Discuss the below:
Q: An insurer sells a very large number of policies to people who each have the following identical loss (claims) distribution
Loss/claim Probability
100,000 .005
60,000 .010
20,000 .020
10,000 .050
0 .915
A. Calculate the Expected claim cost per person.
B. Assume claims are paid out 1 year after premiums are received and the discount rate is 6%. Calculate the Present value of expected claim cost
C. Assume that the only administrative cost is the cost of processing an application which is $100 per policy and that the fair profit loading is $50. Calculate the Fair premium .
Redo problem 1, but include the expected costs of lost adjustment expenses (the cost of processing claims) assuming that loss adjustment expenses equal 12% of losses and are paid at the time that claims are paid.
A. Expected loss adjustment expenses =
B. Present value of expected loss adjustment expenses =
C. Fair premium =