The loss from a theft is exponential with mean $1,000. The policy has a deductible of $250.
Calculate the expected payment by the insurer per loss.
Set the loss, the deductible, a limit and coinsurance. You get the expected payment per loss and per payment, with the working.
Expected payment per loss
778.80
77.9% of losses lead to a payment.
| Deductible d | The first part of each loss, which the policyholder pays |
|---|---|
| Maximum covered loss u | The part of a loss above u is not covered |
| Coinsurance | The share of the covered loss the insurer pays |
| Per loss | Averaged over every loss, including those that pay nothing |
| Per payment | Averaged only over losses that lead to a payment |
An exponential loss is memoryless: given that it exceeds the deductible, the excess is exponential with the same mean. So the expected payment per payment is simply the mean loss, whatever the deductible.
Per loss, multiply by the chance the loss exceeds the deductible: θe^(−d/θ).
The loss from a theft is exponential with mean $1,000. The policy has a deductible of $250.
Calculate the expected payment by the insurer per loss.
A loss from a burglary is uniformly distributed on . The policy pays the loss above a deductible of $200, up to a maximum payment of $500.
Calculate the expected payment.
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The insurer pays the loss minus the deductible when the loss is larger, and nothing otherwise. Take the expected value of that payment: for an exponential loss with mean θ and deductible d it is θe^(−d/θ).
Per loss averages over every loss, including those below the deductible that pay nothing. Per payment averages only over losses that lead to a payment, so it is larger: divide the per-loss figure by the probability that the loss exceeds the deductible.
Because a loss below the deductible pays zero, not a negative amount. Subtracting the deductible from the mean treats those small losses as negative payments and gives an answer that is too low.
With coinsurance the insurer pays a fixed share, such as 80%, of the covered loss after the deductible. Multiply the expected covered amount by that share.
If losses rise and the deductible stays the same, more losses exceed it and each exceeds it by more. The expected payment rises by more than the rate of inflation.