An insurance company found that 2.5% of male drivers between the ages of 18 and 25 are involved in serious accidents annually. Assume that every such accident costs the company $65,000 and that a driver can only have one of these accidents in a year. If the company charges $2,500 for such coverage, what is the probability that it loses money on a single policy? Suppose that the company writes 1,000 such policies to a collection of drivers. What is the probability that the company makes a profit on these policies? Assume that the drivers do not run into each other and behave independently. Does the difference between the probabilities of parts (a) and (b) explain how insurance companies stay in business? Large auto insurers are certainly profitable. One report, for example, claims that Allstate pays out less than $0.50 in accident claims for every dollar
An insurance company found that 2.5% of male drivers between the ages of 18 and 25 are involved in serious accidents annually. Assume that every such accident costs the company $65,000 and that a driver can only have one of these accidents in a year. If the company charges $2,500 for such coverage, what is the probability that it loses money on a single policy? Suppose that the company writes 1,000 such policies to a collection of drivers. What is the probability that the company makes a profit on these policies? Assume that the drivers do not run into each other and behave independently. Does the difference between the probabilities of parts (a) and (b) explain how insurance companies stay in business? Large auto insurers are certainly profitable. One report, for example, claims that Allstate pays out less than $0.50 in accident claims for every dollar
Holt Mcdougal Larson Pre-algebra: Student Edition 2012
1st Edition
ISBN:9780547587776
Author:HOLT MCDOUGAL
Publisher:HOLT MCDOUGAL
Chapter11: Data Analysis And Probability
Section11.8: Probabilities Of Disjoint And Overlapping Events
Problem 2C
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An insurance company found that 2.5% of male drivers between the ages of 18 and 25 are involved in serious accidents annually. Assume that every such accident costs the company $65,000 and that a driver can only have one of these accidents in a year.
If the company charges $2,500 for such coverage, what is the probability that it loses money on a single policy?
Suppose that the company writes 1,000 such policies to a collection of drivers. What is the probability that the company makes a profit on these policies? Assume that the drivers do not run into each other and behave independently.
Does the difference between the probabilities of parts (a) and (b) explain how insurance companies stay in business? Large auto insurers are certainly profitable. One report, for example, claims that Allstate pays out less than $0.50 in accident claims for every dollar collected in premiums. (Business Week, 5/1/2006)
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