3.1.3 Charging and Commission Structure
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It should be remembered that product providers are in business
to make a profit as well as to provide the various policies. Consequently,
an element of profit earning will be in the make up of the charging
structure.
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The level of profit will depend on:
- The cost of running the operation and of paying out benefits,
and
- The volume of premiums and investment performance.
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This is a simplification of a complex business, but it
serves to illustrate that the more efficient business has the choice
of:
- Allocating higher bonuses, or
- Paying out more to claimants, or
- Offering lower premiums.
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As different products will have different expenses and costs relating
to them, it is difficult to compare relative profitability.
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Consequently, other than for, say, level term assurance, lower
premiums do not necessarily mean a better policy.
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The picture is further complicated by the providers own:
- Policy wordings and general conditions e.g. definitions.
- Specific underwriting exclusions and limitations
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