An insurer would certainly require the town drunk to undergo a medical examination before issuing a policy. From my experience in underwriting, no insurer would touch him - or, at the very least, the sum insured that the insurer would be prepared to offer would be **very ** low, and hedged with lots of policy exclusions.
The decision in Australia to remove the requirement for insurable interest was based on consideration of the following issues:
-
it was no longer seen as an effective protection against the risk of moral hazard. Analysis of murders in Australia showed that, in most cases, the murderer has, or did have, an insurable interest in his victim. It was felt also that the criminal law provided sufficient protection against the possibility of the murder of a life insured by a policyholder.
-
the requirement for insurable interest could be circumvented easily anyway via the assignment of a policy, immediately after inception, to a third party.
-
enforcement of the insurable interest requirement is reliant on the willingness of insurers to deny claims under policies taken out by people who lacked interest. The experience of Australian insurers suggested that they generally did not deny claims on these grounds.