If the limit increases, wouldn't the charge within B decrease and therefore would be smaller as a percentage of GCP?

Comments

  • adminadmin

    You are correct, as the limit increases the insurance charge for decreases and so B decreases, which makes it a smaller percentage of the guaranteed cost premium.

    The card was trying to emphasize that B does not vary with the ratable losses. B does change as you alter the coverage involved. I'll clean up the battlecard.

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