In: Economics
a. What is the actuarially fair premium? If the insurance company charges $750 per person per year, what is the loading factor?
b. Assume the insurance company has 100 people in the pool and
the insurance company is charging $750 per person per year. If one
person in the pool suffers from the loss, will the insurance
company be able to pay for the loss?
c. Assume the insurance company has 100 people in the pool and the
insurance company is charging $750 per person per year. If two
people in the pool suffer from the loss, will the insurance company
be able to pay the losses?
d. What happens to the variability of the expected value of a loss
as the number of people in the group increases?