Policies to a collection of drivers

Reference no: EM131009185

An insurance company found that 2.5% of male drivers between the ages of 18 and 25 are involved in serious accidents annually. To simplify the analysis, assume that every such accident costs the insurance company +65,000 and that a driver can only have one of these accidents in a year.

(a) If the company charges +2,500 for such coverage, what is the chance that it loses money on a single policy?

(b) Suppose that the company writes 1,000 such policies to a collection of drivers. What is the probability that the company loses money on these policies? Assume that the drivers don't run into each other and behave independently.

(c) Does the difference between the probabilities of parts (a) and (b) explain how insurance compa- nies stay in business? Large auto insurers are certainly profitable.

Reference no: EM131009185

Questions Cloud

Drivers experience independent amounts of wear : If the manufacturer sells 500 sets of tires, what is the probability that it earns a profit after paying for any replacements? Assume that the purchases are made around the country and that the drivers experience independent amounts of wear.

Find points at which the tangents are vertical : Find, if they exist, points at which the tangents are vertical. Find, if they exist, points at which the tangents are horizontal.

When a total count was taken on december 31 2010 it was : When a total count was taken on December 31, 2010, it was determined that $20,000 of merchandise was still on hand. What was Salley's gross profit/loss as of December 31, 2010

Employee organizational commitment : What do you mean by the employee organizational commitment ?

Policies to a collection of drivers : Suppose that the company writes 1,000 such policies to a collection of drivers. What is the probability that the company loses money on these policies? Assume that the drivers don't run into each other and behave independently.

Manufacturer of heavy construction equipment : What do you mean by manufacturer of heavy construction equipment?

Contingency plan - marketing case : Contingency plan - case of failure of one or more strategies there is something to fall back onto - It is recommended that the promotion strategies are modified and certain new strategies are inculcated while promoting and advertising about the pub

Give a comprehensive coca cola background : Give a comprehensive Coca Cola background and history and the location

Difference between proportions of large gravel pieces : Out of 1200 pieces of gravel from one plant, 110 pieces are classified as "large." Out of 900 pieces from another plant, 95 are classified as large. Can you conclude that there is a difference between the proportions of large gravel pieces produce..

User Account

All Pages