A motor insurance policy has a base premium of N120,000. For high‑risk drivers a loading factor of 15% is added, followed by an administrative charge of 5% on the loaded premium. A policyholder tax of 2% is then applied on the sum of the loaded premium and the administrative charge.
(a) Compute the final premium payable by a high‑risk driver.
(b) If the probability of a claim in the year is 0.08 and the average claim cost is N250,000, determine the insurer's expected profit for this policy (assume the insurer's only cost is the expected claim payout).

Question

A motor insurance policy has a base premium of N120,000. For high‑risk drivers a loading factor of 15% is added, followed by an administrative charge of 5% on the loaded premium. A policyholder tax of 2% is then applied on the sum of the loaded premium and the administrative charge. 
(a) Compute the final premium payable by a high‑risk driver. 
(b) If the probability of a claim in the year is 0.08 and the average claim cost is N250,000, determine the insurer's expected profit for this policy (assume the insurer's only cost is the expected claim payout).

Accepted Answer

Final premium: N147,798; Expected profit: N127,798

Waec Model Questions Vol1 2025 Commerce Question 9

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