HEALTHY FISH LTD Healthy Fish Ltd. insures against accidents of its motor fleet. The fleet consists of highly specialised, imported refrigerator trucks. Contributing factors to the high number of incidents are the poor conditions of the municipal and provincial roads.

Table 1: Loss experience of the motor fleet over the last five years

Year No. of vehicles Average loss per event No of accidents Total cost for the year

1 20 R 1,500,000 10 R 15,000,000

2 20 R 2,200,000 12 R 26,400,000

3 25 R 1,750,000 15 R 26,250,000

4 30 R 2,000,000 20 R 40,000,000

5 50 R 3,500,000 25 R 87,500,000

Table 2: Quotations under consideration for the insurance of the motor fleet

Quote number Quoted annual premium Annual limit for damage to motor fleet Deductible

1 R 15,000,000.00 R 60,000,000 R 0

2 R 10,000,000.00 R 30,000,000 R 25,000

3 R 8,500,000.00 R 25,000,000 R 50,000

4 R 6,000,000.00 R 20,000,000 R 70,000

5 R 5,000,000.00 R 10,000,000 R 100,000

QUESTION

Calculate the optimum deductible according to the total expected cost (TEC) rule Show all calculations.

Answer rating: 100% (QA)

To calculate the optimum deductible according to the total expected cost TEC rule we need to consider the expected cost for each quotation by taking into account the annual premium and the potential c... View the full answer