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3 October, 16:06

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance?

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  1. 3 October, 16:11
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    Expected loss without insurance = $850

    Explanation:

    Given:

    Probability to got injured or killed = 1 / 1000

    Law suit average cost = $850,000

    Deductible insurance = $100,000

    Expected loss without insurance = ?

    Computation of Expected loss without insurance:

    Expected loss without insurance = Lawsuit average cost * Probability to get injured or killed

    Expected loss without insurance = $850,000 * (1 / 1000)

    Expected loss without insurance = $850
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