Most states require car owners to provide evidence that they have auto insurance when they register their cars and obtain license plates.For the sellers of insurance policies,this may help to limit the severity of the:
A) information asymmetry.
B) moral hazard problem.
C) signaling problem.
D) adverse selection problem.
E) Akerlof problem.

Question

Quizplus · Accepted Answer

Requiring that car owners provide evidence of auto insurance helps to limit the adverse selection problem for insurance sellers. Adverse selection occurs when individuals with a higher likelihood of making a claim on their insurance policy are more likely to purchase insurance, which can lead to higher costs for insurance companies. By requiring proof of insurance, insurance sellers can ensure that those who are purchasing insurance are not doing so solely because they anticipate making a claim.

Most States Require Car Owners to Provide Evidence That They