Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk

Question:

Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk pool are distributed independently.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Introduction to Risk Management and Insurance

ISBN: 978-0131394124

10th edition

Authors: Mark S. Dorfman, David Cather

See More Books

Question Posted: Dec 07, 2015 06:11 AM

See More Questions

Suppose Bryson develops a production process that is most efficient when 6,000 yards/day are produced at a cost of $4.50/yard. Everything else remains the same. How does this affect the calculation...
Suppose the firm has only three possible scales of production as shown below: a. Which scale of production is most efficient when Q = 65? b. Which scale of production is most efficient when Q = 75?...
Advertising as Quality Signal: In the text, we have discussed two possible motives for advertising, one focused on providing information (about the availability of goods or the prices of goods) and...
You work for a gas turbine design company and have a client who has a fairly loose specification for a gas turbine engine. You are required to design an aviation gas turbine to power the aircraft...
Given the regression equation Y = 100 + 10X a. What is the change in Y when X changes by +3? b. What is the change in Y when X changes by -4? c. What is the predicted value of Y when X = 12? d. What...
In this problem, you will put together much of what you have learned about Internet protocols. Suppose you walk into a room, connect to Ethernet, and want to download a web page. What are all the...
A class has 50 students. In how many different ways can five students form a group to work on a class project? (Assume the order of the students is not important.)
The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 2014, the accountant for The Signage Company prepared the following trial balances:...
(d) Write a PHP script to find the first non-repeated character in a given string. Example #1 Sample Input: apple Sample Output: a Example #2 Sample Input: abcab Sample Output: c Example #3 Sample...
Farm Fresh Ltd is a manufacturer of farm equipment that is sold by a network of distributors across Australia and New Zealand. The Service Division manufactures spare parts for the various models of...
Based on Equation 5-3, explain why hedging is a useful risk-handling technique.
The term insurance can be defined in both financial and legal terms. How do these definitions differ?
A linear phased array antenna consists of eight elements spaced with d = element spacing. (a) Give an expression for the antenna gain pattern (assume no steering and uniform aperture weighting). (b)...
Develop a MATLAB code to implement the SLC canceler.
a. Why is there a cost to retained earnings in investor-owned businesses? b. What are the three methods commonly used to estimate the cost of equity? c. Is the risk premium in the CAPM the same as...
Ying was struck when one of the lecturers on her postgraduate module talked about how managers often struggle when companies undergo changes such as mergers, and how they often fail to address their...
Assume that the demand curve for Pepsi passes through the following two points: a. Draw a graph with a linear demand curve that passes through these two points. b. Show on the graph the areas...
Briefly discuss the following concepts associated with cash flow estimation: a. Incremental cash flow b. Cash flow versus accounting income c. Cash flow timing d. Project life e. Terminal value f....
Let A = {1, 2, 3, 4, 5, 6}, B = {1, 3, 5}, C = {1, 6}, and D = {4}. Find each set. A B
Suppose you need to answer any four of seven essay questions on a history test and you can answer them in any order. a. How many different question combinations are possible? b. What is the...
Bolivia currently has a nominal one-year risk-free interest rate of 40 percent, which is primarily due to the high level of expected inflation. The U.S. nominal one-year risk-free interest rate is 8...
For all parts of this question, assume that interest rate parity exists, the prevailing one-year U.S. nominal interest rate is low, and that you expect U.S. inflation to be low this year. a. Assume...
New York Co. has agreed to pay 10 million Australian dollars (A$) in 2 years for equipment that it is importing from Australia. The spot rate of the Australian dollar is .60. The annualized U.S....
The following partially complete T-accounts for the month of June along with additional information are from Renfrew & Company: Materials Inventory Work-in-Process Inventory Finished Goods Inventory...
The information that follows pertains to Julia Company: (a) Temporary differences for the year 2024 are summarized below. Expenses deducted in the tax return, but not included in the income...
Harwood Company uses a job-order costing system that applies overhead cost to jobs on the basis of machine-hours. The company's predetermined overhead rate of $2.60 per machine-hour was based on a...

Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk

Question:

Step by Step Answer:

To conclude I can say that when losses are random ...View the full answer

Introduction to Risk Management and Insurance

Students also viewed these Corporate Finance questions