When we purchase expensive items, we automatically accept certain risks. Expensive items can be lost, stolen, or damaged in a variety of ways. To protect ourselves from these risks we can often obtain insurance. When we buy insurance we are in fact sharing the total costs of certain risks with an entire pool of consumers. But how are these pools of consumers identified? How are the risks calculated? How do we determine the costs associated with specific types of risk ; and how do we calculate an individual's contribution to these costs?

The following exercise will help us explore these issues. Complete each question in order, as the answers for each question will assist you in discovering the answer to the next.

Insuring Laptop Computers Amongst Students
A Hypothetical Case Study

Let us assume that Super ZX laptop computers cost $4,000.00 each. Let us also assume that, of the 100,000 computers owned by students, 5000 insurance claims are filed for lost, stolen or destroyed machines each year. Finally, let us assume that, although the number of machines owned are divided equally between boys and girls, of the 5000 machines that are lost, stolen, or destroyed each year, 3500 of these computers are owned by male students.

Identifying Risk Groups

1. What percentage of the claims for Super ZX laptop computers are made by male students?

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2. What percentage of the claims for Super ZX laptop computers are made by female students?

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3. What is the total cost of the insurance claims made by males students?

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4. What is the total cost of the insurance claims made by females students?

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Calculating Costs

5. What is the rate of loss for Super ZX computers associated with students in general?

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6. What is the rate of loss for Super ZX computers associated with male students?

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7. What is the rate of loss for Super ZX computers associated with female students?

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8. If we were to calculate just one annual insurance premium for all students, what would it cost to insure a student's Super ZX computer?

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9. If we were to calculate an annual insurance premium for male students, what would it cost to insure a male student's Super ZX computer?

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10. If we were to calculate an annual insurance premium for female students, what would it cost to insure a female student's Super ZX computer?

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11. Do you think it would be better to create a general premium amount for all students, or to make different premiums for male students and female students?

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