Question
You are working for a local insurance company located in Southern California, a region that has some of the highest earthquake risks in the U.S.
You are working for a local insurance company located in Southern California, a region that has some of the highest earthquake risks in the U.S. Your firm is considering offering two new insurance products for two distinct types of pure risks, where the policyholders' losses will be combined in a risk pool: Policy A: car insurance for property and liability damages for local residents only. Policy B: earthquake insurance for property damages for local residents only. Which of these policies would be expected to benefit the most from risk pooling? Briefly explain your choice by considering the correlation among losses under each policy.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started