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What is the fair premium

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Fred and Betty face identical and independent risks of having $1852 of loss with probability 0.3 (no loss, otherwise). While Betty truthfully reports her loss to the insurer, Fred intends to file a fraudulent claim (i.e., filing a claim regardless of the actual loss). The insurer recognizes the possibility of a fraudulent claim but it does not know who will do so (i.e., the insurer offers an identical policy to Fred and Betty). If the insurer offers a full coverage policy to both of them, what is the fair premium that each of them pays?

Reference no: EM132613576

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