Question

6. Assume that the probability of a driver getting into an accident is 6.4%, the average cost of an

Answer 1

Answer:

This driver's insurance premium should be at least $990.43.

Step-by-step explanation:

We are given that the probability of a driver getting into an accident is 6.4%, the average cost of an accident is $13,991.05, and the overhead cost for an insurance company per insured driver is $95.

As we know that the expected cost that the insurance company has to pay for each of driver having met with the accident is given by;

The Expected cost to the insurance company = Probability of driver getting into an accident $\times$ Average cost of an accident

So, the expected cost to the insurance company = $0.064 \times \ 13,991.05$

                                                                                  = $895.43

Also, the overhead cost for an insurance company per insured driver = $95. This means that the final cost for the insurance company for each driver = $895.43 + $95 = $990.43.

Hence, this driver's insurance premium should be at least $990.43.