What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $1,500,000 deductible? Put this as a positive number since I am asking about "damage cost".

Question

What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $1,500,000 deductible?  Put this as a positive number since I am asking about "damage cost".

BlackTom AI · Accepted Answer

This item presents a numerical question and, unlike a multiple-choice item, does not provide a list of options to evaluate. Consequently, there are no option-by-option analyses to perform. Instead, we can outline how to approach validating the given result and what the components mean.

First, identify the target quantity: the expected total property damage cost. The prompt specifies that this should include three components: premiums, retained losses, and any additional financing or net-revenue losses, and that the final figure should be expressed as a positive number. Understanding these components helps ensure nothing is omitted in the calculation.

Second, map out what each component represents:
- Premiums: regular payments made to obtain insurance coverage, which are part of the total cost exposure even if a claim is not filed.
- Retained losses: portions of losses that exceed the insurer's coverage or the deductible that the insured must bear, or other losses kept on the insured’s books after insurance payments.
- Additional financing/net-revenue losses: any financing costs associated with funding the losses (e.g., interest, credit costs) or revenue impacts (such as cash flow delays or opportunity costs) tied to the loss event.

Third, check the calculation logic that would combine these components into a single positive value:
- Sum the premiums paid or due for the relevant period.
- Add the expected retained losses, i.e., the portion of losses not covered by insurance or within the deductible envelope, if applicable.
- Include any financing or net-revenue losses tied to the damage event, ensuring consistent sign convention (positive costs).
- Verify units and formatting (e.g., currency) and ensure the final figure is a positive number as requested.

Fourth, assess the specific numeric result provided (90,950):
- If this figure is reported as the sum of the three components described above, confirm that each component contributes nonnegative amounts and that no component has been omitted due to misinterpretation (for example, double-counting premium versus premium already expensed, or inadvertently excluding financing costs).
- If the problem context includes any probabilities, distributions, or expected values for losses, ensure these have been integrated correctly into the retained losses and financing components.

Fifth, consider potential sources of error or confusion:
- Misdefining deductible impact: with a $1,500,000 deductible, ensure retained losses reflect the portion not paid by insurance, not the total loss.
- Double-counting: avoid counting a premium both as a cost and as part of the insured value; premiums are a cost, while retained losses are a portion of loss exposure after coverage.
- Sign mistakes: all components should be added as positive cost values; negative values would indicate revenue or savings, which is inconsistent with a total cost measure.

In summary, to validate the given figure of 90,950, you would verify that it represents a proper sum of (1) insurance premiums, (2) expected retained losses beyond the deductible, and (3) any related financing or net-revenue losses, all expressed as a positive currency amount. If these criteria are met and the arithmetic is correct, the result is consistent with the question’s instruction to present the total damage cost as a positive number. If any component is missing or double-counted, the figure would need adjustment accordingly.

SP25 RMI 660 001 Homework 1: Decision Tree

What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $1,500,000 deductible? Put this as a positive number since I am asking about "damage cost".

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