Business, 06.04.2020 16:59, denaeyafranklin8430

1: Ellis Company owns a small office building worth $300,000. Cameron is the risk manager. Ellis faces the risk of fire which would completely destroy their building. The probability of a fire is known to be 3%.

Cameron is considering the following risk management options to address the risk of fire to their building:

a. Retention
b. Full Insurance for a premium of $10,000
c. Safety Program & Retention
d. Safety Program & Full Insurance (premium falls to $8,000)
The cost of the Safety Program is $1,500. It has the impact of lowering the probability of a fire from 3% to 2%. However, if a fire does occur, it is still a full loss.

Imagine the federal government instituted a $1000 "mandate" for full insurance. That is, Ellis Company must pay a penalty of $1000 if they do not purchase full insurance. How would this affect Cameron's PMAX?

Answers: 2

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1: Ellis Company owns a small office building worth $300,000. Cameron is the risk manager. Ellis fac...