Hong Kong University of Science and Technology has contracted with HSBC Insurance to provide medical insurance...

 

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Hong Kong University of Science and Technology has contracted with HSBC Insurance to provide medical insurance to all university employees. Medical insurance covers the cost of the treatment and prescriptions necessary for the insured party to recover from an illness or accident. (a) Explain the asymmetry of information between the insurer and the University employ- ees. (b) How does a group policy, covering all employees of an organization, mitigate adverse selection for the insurer? (c) Unlike falling sick or meeting with accidents, in many cases, women voluntarily enter into pregnancy. Explain why HSBC covers pregnancy as part of the basic coverage, rather than as an option. Hong Kong University of Science and Technology has contracted with HSBC Insurance to provide medical insurance to all university employees. Medical insurance covers the cost of the treatment and prescriptions necessary for the insured party to recover from an illness or accident. (a) Explain the asymmetry of information between the insurer and the University employ- ees. (b) How does a group policy, covering all employees of an organization, mitigate adverse selection for the insurer? (c) Unlike falling sick or meeting with accidents, in many cases, women voluntarily enter into pregnancy. Explain why HSBC covers pregnancy as part of the basic coverage, rather than as an option.

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Part A Asymmetric information in insurance its a marke... View the full answer