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Determine Claim Rate for Breakeven in Insurance Portfolio

Capital OneData Scientist · Onsite
MediumData ScientistOnsiteStatistics & Math

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Evaluates weather-insurance portfolio profitability from premiums, servicing, regulatory costs, and expected claims. Strong answers derive break-even claim rate, segment-selection rules, and incremental profit formulas.

Scenario

Weather-insurance portfolio profitability.

Question

Given: premium $30/month paid 12 months upfront, servicing cost $3/month, benefit cost $8 000/claim, regulatory cost $4/quarter plus $300 per claim. What claim rate yields breakeven? Four customer segments A–D have different cumulative claim risks. Which combination maximizes profit and why? After choosing segments, illustrate how adding B, C, and D changes profit compared with only A.

Hints

Compute expected value per policy; select segments with positive expected profit.