CAS Exam MAS-II Spring 2019, Question 30
Study guide: Exam MAS-II
Insurance company XYZ writes personal auto insurance. You are given:
- XYZ classifies drivers into two categories: risky and non-risky.
- Risky drivers have a 50% probability of filing an auto claim in a policy year.
- Non-risky drivers have a 5% probability of filing an auto claim in a policy year.
- Risky drivers comprise 20% of the population. The remaining 80% are non-risky.
A new driver submits a personal auto insurance application to ABC and mentions that he filed a claim with his previous insurance company in the most recent policy year.
Calculate the probability that the new driver will file an auto claim in the new policy year.
- A) Less than 10%
- B) At least 10%, but less than 20%
- C) At least 20%, but less than 30%
- D) At least 30%, but less than 40%
- E) At least 40%
Answer this question and see the worked solution
Concepts tested
- Bayes Theorem
- Bayesian Credibility
- Conditional Probability
- The Law of Total Probability
- Posterior Distribution