What Is One Way Insurers Address Moral Hazard (Hidden Action)problems

question 1

Multiple Choice

What is one way insurers address moral hazard (hidden action) problems to align the interest of the insured with the insurer?

• A)Underwriting all applicants for insurance
• B)Charging lower premiums for riskier ventures
• C)Performance based incentives (i.e. linking premiums to presence of fire detectors)
• D)Insuring different parties from the same industry
• E)Require full disclosure of all information (i.e. health status prior to issuing an income annuity)

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Definitions:

Auditory Canal

The tube that runs from the outer ear to the middle ear, which sound waves travel through to reach the eardrum.

Eardrum

A thin membrane that separates the outer ear from the middle ear and vibrates in response to sound waves, facilitating hearing.

Cochlea

The cochlea is a spiral-shaped, fluid-filled inner ear structure responsible for converting sound waves into nerve impulses that are interpreted by the brain as sound.

Ossicles

The three tiny bones in the middle ear known as the malleus, incus, and stapes, crucial for the transmission of sound vibrations to the inner ear.