I
iActuary
Member
Hi all
I still don't understand why underinsurance is a kind of moral hazard even after reading the explanation in the note (see Chapter 2 - 1.3) for a few times.
To my understanding, if the policyholder chooses a policy with sum insured of $20,000, the maximum amount that the insurer will need to pay is capped there. Accordingly, the insurer should charge a lower premium. What's wrong here?
Does anyone have other explanations on this term?
Thank you!
I still don't understand why underinsurance is a kind of moral hazard even after reading the explanation in the note (see Chapter 2 - 1.3) for a few times.
To my understanding, if the policyholder chooses a policy with sum insured of $20,000, the maximum amount that the insurer will need to pay is capped there. Accordingly, the insurer should charge a lower premium. What's wrong here?
Does anyone have other explanations on this term?
Thank you!