Actuarially Fair Insurance Consider an insurance market that covers full losses with: - 3000 individual policy holders each with $15000 of wealth - The probability of a $10000 loss - Pr( Loss =$10000)=0.02 - The probability of a $6000 loss - Pr( Loss =$6000)=0.06 - The probability of a $800 loss - Pr(Loss =$800)=0.28 - The probability of a $0 loss Pr( Loss =$0)=0.64 Write down enough information to justify your response. 6. What is the total amount of losses you'd expect from all groups? What is the average amount of loss for the 3000 individuals? 7. Calculate the expected value of loss. This is the price of actuarially fair insurance. 8. Assume individuals are willing to pay 10% more than the actuarially fair price for insurance. Calculate this price. Explain why individuals would be willing to pay a price above the actuarially fair insurance price. 9. Calculate the total revenue this will generate for the insurer from this premium