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

The moral hazard problem in insurance refers to the phenomenon where individuals engage in riskier behavior or are less careful because they are insured. In this context, option C accurately describes a situation where people who have car insurance coverage might drive less carefully, knowing that any damages would be covered by their insurance.

In the Insurance Business, the Moral Hazard Problem Arises When