An insurance company sells insurance policies with a deductible of 300. The company has determined that claim amounts follow an exponential distribution with mean 2000. In order to improve profitability, the company plans to impose a coinsurance factor of 80%. Calculate the amount by which expected payment will decrease as a result of this new change. A: 263 B: 296 C: 344 D: 396 E: 427
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Step 1
Since the claim amounts follow an exponential distribution with mean 2000, the expected payment is the mean minus the deductible, which is 2000 - 300 = 1700. Show more…
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