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Calculate the costs for both alternatives

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Reference no: EM133016517

Question - A car insurance company faces the risk that customers involved in an accident may select a repair shop that overcharges for repairs. The insurance company determines that this risk has a likelihood of 15%. The company handles on average 1,500 claims per month requiring a repair and assumes that the additional costs per incident of overcharging are $1,000 on average. The insurance company considers using an appraiser to estimate the costs of each repair before it is sent to the workshop. This service would be used for all claims and would cost $110 per claim but would reduce the risk of overcharging by 10%. Calculate the costs for both alternatives and advise what the insurance company should do?

Reference no: EM133016517

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