Why insurance company dislikes market value accounting?

Answer 1

Insurance Companies do not generally insure market value when it comes to personal property lines. Market Valuated Insurance policies are most often found in Commercial Insurance Lines, they require a more complicated rating system which may need to take into account current and or future markets conditions. These variables make Market Valuated Insurance Lines much higher risk. Insurance company personal line policies are designed to protect the insured's "Actual Value" or "Replacement Value", Not the "Market Value". Insurance contracts are designed to "Indemnify" the claimant after a covered loss, not to enrich them. an Enrichment approach to an insurance contract fosters insurance fraud. Under most current Insurance statutes in the United States any enrichment of a claimant beyond legitimate losses could be construed as fraud. Market Values are indefinite, they fluctuate with supply and demand as well as all other economic and emotonal factors, Market values can change daily or even hourly making it difficult to quantify a risk. Actual Value and Replacement Value do not suffer these problems. and actual or replacement value should be comensurate with you property investment or you may be over paying, Unless of course you are a speculator. Actual Value can be more or less than the Market Value, due to the wide swings in the market. Actual Value and Replacement Value prove to be a steady and reliable method of providing indemnification.