Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words,the automobile insurance market is subject to

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Moral hazard occurs when one party, in this case, the insured, has an incentive to act in a way that increases the likelihood of a loss because they are insured against the consequences of that loss. This leads to the problem of reckless driving or taking less care to avoid losses, which can increase costs for insurance companies. Asymmetric information, market signaling, and adverse selection do not fully address this particular problem in the automobile insurance market.

Automobile Insurance Companies Have a Problem with People Who Buy