3. You are planning to purchase property insurance for your building. You are analyzing two insurance coverage bids. The bids are from comparable insurance companies, the coverages are identical, and the policy limits are the same. The premiums and deductibles, however, differ. Insurer As coverage requires an annual premium of Rs 1,00,900 with Rs 59,000 per-claim deductible. Insurer Bs coverage requires an annual premium of Rs 8,90,000 with a Rs 10,000 per-claim deductible. Based on experience you expect the following losses to occur over the next two years Expected number of losses Expected size in Rs 12 (1 loss at the end of every month) 50,090 6 (1 loss at the end of every 2 months) 69,000 4 (1 loss at the end of every quarter) 80,090 Which proposal you should select? Assume that premiums are paid at the start of the policy period. Losses and deductibles are paid at the end of every month, every quarter or every 6 months (as indicated in the table above). Assume the discount rate to be 16 percent. (You are expected to show every step and logic applied to arrive at your answer) 10 Marks

THE SUBJECT IS RISK AND INSURANCE.