In the "good old day" he paid $75, and that covers all his expected
loss, fixed and variable expense. (see EXHIBIT A SHEET 1)
Now, under an equity flag, he pays:
$68 * 1.00 * 1.00 + $10 = $78
Do we think his expected loss increased? No, I think he is still a
good risk. Is his expenses increased? If so, I think we owe him an
explanation. The only feeling he has at this point is that he is
penalized only because he is a good risk. My feeling is that if
we stand up for Insured D, we definitely will lose our raise.
Back to part 6, if we think for base class the fixed expenses is 6.4%
of the total base class premium, and in our example that is $4.80,
why the Expense Fee is not FIXED at this level, but goes from
my $6.77 (without considering we offer increased limits coverage)
to as high as $10.16? And I am still not convinced that the $68
can cover the loss and variable expenses for base class.