4. (10 points) Suppose that Manny's loss distribution is as follows: Xi Pi $5,000 0.01 2,000...

 

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4. (10 points) Suppose that Manny's loss distribution is as follows: Xi Pi $5,000 0.01 2,000 0.04 1,000 0.15 0.8 Assume that the EXPENSE component of processing the claim is $500 regardless of the claim size. Ignoring moral hazard, adverse selection, the time value of money, and capital costs (PROFIT LOADING) – the cost of providing insurance is Premium= E(LOSS) + EXPENSE 2 scenarios: (1) NO DEDUCTIBLE, (2) $1,000 deductible How much money you can save if you choose policy with $1,000 deductible? What are the purposes of deductible? 4. (10 points) Suppose that Manny's loss distribution is as follows: Xi Pi $5,000 0.01 2,000 0.04 1,000 0.15 0.8 Assume that the EXPENSE component of processing the claim is $500 regardless of the claim size. Ignoring moral hazard, adverse selection, the time value of money, and capital costs (PROFIT LOADING) – the cost of providing insurance is Premium= E(LOSS) + EXPENSE 2 scenarios: (1) NO DEDUCTIBLE, (2) $1,000 deductible How much money you can save if you choose policy with $1,000 deductible? What are the purposes of deductible?

Answer rating: 100% (QA)

No deductible Premium E L OSS EXP ENSE 2 000 500 2 500 1 000 deductibl... View the full answer