Which statement describes a principle of the insurance industry?
A)Trade in risk can produce mutual gains.
B)Diversification can increase risk.
C)Deductibles add to the problem of moral hazard.
D)Adverse selection should be used to reduce insurance costs.

Question

Quizplus · Accepted Answer

The principle of insurance is based on the idea that trade in risk can produce mutual gains. Insurance companies use premiums as a means of collecting funds from policyholders, and these funds are then used to pay claims to policyholders who have suffered losses. By pooling these funds, insurance companies are able to spread the financial risks associated with insuring large groups of people, resulting in potential gains for all policyholders.

Which Statement Describes a Principle of the Insurance Industry