Final answer:
In Pennsylvania, auto liability policies must have minimum limits for bodily injury and property damage as prescribed by state law. A simplified illustration with 100 drivers paying $1,860 each shows how insurance premiums are set to cover accident costs.
Step-by-step explanation:
The Pennsylvania Motor Vehicle Financial Responsibility Law requires that an auto liability policy issued for delivery in the state must have bodily injury and property damage limits not less than certain minimum amounts. While the specific values are not provided in the question, typically these limits are set by the state law and must be adhered to by any policy issued in that state.
To understand the importance of these requirements, let's consider a simplified example of automobile insurance: if we divide a group of 100 drivers into three risk groups and calculate the premiums based on the total damages incurred by car accidents, it gives us insight into how insurance companies set their premiums.
For instance, if each of the 100 drivers pays a $1,860 premium each year, the insurance company will collect the $186,000 that is needed to cover the costs of the accidents that occur.