Petra has an automobile accident and finds that as a result her auto insurance premium will increase by 25%. This is an example of an adjustable premium that insurance companies often use as a mechanism to combat

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Adjustable premiums, like the increase in Petra's auto insurance after an accident, are used to combat moral hazard. Moral hazard occurs when individuals take more risks because they are insured, knowing that the insurance will cover the costs of their actions. By increasing premiums after accidents, insurance companies discourage risky behavior and encourage safer driving practices.

Petra Has an Automobile Accident and Finds That as a Result