What does the Overinsurance Regulation prohibit?

The Overinsurance Regulation is designed to prevent the practice of insuring a property for more than its actual value, which is referred to as overinsurance. This regulation aims to maintain fairness and accountable practices within the insurance industry. When a property is insured for an amount that exceeds its true market value, it can lead to moral hazards where the insured may not take as much care in preventing loss or damage because they stand to gain more from a claim than the actual loss incurred. Thus, this regulation serves to protect both insurers and insureds by ensuring insurance policies reflect the true value without creating an incentive for fraudulent claims.

Insuring a property for its actual value, underinsuring properties, or adjusting the insurance value annually do not violate the concepts regulated by this law, as they either represent responsible insurance practices or are neutral in terms of potential moral hazard.