Final answer:
Statutory Conditions are set out in the Provincial Insurance Act, defining the terms for state financial assistance in policy areas. They are an example of government intervention in insurance markets, aimed at maintaining market stability and preventing adverse selection while recognizing the limitations on mandating insurance sales to high-risk individuals.
Step-by-step explanation:
Statutory Conditions are typically set out in the Provincial Insurance Act. They dictate the terms and conditions state governments must meet in order to qualify for financial assistance in a specific policy area. These conditions ensure that certain minimum standards are met and that the policies are implemented in a consistent manner across different areas.
One common example of a government intervention in insurance markets is the requirement for car owners to purchase auto insurance, and for homeowners to have homeowner's insurance. This legal requirement to purchase insurance helps to prevent adverse selection by ensuring that insurance companies can set prices based on an average for the market rather than having to account excessively for high-risk individuals avoiding insurance. However, insurance companies are not obligated to sell insurance to high-risk parties at low costs, thus they maintain measures to manage their risk exposure.
In conclusion, while insurance companies are regulated and may be required to follow certain Statutory Conditions, they are not forced to take losses by providing coverage at prices that are not actuarially fair. If premiums are set below this level, the difference must be made up by taxpayers or other insurance buyers. This prevents a long-term burden on insurance companies that could lead to financial instability.