Suppose an insurance company successfully screens drivers by offering two contracts.One contract is a policy with high premiums and comprehensive coverage, and the other a policy with low premiums and $1500 excess on each claim.This means that:
A)risky drivers and safe drivers would both select the high premium contract
B)risky drivers would select the high premium contract and safe drivers would select the low premium contract
C)risky drivers would select the low premium contract and safe drivers would select the high premium contract
D)risky drivers and safe drivers would both select the low premium contract

Question

Quizplus · Accepted Answer

Risky drivers are more likely to choose the high premium contract with comprehensive coverage to minimize their out-of-pocket expenses in case of a claim, while safe drivers would prefer the low premium contract with a higher excess, as they anticipate fewer claims.

Suppose an Insurance Company Successfully Screens Drivers by Offering Two