Over-insurance
in Chev.Agric
On page 5, point 3 of the key elements of the regulations, it says that it should not result in over-insurance.
I'm not sure what this means in terms of agricultural production insurance. Could you give an example for it please?
Thank you,
Comments
I'm out of town for about 10 days, and the reading on agricultural insurance is not available online, so I can't check the reference you provided for page 5, point 3. But I believe that answer is as follows:
Recall the exam problem 2016.Spring # 8c. (This is solved in the wiki article.) We were given a probable yield of:
The indemnity for the producer was then calculated as $6,511.
But suppose that during underwriting the producer had instead provided to the insurer a probable yield of:
The indemnity would have been $47,150, much higher than the $6,511 calculated previously. This is an example of the producer purchasing over-insurance.
The true probable yield was 584 kg/acre, but the producer exaggerated it to 2,000 kg/acre, which did not reflect demonstrated production capability. The producer likely knew this, but purchased this over-insurance as a way of supplementing their income. (Theoretically, the insurer, would charge an appropriate premium for this higher probable yield, but the point is that there is no way that production level could be met, and that this amounts to trying to game the system.)