The answer states that in a fast growing population, PAYG premiums would be less than funded premiums. I am having contradictory thoughts. For example, in a fast growing population the claims paid by SunInsure in the following year will likely be increasing. As such, SunInsure should ensure the premiums charged allow for population growth, presumably as growth will be factor in modelling premium, perhaps leading to increased premiums! Conversely, If growth is not taken into account in premium setting, then there will be a lag in premium adequacy; even so premiums in this scenario would not be particularly low as they would need to cover claims based on volumes from prior years. In the private industry, insurers reserves and pricing should take account of this growth, keeping premiums reasonably stable. With an option to increase premiums for more margin to offset some growth. What am I missing here?
I don't think you're missing anything. At the end of the day, the PAYG premiums could be lower or higher than funded premiums depending on a multitude of other factors, for example competition, strategy, pricing methodology etc.
