CAS Exam 5 Spring 2017, Question 11
Study guide: Exam 5
Given the following information:
| Size of Loss ($000) | Loss Distribution | Average Reported Loss ($000) |
|---|---|---|
| X <= 200 | 20% | 100 |
| 200 < X <= 400 | 20% | 300 |
| 400 < X <= 600 | 20% | 500 |
| 600 < X <= 800 | 20% | 700 |
| 800 < X <= 1,000 | 20% | 900 |
| Total | 100% | 500 |
- Expected claim frequency = 1%.
- Expected losses are uniformly distributed.
- A home is valued at $1,000,000.
Part a (1 point)
Calculate the rate per $1,000 of coverage for the home at the following amounts of insurance:
i. $1,000,000 ii. $600,000
Part b (0.5 points)
Briefly discuss a problem associated with underinsurance from the following perspectives:
i. Insured ii. Insurer
Part c (1 point)
The home is insured for $700,000 with no deductible and a coinsurance requirement of 80%. Calculate the indemnity payments and coinsurance penalties for the following losses:
i. $600,000 ii. $850,000
Answer this question and see the worked solution