CAS Exam 5 Fall 2018, Question 13
Study guide: Exam 5
Given the following information about a home's propensity for loss:
| Size of Loss | Loss Distribution |
|---|---|
X \le \$400{,}000 |
50.0% |
\$400{,}000 < X \le \$550{,}000 |
25.0% |
\$550{,}000 < X \le \$700{,}000 |
10.0% |
\$700{,}000 < X \le \$850{,}000 |
10.0% |
\$850{,}000 < X \le \$1{,}000{,}000 |
2.5% |
\$1{,}000{,}000 < X \le \$1{,}500{,}000 |
2.5% |
| Total | 100.0% |
- Expected claim frequency is 2%.
- Expected losses are uniformly distributed within each layer of loss.
- The home is valued at $1,500,000.
Part a (1.25 points)
Calculate the rate per $1,000 of coverage for the home at the following amounts of insurance:
i. $1,500,000 ii. $800,000
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 $1,000,000 with a coinsurance requirement of 80%. Calculate the indemnity payments and coinsurance penalties for the following losses:
i. $800,000 ii. $1,200,000
Answer this question and see the worked solution