You are the newly hired risk analyst for Smith Inc,, a food distribution company based in Nashville, Tennessee. Currently, Smith pays $1,000,000 annually in premium for workers' compensation coverage. There is no deductible. The company's broker thinks she can save a sizeable amount of money if you purchase a large deductible program with a $250,000 per occurrence deductible. Smith has 1000 employees and expects 20% losses for the coming year. The expected value of each loss is $7,500. Should Smith Company switch from its current program which costs $1,000,000 per year to the large deductible one recommended by the broker?
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You are the newly hired risk analyst for Smith Inc,, a food distribution company based in Nashville, Tennessee. Currently, Smith pays $1,000,000 annually in premium for workers' compensation coverage. There is no deductible.
The company's broker thinks she can save a sizeable amount of money if you purchase a large deductible program with a $250,000 per occurrence deductible. Smith has 1000 employees and expects 20% losses for the coming year. The expected value of each loss is $7,500.
Should Smith Company switch from its current program which costs $1,000,000 per year to the large deductible one recommended by the broker?
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