Final answer:
You are required to report an accident once damage to property crosses a specific threshold, which varies by location. Using a theoretical example of 100 drivers with varying risk and damages, we find that at $186,000 in total damages, an insurance premium of $1,860 each would cover those costs. The provided scenario demonstrates how risk is pooled and costs are covered in an auto insurance model.
Step-by-step explanation:
You are required to report an accident when there is a certain amount of damage to anyone's property, which can vary by state or insurance policy. In the hypothetical scenario provided, where 100 drivers are divided into three risk categories with different average damage costs for accidents, the total damage incurred amounts to $186,000 when combining the minor, moderate, and major incidents. If each driver pays an annual premium of $1,860, the insurance company collects enough money to cover these damages incurred by car accidents in the group. This simplified example illustrates the way automobile insurance is designed to spread risk among multiple policyholders to cover the financial costs of accidents.
Total damage and insurance premiums play crucial roles in this example. If an accident costs over a specified amount, for instance, the vehicle insurance policy might require reporting this to the insurance company or law enforcement, depending on the cost of the damage and local laws.