2016 Fall 10 - Fees reimbursement
Hi Graham,
I have a question on some sample responses of the examination report for question 10c of 2016 fall:
Sample 3 of criterion (i) – Member transfers the premium excluding fees like commissions/agents, and are subject to a limit depending on the province. here I understand that the insurer transfers the premium, but minus the fees that the insurer keeps to itself.
Sample 1 – The pool reimburses the insurer a premium commission, so that the insurer can pay for their acquisition expenses. The pool does not pay any of the expense so the pool transfers back a percentage of the insurer’s premium.
Here I understand that the pool reimburses the insurer the fees. But why is there a need for the pool to reimburse the insurer some fees, when to start with the insurer had kept the fees from the transferred premium as per sample 3 ? It seems to me like the insurer gets more fees than it should get.
Comments
It does seem like the member company is being reimbursed twice but the reimbursement in (i) and (ii) are actually for different things. Here's the paragraph from the source text where the answer to that question comes from:
For (i), the member company gives all the written premium to the pool except premium payment service charges, which could be something like charges incurred from making credit card payments.
For (ii), the pool reimburses the member company for all the real expenses, like claims adjustment and acquisition costs.
If you quoted the source text, you would receive full credit. I would ignore the examiner's reports answers for this question because it's pretty clear from the above excerpt of the source text what the graders were looking for. (It looks like the graders were lenient in what they accepted because I suspect most people wouldn't have memorized that paragraph.)
I understand, thanks for the reference and clarifications!