Title: Part II: Insurance Questions

Contents
1. An actuary says, “When an insurance firm fails to classify policyholders based on their risk level and thus face adverse selection problems, it cannot offer a full coverage contract to low risk policyholders.” Do you agree?
2. Jack says, “A general insurance contract must be renewed by the insurer on the same terms as when the original policy was issued.” Discuss why this statement is incorrect and how the ‘correct statement’ is related to the duty of disclosure that policyholders have at the renewal of general insurance policies.
3. An insurance agent says, “Policyholders can be better off by limiting the claim notification period (i.e., policyholders’ obligation to submit claims within a specified time period from the loss occurrence).” Do you agree?
4. A representative of consumer organizations says, “Warranties in insurance contracts would enhance the insurer’s profits. To protect policyholders’ interests, we should seek a way to force insurance firms to give up the use of warranties.” Do you agree?
5. Explain why the insurer may not be willing to provide underinsurance policies (i.e., the sum insured is less than the actual value of the insured subject matter) and why the average clause (i.e., co-insurance) incentivizes the applicant to elect a full coverage.
6. Discuss why the principle of indemnification can alleviate moral hazard problems of policyholders.

Total Number of Words: 818 (approximately 2.7 pages )