Regarding the Reduction of the Impact of Moral Hazard by Insurers

question 46

Multiple Choice

Regarding the reduction of the impact of moral hazard by insurers, which of the following is true?

• A) It is not possible for insurers to reduce the risk of moral hazard, and this is seen as a risk of doing business.
• B) Insurers refuse to pay claims believed to result from the effects of moral hazard.
• C) The only avenue for insurers seeking to reduce moral hazard is through the use of deductibles.
• D) The only avenue for insurers seeking to reduce moral hazard is through refusing to insure those who have previously made multiple insurance claims.
• E) Insurance companies lessen the impact of moral hazard by requiring that individuals with insurance make co-payments or pay a deductible.

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Definitions:

Average Rate Of Return Method

An investment appraisal technique that calculates the expected return of an investment by averaging its annual profits and dividing by its initial cost.

Net Present Value Method

A method used in capital budgeting and investment planning that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Net Present Value Method

A financial analysis tool used to determine the attractiveness of an investment by calculating the present value of its future cash flows.

Present Values

The present-day worth of a future sum of money or continual cash flows, using a particular rate of return for calculation.