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

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Quizplus · Accepted Answer

Risk-assessment screening, risk-based premiums, and restrictive provisions are all insurance practices that insurance companies use to minimize adverse selection and moral hazard. Adverse selection occurs when insurance buyers have more information about their risk level than the insurance company, which means that high-risk individuals are more likely to purchase insurance. Moral hazard occurs when insured individuals change their behavior to take advantage of the insurance coverage. Insurance companies can reduce adverse selection and moral hazard by using risk-assessment screening to gather information about potential customers, setting risk-based premiums to discourage high-risk individuals from purchasing insurance, and including restrictive provisions in insurance policies to limit the behavior of insured individuals.

Insurance Companies' Attempts to Minimize Adverse Selection and Moral Hazard