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  3. losses for a line of insurance follow a pareto dis

Losses for a line of insurance follow a Pareto distribution with 0 = 2000 and...

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Losses for a line of insurance follow a Pareto distribution with 0 = 2000 and a = = 2. An insurer sells policies that pay 100% of each loss up to $5000. The next year the insurer changes the policy terms so that it will pay 80% of each loss after applying a $100 deductible. The $5000 limit continues to apply to the original loss amount. That is the insurer will pay 80% of the loss amount between $100 and $5000. Inflation will be 4%. Calculate the decrease in the insurer's expected payment per loss. Losses for a line of insurance follow a Pareto distribution with 0 = 2000 and a = = 2. An insurer sells policies that pay 100% of each loss up to $5000. The next year the insurer changes the policy terms so that it will pay 80% of each loss after applying a $100 deductible. The $5000 limit continues to apply to the original loss amount. That is the insurer will pay 80% of the loss amount between $100 and $5000. Inflation will be 4%. Calculate the decrease in the insurer's expected payment per loss

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