Consider an auto insurance policy that for a period of five years would guarantee annual renewal...

Consider an auto insurance policy that for a period of five years would guarantee annual renewal to the policyholder at the same premium rate the insurer charges to drivers that have not had accidents or tickets. In other words, the contract would guarantee the policyholder against rate increases that otherwise would occur from a poor driving record. Do you think that people would be willing to pay enough for this contract to allow the insurer to cover expected costs over the life of the contract? Explain.

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Expert Solution

There will be a very heavy insurance price which has to be paid by the individuals to have this type of guaranteed renewable policy due to the adverse effect involved in it and thus a regular premium has to be paid by the insured individual as per his or her driving behavior.

The majority of individuals will like to go for the policy which facilitated improved incentives for safety and security and have the lower values of the premiums to be paid.

keosha answered 1 year ago

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