The use of coinsurance clauses and deductibles is an attempt by insurance companies to deal with the problem of:
A) non-payment of premiums.
B) adverse selection.
C) insufficient government regulation.
D) moral hazard.

Question

Quizplus · Accepted Answer

Coinsurance clauses and deductibles are mechanisms used by insurance companies to mitigate the problem of moral hazard. Moral hazard occurs when the behavior of the insured party changes in a way that increases the likelihood or potential cost of a claim because they are protected by insurance. By requiring the insured to bear a portion of the risk (through deductibles and coinsurance), insurers encourage more cautious behavior, reducing the risk of claims resulting from careless actions.

The Use of Coinsurance Clauses and Deductibles Is an Attempt