A study conducted by a research firm revealed that RiteCure Health Insurance charges higher premiums than most of its rivals. The study also revealed that unlike its rivals, 60% of RiteCure's customers have chronic illnesses
a) What is the link between these two findings? b) What is likely to happen if the premium continues to rise?
a) Because 60% of RiteCure's customers have chronic diseases, they are more likely to fall ill. As a result, RiteCure needs larger amounts of money to cover the medical costs of its customers. It therefore charges a higher premium than its rivals do.
b) If the premium continues to rise, low-risk individuals are less likely to buy the insurance. This will cause the proportion of high-risk customers to increase, further pushing up the premium.
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