Insurance companies' attempts to minimize adverse selection and moral hazard explain which of the following insurance practices?

Question

Quizplus · Accepted Answer

Insurance companies attempt to minimize adverse selection and moral hazard through all three practices: risk-assessment screening, risk-based premiums, and restrictive provisions. Risk-assessment screening helps insurers identify individuals who pose a higher risk to insure, allowing them to adjust premiums accordingly. Risk-based premiums mean that individuals who pose a higher risk will be charged higher premiums to deter them from seeking coverage. Restrictive provisions are put in place to prevent insured individuals from engaging in risky behavior that could lead to increased claims costs, such as excluding coverage for pre-existing conditions. All three practices work together to prevent adverse selection and moral hazard, which can drive up costs for insurers and ultimately result in higher premiums for customers.

Insurance Companies' Attempts to Minimize Adverse Selection and Moral Hazard