Suppose an insurance company has estimated that 20 percent of all of its potential policy owners are high- cost and sets a price for their insurance policy with the understanding that 20 percent of its policy owners will be high- cost. If the true percentage of high- cost potential policy owners is 40 percent, the insurance company has set its price too ________ and will have_______ high- cost policy owners than expected.

Question

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The insurance company based its pricing on the assumption that only 20% of policy owners would be high-cost, but in reality, 40% are high-cost. This means the company has set its price too low to cover the costs of the higher percentage of high-cost policy owners, and as a result, it will have more high-cost policy owners than it expected.

Suppose an Insurance Company Has Estimated That 20 Percent of All