Can someone help with the following:
For simplicity, let us assume that there are two kinds of drivers. The safe drivers, who are 70% of the population, have probability 0.1 of causing an accident in a year. The rest of the population are accident makers, who have probability 0.5 of causing an accident in a year. The insurance premium is $400 times one's probability of causing an accident in the following year. A new subscriber has an accident during the first year. What should be his insurance premium for the next year?
Thanks for any help.