On car insurance policies, Countrywide Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000, and it requires a driver to pay an annual premium of $500. Policy 2 features a deductible of $250, and it requires a driver to pay an annual premium of $1,000.

Question

Quizplus · Accepted Answer

Countrywide is engaging in screening by offering two different policies. The options differ in terms of deductible and premium, which allows them to attract different types of drivers. Drivers who are less risky and want to save money may choose Policy 1 with a higher deductible and lower premium, while those who are more risk-averse may choose Policy 2 which features a lower deductible but higher premium. This is not illegal price discrimination, and there is no indication that either policy is more burdensome for safe or risky drivers. The policies may signal quality, but this is not the primary aim of offering the two different options.

On Car Insurance Policies, Countrywide Insurance Company Offers Drivers an Option