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A flood insurance policy has the following distribution this year: The frequency of claims has a Poisson distribution with =4=4. The severity of claims has
A flood insurance policy has the following distribution this year:
- The frequency of claims has a Poisson distribution with =4=4.
- The severity of claims has a Pareto distribution with =5=5 and =6=6.
Next year, the severity of claims is expected to increase by 20%. The frequency of claims is expected to have the same distribution.
A deductible of 1 per claim is imposed both this year and the next.
Calculate the expected value of the aggregate annual payments for the insurer next year.
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