Question

In: Statistics and Probability

An insurance company provides theft insurance for a set ofdiamond jewellery. In the event of​...

An insurance company provides theft insurance for a set of diamond jewellery. In the event of theft, the policy pays $ 10 million. Theft for this kind of jewellery happens only very rarely, with a chance of 0.01%. How much (in terms of insurance premium) would the insurance company charge its client, in order to break even on average?

Solutions

Expert Solution

payment (if theft occurs) = $10 million

P(theft) = 0.01% = 0.0001

premium for break even = payment(theft)*P(theft)

= $10 million * 0.0001

= $ 10,000,000 * 0.0001

= $ 1000

therefore,

insurance​ premium that the insurance company charge its​ client = $1000

orchestra answered 2 years ago
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