Aspects of asymmetric information that may lead to unattractive pricing of the insurance of an iPad for the average customer
Insurance is a business where you bet you will break your toys and insurance companies bet you won’t – and that insurers have the stats on their side. Many insurance companies have the issue of setting a price to be affordable and attractive for costumers. They also tend to provide different packages to cover different customer with different risk-aversion. In the midst of this problem for insurance companies because of charging fees on iPad, this essay will consider both Adverse Selection and Moral Hazard Problem in detail, so that the fellow audience can know about how they may lead to the high pricing of the insurance of an iPad.
The term ‘Moral Hazard’ is widely used to describe the tendency for insurance plans to encourage behavior that increases the risk of insured loss (Dembe & Boden, 2000). The lack of information between buyer and seller arising the Moral Hazard problem is that the insurance company does not know how probable paying the cost of damage is. Otherwise, the seller almost never knows the buyer’s preferences, nor the maximum price he or she would be willing to pay to acquire it. The same situation holds for the buyer in a sense that it is in general unlikely to have much information about the seller’s production technology or marginal costs. Most of the time, however, this asymmetry is irrelevant (Chiappori, Jullien, Salani´e, & Salani´e, 2004).
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Insurance companies have a difficult situation recognizing the factors affecting the riskiness of the insurance, for the factors are unobservable. As we mentioned, this effect referring Moral Hazard problem, makes the issuers charge more money to compensate the risk of paying the cost of damage. That is the reason why we see the unattractive pricing of the insurance of
Bernd C Kieseier, and Hans-Peter Hartung. Also used for this paper was the article “The risk of
A positive aspect of this mechanism is that it adds in a middle man, controlling and regulating insurance, minimizing risks of adverse selection for both the insurance company and the customer. When insurance is distributed by private companies, adverse selection occurs and companies refuse insurance to high risk groups and institute costly underwriting practices to others (Heath, 123). In addition to preventing adverse selection, this insurance mechanism provides all individuals with the basics of care. As of 2011, it was reported that 100% of the Canadian population was covered under the public health insurance (Nationmaster). Unfortunately, the public insurance mechanism has
In this scenario, assume one is not satisfied with their home insurance options. They hear about a new probabilistic insurance option where they pay half the regular premium. The catch is if damage occurs to the house on an odd day of the month then they would pay the other half of the premium, but the losses would be covered. On the other hand, if the damage were to occur on an even day of the month, then they would not have to pay the other half of the premium, but their losses would not be covered (Kahneman & Tversky, 1979). Predictably, most people, 80 out of 95, would not choose the probability insurance option, as it is rather unappealing (Kahneman & Tversky, 1979). That being said, expected utility would imply the probabilistic insurance option is the superior option, thus demonstrating issues and concerns with its
Outrageous insurance is understandable because of the distrust of today's society. Insurance companies are a parachute to catch you when something bad happens, so you do not fall into deep debt. Like
There are a variety of options chosen that determine an individual’s insurance premium. One option in determining cost are the controllable factors individuals choose when...
Insurance companies exist to make money. They are not concerned with your needs which include great coverage at an affordable price. Their agenda consists of offering superfluous offers, causing you as a customer to lose money on frivolous items that won’t ever benefit you.
Insurance is as ancient as Babylon. The first policy dates back to 2100 B.C.; specifically, it is the Code of Hammurabi. A loan from a trader made certain his valuable cargo traveled safe from the harm of thieves or storms (Marples). The term changed drastically through the ages, and insurance is now a mess of premiums, tiers, and co-payments. It may most commonly be known as a negative number on a check stub that ensures health and safety. There exists not one company that covers everything on just one plan, but a step forward may change that.
Insurance is a factor in the health of Americans. Most companies are required to offer insur...
Q1) Health insurance, whether provided publically or privately, suffers from the problems of moral hazard and adverse selection? How can health insurers get around these problems?
6. The special characteristics of the U.S. health care market are Ethical and equity considerations, asymmetric information, spillover benefits, and third-party payments: insurance. Each one of these characteristics affects health care in some way. For example, ethical and equity considerations affect health care in the way that society does not consider unjust for people to be denied to health care access. Society believes that it is the same thing as not owning a car or a computer. Asymmetric information also gives health care a boost in prices. People who buy health care have no information on what procedures and diagnostics are involved, but on the other hand sellers do. This creates an unusual situation in which the doctor (seller) tells the patient(buyer) what services he or she should consume. It seems like the patient has to buy what the doctor tells him. The topic of spillover benefits also cause a rise in prices. This meaning that immunizations for diseases benefit not only the person who buys it but the whole community as well. It reduces the risk of the whole population getting infected. And the last characteristic is third-party insurance. Which involves all the insurance money people have to pay. This causes a distortion which results in excess consumption of health care services.
Rousmaniere, Peter. “Facing a tough situation.” Risk & Insurance 17.7 (June 2006): 24-25. Expanded Academic ASAP. Web. 23 March 2011.
Car insurance is a very important aspect of driving that all motor vehicle owners should look into. It is underutilised with only around 35% of all road users having had their motor vehicle/s insured. This leaves many drivers in financial debts as they are unable to pay, either the medical expenses due to a collision or the physical damage done to the vehicle, as they are not covered.
For the contrary the loading change (fee to cover the incurred administrative expenses) can be expensive. Also, the insurance sometime fails to meet demand providing limited protection, this insurance shortage can lead to ineffective insurance regulations. As well as, for consumer with minimum loss experience, their premium will be high, because their probability of loss is high.
Social problem is a broad topic, there is “No conclusive idea of what constitutes a social problem.” To define a social problem, there are generally three different ideas to define a social problem, “Something that impacts a large group; Something that the people in a society collective agree it is problematic; Something that violates a moral code.” (Logan) Healthcare has been on the spot light, because of The American Health Care Act. I’d like to present health care in United States as a social problem, because it qualify the three ideas to define social problem. First of all, it impacts a large group in the society, because of its cost. According to CDC, “28.2 million people who are under age of sixty five are insured” (CDC). Second, people in a society collective
The principle of Utility is considered as the “greatest happiness principle”. Mill defines this principle as actions are right if they tend to promote the most happiness and wrong if they tend to produce the reverse of happiness (Utilitarianism, 7). There have been many arguments against the principle of utility. People who are against this principle argue that there is no time to calculate what generates the most happiness in a given situation. Mills responds to this objection by explaining how secondary moral reasoning and the fundamental principle of morality are taken into account when deciding what promotes the most overall happiness. After explaining his argument, I believe Mill succeeds in responding to the objection, he explains why it shouldn’t be a problem when weighing the best possible outcome by using the secondary moral rule as the first principle.