In the insurance business, the moral hazard problem arises when
A) not-so-healthy people are the ones more eager to buy insurance.
B) people with unhealthy lifestyles buy more insurance coverage.
C) people who have car-insurance coverage drive less carefully.
D) people do not get suﬃcient car-insurance coverage.

Question

Quizplus · Accepted Answer

Moral hazard in insurance refers to the phenomenon where individuals engage in riskier behavior because they are insured. In this context, option C accurately describes a situation where people who have car insurance might drive less carefully, knowing that their insurance will cover potential damages.

In the Insurance Business, the Moral Hazard Problem Arises When