Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk

Question:

Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk pool are distributed independently.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Introduction to Risk Management and Insurance

ISBN: 978-0131394124

10th edition

Authors: Mark S. Dorfman, David Cather

See More Books

Question Posted: Dec 07, 2015 06:11 AM

See More Questions

Suppose Bryson develops a production process that is most efficient when 6,000 yards/day are produced at a cost of $4.50/yard. Everything else remains the same. How does this affect the calculation...
Suppose the firm has only three possible scales of production as shown below: a. Which scale of production is most efficient when Q = 65? b. Which scale of production is most efficient when Q = 75?...
Advertising as Quality Signal: In the text, we have discussed two possible motives for advertising, one focused on providing information (about the availability of goods or the prices of goods) and...
You work for a gas turbine design company and have a client who has a fairly loose specification for a gas turbine engine. You are required to design an aviation gas turbine to power the aircraft...
Given the regression equation Y = 100 + 10X a. What is the change in Y when X changes by +3? b. What is the change in Y when X changes by -4? c. What is the predicted value of Y when X = 12? d. What...
What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 10-year annuity of $10,000 per year at the current interest rate of 10 percent per...
Discuss the use of force-field analysis in promoting change in a healthcare organization.
On January 1, 2008, Davis Corporation issued $3,000,000 of 8% bonds at 103. Interest is paid annually on December 31 of each year. The bonds mature on December 31, 2027, and the company uses the...
Jillet Corporation began the year with inventory of 2 6 , 0 0 0 units of its only product. The units cost $ 8 each. The company uses a perpetual inventory system and the FIFO cost method. The...
1. How will you characterize Tupperwares distribution strategy in relation to the theoretical models? 2. What are the advantages and disadvantages of Tupperwares distribution model? 3. How do you...
Based on Equation 5-3, explain why hedging is a useful risk-handling technique.
The term insurance can be defined in both financial and legal terms. How do these definitions differ?
What questions should you ask yourself when you evaluate the content and format of your cover letters?
The Purple Company This project will give you an opportunity to apply your knowledge of accounting principles and procedures to a corporation. You will handle the accounting work of The Purple...
Comprehensive Problem Bug-Off Exterminators (Algo) Bug-Off Exterminators provides pest control services and sells extermination products manufactured by other companies. Following is the company's...
The Michigan Company has made the following information available for its production facility for the month of June. Fixed overhead was estimated at 19,000 machine hours for the production cycle....
Question 1 Copper Explorations recently acquired the rights to mine a new site. Machinery, equipment and a truck were purchased to begin the mining operations at the site. Details of the assets for...
Large Data Sets from Appendix B. In Exercises 25-28, refer to the indicated data set in Appendix B. Use software or a calculator to find the means and medians. [Data Set] Weights Use the weights of...
Conduct an Internet search to identify three countries (other than the United States) that have readily accessible data on unemployment and inflation. For each country, based on its most recent...
Suppose that A is an m n matrix with linearly independent columns and the linear system LS(A, b) is consistent. Show that this system has a unique solution.
Given that shareholders can diversify away an individual firms exchange rate risk by investing in a variety of firms, why are firms concerned about exchange rate risk?
Bolivia currently has a nominal one-year risk-free interest rate of 40 percent, which is primarily due to the high level of expected inflation. The U.S. nominal one-year risk-free interest rate is 8...
For all parts of this question, assume that interest rate parity exists, the prevailing one-year U.S. nominal interest rate is low, and that you expect U.S. inflation to be low this year. a. Assume...
New York Co. has agreed to pay 10 million Australian dollars (A$) in 2 years for equipment that it is importing from Australia. The spot rate of the Australian dollar is .60. The annualized U.S....
ABC Company engaged in the following transaction in October 2 0 1 7 Oct 7 Sold Merchandise on credit to L Barrett $ 6 0 0 0 8 Purchased merchandise on credit from Bennett Company $ 1 2 , 0 0 0 . 9...
Lime Corporation, with E & P of $500,000, distributes land (worth $300,000, adjusted basis of $350,000) to Harry, its sole shareholder. The land is subject to a liability of $120,000, which Harry...
A comic store began operations in 2018 and, although it is incorporated as a limited liability company, it decided to be taxed as a corporation. In its first year, the comic store broke even. In...

Explain why insurance risk pooling is most efficient when the losses from the policyholders in the risk

Question:

Step by Step Answer:

To conclude I can say that when losses are random ...View the full answer

Introduction to Risk Management and Insurance

Students also viewed these Corporate Finance questions