Equivalent Flat Rate
Categories: Insurance
In Europe, they have these things called Insurance Guarantee Schemes. The name sounds like some sort of scam, or maybe an insurance sales pyramid hustle ("You'll make money! We guarantee!"). But it's actually part of the regulatory structure.
The IGSs provide a backstop for the insurance industry. If your insurance company (you're a European in this example) goes belly-up and can't pay your claim, the IGS will pay it off. It's a government scheme set up to guarantee your insurance. You know...an insurance guarantee scheme.
Anyway, there are two ways that the IGS does its financing. There's the flat-rate method and the risk-based method. The flat rate uses a percentage of an insurance company's premiums. The risk method looks at the amount of risk the policy entails.
The equivalent flat rate is the point at which these two methods would be the same. Conceptually, it blends the two.
That's how things roll on The Continent.