Suppose that Manny’s loss distribution is as follows: Assume that the EXPENSE component of processing the claim is $500

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Suppose that Manny’s loss distribution is as follows:

Suppose That Manny S Loss Distribution Is As Follows Assume That The Expense Component Of Processing The Claim Is 500 1 (42.41 KiB) Viewed 62 times

Assume that the EXPENSE component of processing the claim is
$500 regardless of the claim size. Ignoring moral hazard, adverse
selection, the time value of money, and capital costs (PROFIT
LOADING) – the cost of providing insurance is
Premium= E(LOSS) + EXPENSE
2 scenarios: (1) NO DEDUCTIBLE, (2) $1,000 deductible
How much money you can save if you choose policy with $1,000
deductible? What are the purposes of deductible?
Xi Pi $5,000 0.01 2,000 0.04 1,000 0.15 0 0.8