Risks faced by insurance companies include:
A)adverse selection
B)fraudulent claims
C)investment risk
D)moral hazard posed by insured individuals not taking due care to avoid an insured event.
E)All of these.

Question

Quizplus · Accepted Answer

All of these risks are commonly faced by insurance companies. Adverse selection refers to the tendency for higher-risk individuals to purchase insurance, while lower-risk individuals do not, resulting in higher overall claim costs for the insurer. Fraudulent claims can result in significant financial losses for insurance companies. Investment risk refers to the potential for losses on the insurer's invested assets. Moral hazard occurs when insured individuals act in a riskier manner because they know they are protected by insurance, leading to higher claim costs for the insurer.

Risks Faced by Insurance Companies Include