Find fair price for the insurance policy, Operation Management

A1 Inc. has $1 million in assets at a job site and, applying a risk transfer approach, wishes to address risk by taking out an insurance policy. The insurance carrier provided its statistical data in the table below. Based on that data and assuming an agreed upon $450 fee for handling and profit for the carrier, what should A1 consider a fair price for the insurance policy?

Equipment Value
$ 1,000,000
Type Damage
Probability (%)
Extent of Loss (%)
Total
0.02%
100%
Medium
0.08%
40%
Low
0.10%
20%
No Damage
99.80%
0%

Posted Date: 2/12/2014 4:50:03 AM | Location : United States







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