After Hurricane Katrina,there was considerable public outrage that many of the properties were not insured against flooding although they were insured against wind damage.What might explain these different approaches to insurance?
A) The risk of wind damage is potentially diversifiable, but the risk of flooding is not.
B) The risk of flood damage is potentially diversifiable, but the risk of wind damage is not.
C) predatory insurance policies
D) Neither the risk of wind damage nor the risk of flooding is diversifiable.

Question

Quizplus · Accepted Answer

Wind damage is a risk that can potentially be diversified through geographic diversification, i.e., insuring properties across a broad geographic area to mitigate losses from a single event. On the other hand, flooding is a risk that is not easily diversified, as it is often caused by a widespread event affecting a large area. As a result, flood insurance tends to be more expensive and less widely purchased.

After Hurricane Katrina,there Was Considerable Public Outrage That Many of the Properties