Actual insurance premiums charged by insurance companies may exceed the actuarially fair rates because:

Question

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Insurance companies have to charge premiums not only to cover the expected losses but also to cover the administrative costs and other expenses associated with providing insurance. These expenses include the cost of processing claims, underwriting, marketing, and maintaining reserves. Therefore, the actual premiums charged are likely to exceed the actuarially fair rates. Choices A, B, and D are not accurate as they do not represent the main reason for the higher insurance premiums.

Actual Insurance Premiums Charged by Insurance Companies May Exceed the Actuarially