Hw pt1 wk3 Assignment Example | Topics and Well Written Essays - 250 words

Hw pt1 wk3 - Assignment Example The other reason for the choice of insurance companies not to offer flood insurance is that they have to research on risks of floods and if they offer flood insurance, they have to set premiums at equilibrium with expected loss. Frequent floods make payments of premiums frequent leading to zero insurance, except for high end clientele who can afford to pay high premiums. Insurance in the United States and United Kingdom exist only owing to funds and subsidization but runs at a loss. There are two reasons suggested for Canada to adopt cross-subsidization scheme. The first reason is the belief by people that they are covered for floods yet in reality they are not, which hurts the insurance industry’s image. Secondly, it will provide growth opportunities owing to the fact that the insurance industry is a mature industry. Cross-subsidization entails payment of premium by non-risk homes but may result in moral hazard including building homes in high risk areas because they are insured. Watson, William. William Watson: Why universal flood insurance is a bad  idea. July 4, 2013. Retrieved from http://opinion.financialpost.com/2013/07/04/william-watson-why- universal-flood-insurance-is-a-very-bad-idea/ on February 19, 2014.