A watercourse named "Buffalo Bayou" runs through the city of Houston, Texas from east to west, passing through residential and industrial areas and the edge of the tall buildings of downtown. In the residential area, the Bayou is surrounded by a wide park, and the level of the water is typically 20 feet below the level of the streets around it. The river has overflowed its banks and caused ground-floor damage to residences nearby; most recently in 1999 and 2015. The bayou has flooded 10 times in the last century. You are an insurance adjuster, and have just paid a claim for $20,000 (the maximum allowed in the policy) for a homeowner's loss. The homeowner is upset and says "My flood premium has been $2,000 since the flood of 1999, and now you're paying me only $20,000 back? I think my premium is too high!" Explain to the homeowner why the premium is appropriate.

Question

A watercourse named "Buffalo Bayou" runs through the city of Houston, Texas from east to west, passing through residential and industrial areas and the edge of the tall buildings of downtown. In the residential area, the Bayou is surrounded by a wide park, and the level of the water is typically 20 feet below the level of the streets around it. The river has overflowed its banks and caused ground-floor damage to residences nearby; most recently in 1999 and 2015. The bayou has flooded 10 times in the last century. ​ You are an insurance adjuster, and have just paid a claim for $20,000 (the maximum allowed in the policy) for a homeowner's loss. The homeowner is upset and says "My flood premium has been $2,000 since the flood of 1999, and now you're paying me only $20,000 back? I think my premium is too high!" ​ Explain to the homeowner why the premium is appropriate. ​

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The Answer of A watercourse named "Buffalo Bayou" runs through the city of Houston, Texas from east to west, passing through residential and industrial areas and the edge of the tall buildings of downtown. In the residential area, the Bayou is surrounded by a wide park, and the level of the water is typically 20 feet below the level of the streets around it. The river has overflowed its banks and caused ground-floor damage to residences nearby; most recently in 1999 and 2015. The bayou has flooded 10 times in the last century. ​ You are an insurance adjuster, and have just paid a claim for $20,000 (the maximum allowed in the policy) for a homeowner's loss. The homeowner is upset and says "My flood premium has been $2,000 since the flood of 1999, and now you're paying me only $20,000 back? I think my premium is too high!" ​ Explain to the homeowner why the premium is appropriate. ​

A Watercourse Named "Buffalo Bayou" Runs Through the City of Houston