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Income Insurance Protection (IPI) - Essay Example

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Part 1: Income insurance Protection (IPI) Mr. Farid v Prudent Insurance Inc. Question 1. How information asymmetry may lead to adverse selection. It is important to note that the insurance business operates under clearly outlined principles that explain the responsibilities of parties involved in an insurance cover…
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Income Insurance Protection (IPI)
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Download file to see previous pages For example, Mr. Farid in his application failed to be honest by giving false information. Given information provided by the party seeking insurance cover provides the basis upon which sum assured and premiums are based, information asymmetry will most likely result in an adverse selection. In Mr. Farid’s case, the information he gave during application showed that he is not involved in manual or outdoor duties implying that his risk profile was low. The information contradicts the one given in the claims form which actually showed that he was doing manual duties that exposed him to higher risks than that of a company director he purported to be. Based on the information provided during application, that is, Mr. Farid was involved in inspecting construction sites and training workers on health and safety awareness, it is therefore easier to understand why the insurance company ignored his heart disorder problem and granted him the cover. Had the insurance known that Mr. Farid did manual jobs with the heart valve disorder, it would have taken him as high risk client, and therefore choose a higher sum assured (Claassen, 2008). Question 2. Whether one would approve Mr.Farid application for income protection insurance Based on the information provided by Mr. ...
Question 3. Should Prudent Insurance Inc. pay or deny it? The insurance company should use its underwriter or appointed claims adjuster to investigate and verify the claims with the help of a medical practitioner to establish whether the poor health condition was work related or not. Based on the information generated, then the company can choose to compensate him in full, adjust the compensation accordingly or deny it all together. Where the poor health condition is not related the work done by Mr. Farid, the company should compensate him in full and if its work related they can adjust the compensation or deny with factual explanation. Part II: Household items insurance. Mr Green v Sun Insurance Inc. Question 1. How would the information about Mr. Green’s earlier convictions affect the insurer’s underwriting decision on Mr. Green’s application? The earlier convictions of three offences on Mr. Green would certainly have affected his application. First, he was convicted of a domestic violence which raises the possibility of a loss occurrence on household goods arising from his conduct. Secondly, his conviction for causing actual bodily harm to the police officers confirms he is a violent person increasing the propensity of a definite loss given his temperament. These two cases in point following each other would have force a company underwriter to consider Mr. Green’s application critically. Where household items to be insured are very valuable, then the underwriter can choose to abandon the application given that the probability that the company will pay a higher compensation within the cover is high. In the event that the underwriter chooses to accept Mr. ...Download file to see next pagesRead More
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