Question

You have been assigned a task to make the pricing policy of an insurance company Beta. How would you design the pricing strategy of its products to solve the problem of asymmetric information?

Answer 1

The problem of asymmetric information is very common and it happens because one party will be having a better knowledge of the transaction than the other party and that one party will be taking optimum advantage of that transaction

I will formulate a policy by keeping in various perspective in mind-

A. I will be trying to include terms and condition and regulation by which the insurance contracts will be covered.

B. I will also be trying to provide the consumers about various knowledge of irregularities arising in the transactions and informations about duration of the product and situations in which miss judgement can arise

C.I will also be trying to disclose the proper knowledge of the products to the consumer so that the company is not trying to take advantage of their ignorance

D.I will be trying to address a better mechanism for the consumer redressal of grievances so it will be helpful in maintenance of a fair policy towards the consumers

E. pricing of the insurance premium in line with the competitor will help the consumers to gain quality product at a optimum price

So it can be said that these all steps are needed in order to maintain a better policy in order to avoid asymmetric information existing in insurance contracts.