Insurance Policies - Coursework Example

? Insurance Policies. Part II: Income protection Insurance (IPI) Question one. Information asymmetry has been elaborated as the circumstances in which one party of a contract or a deal possesses more information than the other party. It could lead to harm on one individual should the other party take advantage of the situation. In our case, the insurer posed questions like “do you do outdoor or manual duties?” The response from Mr. Farid was no but an analysis from the claim forms reveals otherwise. A further analysis in the case study reveals that Mr. Farid does not deny the answers he gave. He had stated he is the Manager and added that his work entailed inspection of construction sites and training of workers. With this information, the insurer still went ahead to insure him under non-manual work. A look at his medical health reveals a heart disorder which puts Mr. Farid at more risky state of leaving his employment. This analysis reflects on asymmetric information where full disclosure of the duties undertaken by Mr. Farid is not given. This led to adverse selection of Mr. Farid because the heart disorder deteriorated leading to employment forfeiture (Amy, 2007). The outdoor activities were the majority of tasks that Mr. Farid did. Prudent Insurance Inc. would not have given the income policy to Mr. Farid had the information about his activities been clearly outlined. Question 2 As an underwriter, I would not approve the claim from Mr. Farid. This is because the insurer should have assessed the kind of work Mr. Farid undertook on a daily basis of which he forfeited to do. A risk assessment would reveal his work jeopardizes his health condition further let alone the construction inspectorate job. There was very high risk of Mr. Farid losing his job based on his health. Mr. Farid had explained in his response that he also did construction inspections exposing him to activities like climbing ladders, lifting small items as a demonstration etc. The insurer ought to have done an observation of the daily activities to assess the work before issuing the policy. The heart disorder predisposes Mr. Farid to loss of his employment or forfeiture due to the kind of work he undertook. In light of this, the insurer should have assessed the daily duties to determine at what rate the disorder would have deteriorated. This is not measurable but an estimate would have been made. His age should have been put in consideration with the health status in mind (Thummuluri, 2010). Question 3 As an insurer, I would deny the claim. This is because the claim form clearly depicts the breach of the contract signed between the two parties. His work entailed office work and inspection of constructions and training. These kinds of duties would have delayed the health condition outburst. The claim clearly states lifting heavy items and further carrying these items. These are way off the inspection duties that entail a review of work done, work in progress, review of remaining work, budget analysis and further deduce necessary reports. His sentiments do not depict compliance with what his duties entails. Though he exaggerated the number of hours for each activity, this does not change my stand. He was not supposed to do these strenuous duties ab initio. Although his claim of loss of income is substantial, this is out of the context of disclosure of his work. Part II: Household items Insurance Question 1: Mr. Green’s earlier conviction would affect the underwriter decision by refuting or denying the policy. The acts of violence are not insured against in this kind of a policy. The policyholder stands at a risk of seizure of his goods or damage during the violent acts. A claim from the police department may necessitate auction of household goods if he cannot settle the damages inflicted in the violence. This insurance policy covers against loss of household items from fires, floods, or natural disasters. The violent acts predispose unforeseen loss to the Insurance Company. Full disclosure of such behaviours in the past would lead to a cancelled application for Mr. Green. Question 2: An analysis of the information withheld in relation to application selection by the broker, led to Mr. Green’s application approval. The insurance company relies on the word of the policyholder when assessing claims. The insurance company has an obligation and is under the mandate to check the legitimacy of the information provided by the individual before giving the policy. Sun Insurance Inc. failed to assess the information provided by the broker and acted on it in good faith. On the other hand, Mr. Green provided the information to the broker therefore an assumption was made that full disclosure was made. The insurance company should pay the claim to Mr. Green as there was full disclosure on his part but misrepresentation from the broker. The insurance company should sue the broker for damages it has incurred. Incomplete client forms are regarded as though the missing information is nil. In our case, Sun Insurance Inc. must have assumed that Mr. Green doesn’t involve himself in violent acts that possess a risk in loss of his household. Acting upon this, they issued the claim on a misrepresentation (Robert & Henry 2006). Claims made by Mr. Green following current violent act would be disputed by the insurance since the word of mouth does not hold here. On the contrary, the insurer should have obtained information from the client himself (Jack, 2010). Negligence on the part of the insurer causes damages in this case. Mr. Green has a legal claim against Sun Insurance Inc. since he was not at fault in delivering information. The adverse selection of Mr. Green as a policy holder would have been avoided if the insurer assessed the risk of loss of the household items. He should have analysed and measured the potential risk and further raise the premiums payable by the policyholder to cover the risk. The claim will have to be settled on unfair grounds due to adverse selection. The broker did not comply with the code of ethics in insurance regulation thus amounting to losses to Sun Insurance Inc. References Amy, F., James, M. P., National Bureau of Economic Research, 2007, adverse selection in insurance markets: policyholder evidence from the U.K. annuity market, adverse selection in insurance markets: policyholder evidence from the U.K. annuity market, National Bureau of Economic Research, Michigan, United States. 8-10 Jack, H., 2010, Insurance for Dummies For Dummies, 2nd Ed. John Wiley & Sons, United Kingdom. 1 Robert, R. &Henry, J. L., 2006, Insurance, principles and practices5th Ed. Prentice-Hall, California, USA. 28-36 Thummuluri, S., 2010, Financial Service, Pearson Education India. California, America. 309-311 Read More