In order to reduce the undesirable effects of moral hazard,an insurance company can:

Question

Quizplus · Accepted Answer

All of the statements are correct and can be used to reduce the undesirable effects of moral hazard. A deductible refers to a fixed amount that the insured must pay out of their own pocket before the insurance coverage begins. By introducing a deductible, the insured has a financial stake in the outcome of the claim and is less likely to engage in risky behavior. Classifying clients into different types according to their history helps the insurance company to differentiate between high and low-risk individuals and set premiums accordingly. Rejecting the renewal of policies of those people with really bad records helps the insurer to minimize losses and discourage risky behavior. Therefore, all of these measures are effective in reducing moral hazard.

In Order to Reduce the Undesirable Effects of Moral Hazard,an