Question

Atrap and Bracken are two rival insurance companies. Atrap and Bracken have premiums of $150 and $100 and deductibles of $2,500 and $3,500 respectively. The average expense of surgery is $25,000.If after 1 year, 5 of the 1,000 people registered with Atrap have gone through surgery, where does Atrap stand in terms of gains or losses?

Answer 1

The premiums are the prices people pay to have the insurance coverage. The deductible is the amount one pays if he or she needs to use the insurance, in this case, if someone needs a surgery.

If 1,000 people register for Atrap, it's $150*1,000 = $150,000.

If 5 people need surgery, it's 5*25,000 = $125,000 in expenses.

Antrap has 2,500*5 = $12,500 in deductibles. That makes the expenses $112,500.

So, $150,000-112,500 = $37,500

Answer: Atrap has $37,500 gains.