Private insurance companies:

Question

Quizplus · Accepted Answer

Private insurance companies do not have perfect information about how cautious homeowners are, because they cannot observe all of the actions that homeowners take to prevent losses. This creates a moral hazard problem, where homeowners may be more likely to take risks or be less cautious since they know that any losses will be covered by insurance. Private insurance companies can attempt to reduce the impact of this moral hazard problem by setting premiums based on risk levels or offering discounts for preventative measures, but they cannot completely eliminate the problem.

Private Insurance Companies