Monday, August 27, 2007

Insurance Rates

An insurance company has three types of customers; high risk, medium risk and low risk. Twenty percent are high risk and 30% are medium risk. The probability that a customer has had at least one accident in the current year is .25 for high risk, .16 for medium risk and .10 for low risk.

What's the likelihood that a customer chosen at random has had at least one accident in the the current year?


  1. I came up with 14.8%. I took the weighted averages of the probabilities based on percentage of clientelle in that category.

    High: 20% X .20= .05
    Med: 30% X .16= .048
    Low: 50% X .10= .05

    The sum of these probabilities is .148, or 14.8%.

  2. Anon has the right idea, but he has a Typo in his solution:

    High: 20%X .25 = .05

    Otherwise, good job.


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