Final answer:
The total cost of the 36-month insurance policy with a premium of $20,700 is $20,700, and this is the full cost for the duration of the policy. In a theoretical scenario, an insurance company collecting $1,860 premiums annually from each of 100 drivers would gather $186,000 to cover anticipated accident claims.
Step-by-step explanation:
The total cost of the insurance policy for a company that paid a $20,700 premium on a 36-month policy is $20,700. This is the entire cost of the policy over the three-year period it covers as there is no additional information suggesting other costs or fees. In contrast, if we consider an example where each of 100 drivers pays a $1,860 premium each year, an insurance company would collect $186,000 annually, which is set to cover the predicted costs of claims from accidents.
This calculation is part of the broader concept of insurance and risk management and the insurance market's challenge of dealing with adverse selection due to asymmetric information between insurers and insured parties. Adverse selection occurs when insurance providers cannot accurately differentiate between low-risk and high-risk clients, leading to pricing premiums that may result in financial losses or discourage low-risk customers from purchasing insurance.