Unrestrained price competition does not work in the insurance market because prices have to be determined long before final costs are known.

Question

Quizplus · Accepted Answer

Insurance companies have to determine prices before final costs are known, because they need to have financial stability and be able to pay out claims when they arise. Also, insurance is based on pooling of risks, so if a company were to engage in unrestrained price competition, it could lead to underpricing of premiums and financial instability for the company. Therefore, there are regulations in place to prevent price gouging and unfair pricing practices in the insurance market.

Unrestrained Price Competition Does Not Work in the Insurance Market