If insurance policies were not designed to support the principle of indemnity, then we would have fewer moral hazards in our society.

Question

Quizplus · Accepted Answer

Insurance policies are designed to support the principle of indemnity, which means that they aim to compensate policyholders for their losses rather than provide them with a profit. If insurance policies did not follow this principle, people might be tempted to intentionally cause losses in order to collect larger payouts, which would create moral hazards. Therefore, without indemnification, we may have more moral hazards in our society.

If Insurance Policies Were Not Designed to Support the Principle