Invoice totals for insurance are determined by actuaries who study the likelihood of the company paying a claim on a particular policy. So why do different insurance companies charge different amounts for the same coverage? The policy total is determined by the population of former and current policy holders for each company. A different pool of policy holders produces different results. However, the commonalities are often similar. The law of large numbers gives an insurance company a fairly reliable indication of what each insurance policy will cost the company, on average. Some policy holders will go for years without making a claim. Other policy holders will cut into the bottom line profit with costly claims which are not always recouped as policy holders sometimes change insurance providers. After natural disasters, a large volume of claims are filed which also must be planned for when setting policy rates. Although natural disasters and large claims are not typically common, the law of large numbers does provide an average for policy costs across many different classifications and over time. Compute the expected value for an insurance claim given the following information: Expected Value = $ Claim Value $0 $2000 $3500 $10,000 Number of Claims 825 105 50 20
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Invoice totals for insurance are determined by actuaries who study the likelihood of the company paying a claim on a particular policy. So why do different insurance companies charge different amounts for the same coverage? The policy total is determined by the population of former and current policy holders for each company. A different pool of policy holders produces different results. However, the commonalities are often similar. The law of large numbers gives an insurance company a fairly reliable indication of what each insurance policy will cost the company, on average. Some policy holders will go for years without making a claim. Other policy holders will cut into the bottom line profit with costly claims which are not always recouped as policy holders sometimes change insurance providers. After natural disasters, a large volume of claims are filed which also must be planned for when setting policy rates. Although natural disasters and large claims are not typically common, the law of large numbers does provide an average for policy costs across many different classifications and over time.
Compute the
expected value for an insurance claim given the following information:Expected Value = $
|
Claim Value |
$0 |
$2000 |
$3500 |
$10,000 |
|
Number of Claims |
825 |
105 |
50 |
20 |
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