ssuming all drivers purchase insurance. What is the premium P an insurance company would charge to have 0 expected profits? 4. Will careful drivers purchase this policy? What about risky drivers? 5. What is the premium risky drivers are willing to pay for a partial insurance contract that in a case of an accident pays $5, 000? 5
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This can be done by multiplying the probability of an accident by the cost of the accident. Show more…
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A race-car driver wishes to insure his car for the racing season for $50,000. the insurance company estimates a total loss may occur with probability 0.002, a 50% loss with probability 0.01, and a 25% loss with probability 0.1, ignoring all other partial losses, what premium should the insurance company charge each season to realize an average profit of $500?
Madhur L.
For simplicity, let us assume that there are two kinds of drivers. The safe drivers, who are $70 \%$ of the population, have probability. 1 of causing an accident in a year. The rest of the population are accident makers, who have probability. 5 of causing an accident in a year. The insurance premium is 400 dollar times one's probability of causing an accident in the following year. A new subscriber has an accident during the first year. What should be his insurance premium for the next year?
Discrete Random Variables and Their Probability Distributions
Summary
Automobile Insurance An insurance company classifies drivers as low-risk, medium-risk, and high-risk. Of those insured, $60 \%$ are low-risk, $30 \%$ are medium-risk, and $10 \%$ are high-risk. After a study, the company finds that during a 1 -year period, $1 \%$ of the low-risk drivers had an accident, $5 \%$ of the medium-risk drivers had an accident, and $9 \%$ of the high-risk drivers had an accident. If a driver is selected at random, find the probability that the driver will have had an accident during the year.
Evelyn C.
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