It definitely benefits the carrier’s premium revenue in the short term.
But the counter-argument is that 'under-insurance' is a systemic risk that leads to insolvency. If a carrier collects premiums based on a $300k valuation but has to pay out on a $500k loss (due to Guaranteed Replacement Cost clauses or litigation), that loss ratio destroys the pool for everyone.
The incentive should be accurate pricing, but the market pressure to keep the sticker price low creates this dangerous gap.
But the counter-argument is that 'under-insurance' is a systemic risk that leads to insolvency. If a carrier collects premiums based on a $300k valuation but has to pay out on a $500k loss (due to Guaranteed Replacement Cost clauses or litigation), that loss ratio destroys the pool for everyone.
The incentive should be accurate pricing, but the market pressure to keep the sticker price low creates this dangerous gap.