An insurance company knows that in the entire population of millions of homeowners...

Question

An insurance company knows that in the entire population of millions of homeowners, the mean annual loss from fire is 

μ = $500

and standard deviation: σ = $2000.

The distribution of losses is strongly right-skewed: most policies have $0 loss, but a few have large losses. If the company sells 10,000 policies, what is the probability that it can safely base its rates on the assumption that its average loss will be no greater than $520?

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Answer 1

Hey there! I hope you find this video review and walkthrough helpful. As promised in it, I have included a couple links that go into definition and in-depth review of Central Limit Theorem as it directly relates to the problem at-hand.

Central Limit Theorem [by Scribbr] - https://www.scribbr.co.uk/stats/central-limit-theorem-explained/

Central Limit Theorem [by Statistics by Jim] - https://statisticsbyjim.com/basics/central-limit-theorem/

Happy Learning! :)