One million people live in the Garden of Nede. The garden is a food supplier, selling a fruit. The owner of the garden will do anything to maximizes his profit. Even the fruit is very tempting but it also make people who eats the fruit become sick. The owner of the garden considers two intervention programs to save his business. Program I is an education program consisting of nutritional guidelines targeted at stopping this fruit consumption. Program II is an anecdote program whereby a doctor is sent to the garden.

The following are information for both programs:

Additional information:

(i) All claim payments will be made at the end of year four for Program I and six years for Program II.

(ii) Materials expenses are 11.4 percent of the expected claim cost.

(iii) Loss adjustment expenses for Program I and Program II are 24 percent and 26.6 percent of the expected claim cost respectively.

(iv) Premium taxes cost are 8.75 percent of pure premium for Program I and 6.75 percent for Program II.

(v) Administrative expenses are 29.6 percent of pure premium.

(vi) Underwriting costs for Program I and Program II are 23.3 percent and 19.6 percent of pure premium respectively.

(vii) Profit loading is 5.5 percent of pure premium.

(viii) Cost of claim processing is RM23,850 for Program I and RM28,675 for Program II.

(ix) The risk premium for Program I and Program II are 3.8 percent and 2.8 percent respectively and risk-free rate is 6.2 percent for both programs.

Based on the information above, calculate the fair premium for each program.

Answer rating: 100% (QA)

Program I The expected claim cost is 1000000 x 01 x 4 RM400000 The ... View the full answer