Question

2. An insurance pays losses subject to an ordinary deductible of $1000 and a coinsurance factor of 80%. The coinsurance factor is applied before the deductible, so that nothing is paid for losses below $1250. You are given: 1) Losses follow a two parameter Pareto distribution with ? = 2 2) Average payment per loss is 2500. Determine the average loss.

          2. An insurance pays losses subject to an ordinary deductible of $1000 and a coinsurance factor of 80%. The coinsurance factor is applied before the deductible, so that nothing is paid for losses below $1250. You are given:

1) Losses follow a two parameter Pareto distribution with ? = 2
2) Average payment per loss is 2500.

Determine the average loss.

2. An insurance pays losses subject to an ordinary deductible of 1000 and a coinsurance factor of 80%. The coinsurance factor is applied before the deductible, so that nothing is paid for losses below $1250. You are given:

1) Losses follow a two parameter Pareto distribution with ? = 2
2) Average payment per loss is 2500.

Determine the average loss.

Added by Peter V.

Elementary Statistics a Step by Step Approach

Allan G. Bluman 9th Edition

Instant Answer

Solved by Expert Prabhakar Kumar

06/20/2022

Step 1

Step 1:** Given that losses follow a two-parameter Pareto distribution with α = 2, we know that the mean of the Pareto distribution is given by: \[ \text{Mean} = \frac{\alpha \cdot \beta}{\alpha - 1} \] ** Show more…

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An insurance pays losses subject to an ordinary deductible of $1000 and a coinsurance factor of 80%. The coinsurance factor is applied before the deductible, so that nothing is paid for losses below $1250. You are given: 1) Losses follow a two-parameter Pareto distribution with α = 2. 2) Average payment per loss is 2500. Determine the average loss.