Three Cost Drivers Are Used to Estimate the Cost of Processing

question 38

Multiple Choice

Three cost drivers are used to estimate the cost of processing insurance claims.The cost drivers are: (1) claim amount,(2) age of vehicle in accident and (3) age of driver in accident.The percentages attributable to the cost drivers are 50% for claim amount,and 15% for each of the other two cost drivers.What is the cost to process Claim #101? The claim amount is $1,000.The age of the vehicle is 5 years.The age of the driver is 20 years.

• A) $3.00
• B) $3.75
• C) $500
• D) $503.75

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Definitions:

Variable-Rate Loan

A loan in which the interest rate can change over time, based on an underlying benchmark interest rate or index.

Interest Rate Cap

A financial derivative contract that limits the maximum interest rate a borrower has to pay on a variable-rate loan.

Futures Contracts

Standardized agreements to buy or sell a commodity or financial asset at a future date and price.

Hedge

An investment strategy used to reduce risk by taking positions that offset potential losses in other investments.