Final answer:
Bob's request to have insurance claims paid to Scott is restricted by the Assignment condition. Insurance policies cannot be reassigned without the insurer's consent, mainly due to the personal nature of insurance contracts and the need for proper risk assessment and underwriting for the new policyholder.
Step-by-step explanation:
Bob cannot assign the insurance policy simply to Scott because insurance policies are subject to a condition known as Assignment. The Assignment clause in insurance policies states that the policyholder cannot transfer their rights or interest in the policy to another party without the insurer's consent.
The reason behind this condition is that insurance contracts are personal in nature and the insurer must agree to assume the risk of the new policyholder. In this case, Scott may need to be underwritten anew to determine the appropriate premium and conditions for coverage.
Concerning broader industry practices, if insurance companies attempt to charge an actuarially fair premium to the entire group rather than individual risk groups, they might face adverse selection. Over time, it's necessary that the average amount received in claims cannot exceed the average amount paid in premiums.
This balance is essential to the business model of insurance companies. When state regulators set low premiums through legislation, companies may choose to avoid insuring higher-risk parties or withdraw from certain markets completely to avoid unsustainable losses.