a)     Blue Mountain Coffee Company offers medical costs coverage for its employees. Its probability distribution for medical costs for the coming year is as follows:

 

          $ 0                              with a probability of 0.9245

           $ 4,000                       with a probability of 0.040

           $ 18,000                     with a probability of 0.0250

           $ 85,000                     with a probability of 0.0100

           $ 900,000                   with a probability of 0.0005

 

Determine the expected claim costs for each of the following policies:

          i.           Full insurance.      

        ii.           $2,000 deductible, 20 percent coinsurance, and a $600,000 limit.  

 

b) Some insurance departments develop summaries of auto insurance rates charged by different insurers for a benchmark set of coverages and driver characteristics and make this available to consumers on request. Describe the possible benefits and costs of this form of disclosure, including the usefulness of this information.