In the question, its given that if there is one claim. it goes one discount below and more than 2 claims 2 discount rate below. Since p(0,0) is 0% discount level. This the lowest discount level possible. So probability is .075+.025=.1 Similar for P(1,0) were the discount level is 20%, so a person can come maximum of 0% discount level. Draw a diagram and do the matrix, you might understand. Any more help on this?
