Question

Why do consumers value insurance and why and how do governments intervene in insurance markets? What are the benefits of government intervention?

Answer 1

The consumers do their valuation of different insurance or insurance products. This valuation they do because of the consumer pay a certain amount of premium against every insurance products or insurance. When the consumer pay this premium then try to valuate what is the amount the consumer can get in terms of insurance products or insurance amount.

The government intervene in insurance market because of various reasons. One is some times private insurance company may not give the valuation of insurance products as it should give and sometimes they do not give the valuation of insurance in such a way as it should give. Second the government force or make rules and regulations to reveal and disclose about different insurance products and their prices. This helps to know about the different insurance to government and public. Third is they try to regulate the insurance market. Any company of the insurance market are controlled by the regulatory body.

The benefits of the government is through regulating and intervening the government can reduce the chances of adverse selection of different insurance company or consumers. It makes the market more competitive and efficient. Second is government intervene increase the overall welfare of the society. This government intervene ultimately helps to consumer as well as to insurance company. The government intervention also reduce the chances of existence of insurance company which fodo not operate in the market effectively.