One way of screening in the automobile insurance market is for companies to
A) offer policies with different deductibles and different premiums.
B) insure only careful drivers.
C) insure only risky drivers.
D) eliminate policies with no-claim bonuses because these policies are usually not profitable.
E) offer warranties.

Question

Quizplus · Accepted Answer

Offering policies with different deductibles and premiums allows insurance companies to cater to a wider range of customers with varying levels of risk tolerance and financial capabilities. This screening mechanism helps to differentiate the level of risk associated with each customer and set premiums accordingly. Insuring only careful or risky drivers may lead to adverse selection or high costs for the insurer, respectively. Eliminating policies with no-claim bonuses may also discourage safer driving behavior. Offering warranties is not a screening mechanism for automobile insurance as it primarily applies to the sale of new vehicles.

One Way of Screening in the Automobile Insurance Market Is